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Analysts foresee steep tariff increase to rescue Vodafone Idea

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In Short:

The struggling telecom player Vodafone Idea will benefit from a recent increase in mobile tariffs and a fund raise to overcome the current crisis. Despite investments in 5G, high capital expenditure by competitors like Reliance Jio and Bharti Airtel has kept tariffs unchanged. Vi’s future viability depends on swift network expansion and potential tariff hikes. The company plans to raise funds through a follow-on public offer and debt.

Vodafone Idea to Sail Through Crisis with Increase in Tariffs and Fund Raise

A recent sharp increase in mobile tariffs, along with a new fund raise, is expected to provide much-needed support to struggling telecom player Vodafone Idea during the current crisis.

Current Market Situation

Despite heavy investments in 5G technology by telecom giants like Reliance Jio and Bharti Airtel, mobile tariffs have remained stagnant. Analysts from Ambit Capital reported a 20% increase in mobile tariffs in December 2021.

Vodafone Idea has secured funding to enhance its 4G services, introduce 5G capabilities, and improve its market position. However, the company still faces challenges in meeting its spectrum and AGR payments unless tariffs rise significantly.

Predictions and Strategies

According to Antique Stock Broking, there might be a 15-17% increase in telecom tariffs post-elections. Ambit Capital highlighted that Airtel and Jio have capitalized on Vodafone Idea‘s struggles, leading to minimal revenue growth for VI.

The market dynamics may shift with the potential introduction of separate tariff plans for 5G connectivity by Airtel and Jio, aiming to boost average revenue per user (ARPU).

Vi’s Future Plans

Vodafone Idea intends to raise Rs 18,000 crore through a follow-on public offer (FPO) and an additional Rs 25,000 crore through debt financing. The company has also approved raising Rs 2,075 crore through a preferential share issue.

Vi’s survival and competitiveness are secured until September 2025, post the government’s moratorium on spectrum/AGR payments. However, the company still faces significant financial obligations moving forward.

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