TRAI states its preference for keeping tariffs in forbearance.
TRAI has asked for views on the need to set a floor price for voice/data. TRAI states its preference for keeping tariffs in forbearance. Given industry demand, though, it wants to get views from all stakeholders. The paper also asks if a price cap is needed. TRAI recently extended IUC by 12m to Jan 2021. This will aid near-term Ebitda by 1/10%. Retain Underperform on IDEA, Hold on Bharti.
Consultation paper – The Telecom Regulatory Authority of India (TRAI) has released a consultation paper on a floor price for voice/data. Comments are invited until 17 Jan. The paper highlights TRAI’s preference for no floor price, citing economic theory, consumer impact, and reduced competition. As reasons in favour of a floor price, TRAI cites high leverage in the sector as well as a letter from the Cellular Operators Association of India (COAI). TRAI also noted that various media articles have focused on industry views, with little attention to consumer views.
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COAI – In its letter, COAI stated that for the health of the telecom sector, tariff increases are important. However, it said tariff increases are not possible voluntarily and that TRAI needs to set a floor. It asked that TRAI immediately set a floor price for data, though requested forbearance on voice.
JEFe: Any floor price set by TRAI would be the first instance of the government setting a minimum price, likely leading to similar requests from other sectors. The recent price hike will already drive an ARPU increase of 12/15/19% for VodaIdea/Bharti/Jio. TRAI has also asked for views on a price ceiling and we think the move to set a floor price will lead to pricing becoming a regulatory decision in the medium term, including a price cap.
IUC –TRAI has extended IUC charges of 6p/min by 12m to Jan 2021. This will aid FY21 Ebitda by 1/10% for Bharti/ VodaIdea but equity boost will be low.
Elasticity – Given recent price hikes, any benefit from a floor price will depend on the level of data elasticity. We expect elasticity to be reflected in: (i) SIM Consolidation, (ii) Downtrading – VodaIdea/ Jio have retained the `379/329 price point (84 days, 6GB data) and all three have retained the `148/129 (28 days, 2GB) price. They have also launched lower-price monthly packs that could drive downtrading.
Stocks – We remain at Underperform on VDIL as we expect its market share to fall to <15%. Bharti should benefit, but the stock already trades at 10x FY22e India mobile EV/Ebitda, with margins at a historical peak.