Tariff hikes next on agenda for telcos after auctions

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Vodafone Idea and Reliance Jio bought spectrum worth ₹11,340 crore in the just-concluded spectrum sale, which will be paid to the government in 20 annual instalments. The first instalment is likely to be in the range of ₹500-570 crore for all three carriers combined. The selective and strategic purchases indicate a focus on monetizing existing investments into spectrum before spending on additional capex.

“This bodes well for tariff hikes. We expect a 20% tariff hike in 2QFY25 and another 10% hike in FY27," said Jefferies in a note. “With the conclusion of the auctions without any surprises, the ability to take tariff actions should resume.

We have baked in tariff hikes of 25% spread over 2Q/3QFY25," said analysts at JPMorgan, noting that ability to raise headline tariffs soon after auctions led to sharp stock reactions. Airtel and Vodafone Idea stocks saw a spike in trading on Tuesday. “In our view, tariff hike is the next potential catalyst for the stocks, and we'll keep an eye out for any updates on this front," Swiss brokerage UBS said in a note.

Analysts at Citi Research said that telecom stocks of Bharti Airtel and Indus Towers expected to see upsides following the auctions, owing to tariff hikes and deployment of networks that will use the spectrum that they get in the auctions. “The next six months could be marked by several event catalysts: 1) Tariff hikes; 2) Potential 5G monetisation; 3) Granularity on VI’s capex and tower addition plans; 4) Indus’s dividend resumption + possible corporate action; and 5) Progress on the AGR case," it said in a note on the spectrum auctions. 5G monetisation refers to telcos charging customers for 5G services separately from 4G or charging them a premium for using 5G.