The operators are now being told that this is how the industry is likely to be. It would make sense for them to not really wait and increase tariffs meaningfully to enhance the industry economics and improve proposition for the customer and try to retain subscribers as they could, says Tarun Lakhotia, Director — Energy, Chemicals and Telecom sectors, Kotak Institutional Equities.
While the steps taken by the government are going to provide a bit of a breather for Vodafone-Idea, does this really address issues of survival and does this materially improve the company’s ability to invest and hence arrest the market share loss that they had been witnessing for the past many days?
There are three issues that Vodafone-Idea is grappling with. There is an issue with their cash flows. There are issues with their P&L and then there is an issue with their balance sheet. The announcements that the government made yesterday, addresses the cash flows situation for the next four years and possibly beyond as well.
But is there actual relief on the balance sheet front? The answer is a clear no. Is there any change in the P&L for the company? Again the answer is a no. They continue to lag behind Bharti and Jio in terms of their network capabilities and the service offerings to the customers and that does not really change for them. So, the decline in their subscriber base continues. It allows them to just remain as a player in the industry but they will still be fragile and gradually lose market share to the other two operators.
So what you are saying is that this definitely gives them a shot at survival but it only kicks the can down the road. They will still need more fund raising. They will still have to go about tariff hikes and at the same time try and protect the market share.
Absolutely. Capital infusion is, of course, required and that is required probably in a significant way because their capital deployment in the network has been quite patchy as compared to what Bharati and Jio have invested in the last few years. Incrementally, of course, as we move towards 5G, Vodafone-Idea may completely fall short on that technology evolution as well. So the only way for them, besides capital infusion, is to increase tariff in a meaningful way to stay relevant in the industry in the longer run.
Our view is that after the changes which the government has proposed, at least one thing is clear that the government wants the industry structure to be maintained as either three private players plus one PSU. In that scenario, the operators are now being told that this is how the industry is likely to be. It would make sense for them to not really wait and increase tariffs meaningfully to enhance the industry economics and improve proposition for the customer and try to retain subscribers as they could.
The one thing that yesterday’s announcements do not do is lift the overhang of high incidence of statutory levies on telcos, which continues to remain a strong industry ask.
Absolutely. There is no relief on the P&L front because of these announcements. We have a license fee and spectrum usage charge of somewhere around 11-12% across all operators. That is something which could have been reduced. The government has done away with SUC or auctions in future but for the bulk of the revenues which could be generated on the base spectrum that they have acquired over the last several years, the SUC charges and the license fees is something which these companies will have to continue to pay at the same rate. So there is nothing that changes on the P&L front.
