MUMBAI : The tariff hikes announced by Vodafone Idea Ltd and Bharti Airtel Ltd over the weekend have been far higher than the Street’s estimates. So much so that it will help Airtel’s India mobile business swing back into profits at the pre-tax level, after several quarters of losses. In Vodafone Idea’s case, losses will reduce to a great extent. But given the fast pace of its market share losses, it would need to do much more to retain the gains from the tariff hike.

The biggest gainer, by far, is Reliance Industries Ltd. Analysts at JM Financial Institutional Equities estimate incremental quarterly revenues of Rs2400 crore and ₹ 2100 crore respectively for Airtel and Vodafone Idea as a result of tariff hikes. But in the case of Jio, which has said it will raise tariffs by 40% without giving details, JM’s analysts expect incremental quarterly revenues of as much as Rs3900 crore. Incremental revenues are compared to reported revenues in the September quarter, assuming no change in the respective subscriber base of the three companies.

These higher gains for Jio and the concerns around Vodafone Idea are reflected in the reaction on the Street as well. The market capitalization of Reliance Industries rose by about Rs24000 crore on Monday morning, while that of Airtel and Vodafone Idea gained Rs17000 crore and Rs4200 crore respectively.

The reason Jio gains more is that Airtel and Vodafone Idea have left postpaid tariffs untouched, presumably because tariffs in this segment are already far higher than pre-paid tariffs. And the postpaid segment accounts for about 30% of revenues for these companies. Jio hardly has any postpaid subscribers on its network, which means a far higher proportion of its revenue base is impacted by the tariff hike.

What’s more, Jio has stated that it will provide its customers 300% higher benefits compared to its competition. This can potentially result in an increase in the pace of its market share gains. Jio’s revenue market share has risen from 11.4% two years ago to 34.4% in the September 2019 quarter, according to data collated by Jefferies India Pvt. Ltd. While Airtel has kept its share intact at about 31%, Vodafone Idea’s market share has fallen from 36.1% to 27.2%.

One of the main reasons for this is that Jio’s plans have offered a better price-value equation. In the past, when incumbents tried to offer tariff plans with a similar price-value equation as Jio, the latter had responded by cutting tariffs further, and stating that it will always provide customers plans that 20% lower in price.

Even in the current rising tariffs scenario, Jio is likely to position its tariffs at far more attractive levels than competition to sustain the pace of its market share gains. Besides, the industry-wide truce on tariffs has included hikes in voice-only plans, a segment where Jio is currently almost absent. This may well give the Reliance group company a better shot at gaining subscriber share with its JioPhone offering for feature-phone users. When Jio announces its new tariff plans later this week, there will be greater clarity on its strategy for the smart-phone and feature-phone segments.

The company that is at the biggest risk of losing subscribers remains Vodafone Idea, given its relatively weaker infrastructure. While the tariff hikes will certainly give the company breathing room – for one, its rate of cash burn will reduce – it needs to do more to retain its subscriber base.

The company needs to consider a fund infusion to augment its network capabilities and provide effective competition. Of course, much also depends on the final outcome of AGR (adjusted gross revenues) related dispute with the government. While a reprieve will certainly help, Vodafone Idea’s future depends on many other things falling in place as well, and the company’s ability and willingness to make the most of this sudden reversal in fortunes for the telecom sector.