Policy support, fundraise may give VIL relief
But sizable tariff hike will only make ailing telecom stay afloat; If Reliance Jio manages to grab even 10% of VIL’s subscribers with the imminent phone launch, it can roil the latter’s EBITDA run rate: Report
New Delhi: Measures reportedly being mulled by the government to ease telecom industry's stress and fundraising may give Vodafone Idea (VI) the much-needed breather, but structural issue undermining the sector can be fixed only with 'sizable' tariff hike for 4G prepaid customers, says Edelweiss' report
It further observed that as VI's large liabilities are falling due and given the impending launch of JioPhone Next (whose rollout timeline has now been pushed to before Diwali), "the sooner the government measures as well as tariff hikes are rolled out, the better it is".
It is pertinent to mention here that the telecom sector has been keenly watching out for the relief package, which could include redefinition of adjusted gross revenue (AGR) to exclude non-telecom items, cut in levies such as spectrum usage charges and easier terms and conditions for surrendering radio waves to the government.
A moratorium on AGR and spectrum payments, and reduction in spectrum usage charge (SUC) and licence fee (LF) are reportedly among the key relief measures being lined up. While these steps are in the right direction, they merely shift the timing of the liabilities to a future date without addressing the key issue plaguing the business, that is, low tariffs, the report analysed.
"We believe these measures along with capital infusion may givethe company a much-needed relief. Even so, the structural issue undermining the sector can be solved only with a sizable tariff hike for 4G prepaid customers," Edelweiss said. If Reliance Jio manages to grab even 10 per cent of VIL's subscribers with the imminent phone launch, it can roil the latter's EBITDA run rate, the report said advising investors to stay invested in operators with strong balance sheets, given the overall uncertainty. Put simply, Earnings before Interest, Taxes, Depreciation and Amortisation or EBITDA is a measure of a company's operational performance.
Meanwhile, the report opined that VIL's inability to invest in the network gives Bharti Airtel and Reliance Jio room to further gain market shares. The operator has been struggling to stay afloat and analysts have sounded an alarm over potential risk of the market turning into a duopoly.