Shares of Vodafone-Idea and Airtel got a massive boost after reports that Department of Telcom (DoT) may fix a floor price for data and voice tarrifs. This has rekindled hopes that the embattled telecom giants will be able to withstand the price war caused by Reliance Jio. Both, Vodafone-Idea and Airtel have reported massive losses in the July-September quarter. The losses are to the tune of thousands of crores of rupees.
After the reports of a floor price, Vodafone-Idea shares jumped by almost 32 per cent while Airtel shares jumped by nearly 10 per cent.
What is the floor price?
Floor price is the minimum fixed price decided by the government below which a particular thing or a service cannot be sold. If a particular ministry or a department fixes a minimum price then companies in that sector cannot lower prices further with an aim to lure more customers.
How is Floor Price in Telecom going to help Vodafone-Idea and Airtel?
Both the companies are currently locked in a battle with Reliance Jio as it has disrupted market offering voice and data service at absolutely cheap rates. There is a constant fear in the market about Jio lowering rates further in order to enhance its customer base.
If DoT fixes a floor price, it may restrict Reliance Jio forbidding it to lower its prices. This may help Vodafone-Idea and Airtel to remain competitive
How bad is the situation with Vodafone-Idea and Airtel?
Finances of both companies are under massive strain due to price wars with Reliance Jio.
Telecom operator Vodafone Idea on Thursday reported a consolidated loss of Rs 50,921 crore - the highest ever loss posted by any Indian corporate - for the second quarter ended September 30, on account of liability arising out of the Supreme Court order in the adjusted gross revenue case.
Bharti Airtel posted a staggering Rs 23,045 crore net loss for the July-September quarter due to provisioning of Rs 28,450 crore in the aftermath of the Supreme Court ruling on statutory dues.
Both companies are likely to benefit from DoT's move to fix a floor price
However...
It seems that the decision may have to go through government procedure before it becomes a reality.
Telecom Regulatory Authority of India (TRAI) has already said the DoT has not yet approached it for its views on floor price for tariffs.
"We have not received anything," Trai chief R S Sharma said when asked if the Department of Telecom (DoT) has approached Telecom Regulatory Authority of India (Trai) for its opinion on floor price or minimum tariff fixation for mobile services.
(With PTI inputs)
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