The intent of the JV, which will be the largest in India with the widest spectrum coverage and the best management team, is to “self-fund and we are working on discussing mechanics and agreements”, Colao said on Thursday in his first public comments since the talks were revealed.
The top executive described India as “a special situation” that’s dragging the group’s financials. Vodafone said it will meet only the lower end of its operating profit guidance range due to “continued uncertainty” in the country. India contributes almost 11 per cent to Vodafone’s global service revenue and is still the fastestgrowing in terms of subscriber additions, but no longer so in terms of the pace of revenue growth.
Responding to a question, he denied that the planned merger was a precursor to Vodafone’s departure from India.
“This is not an exit. This is about creating a stronger asset, create the No. 1 telco in the country…build the largest network in India and build the best management team through a combination of the two management teams,” Colao said on a call after the British company’s thirdquarter earnings. “We are flexible and pragmatic.”
Colao said the company, with 205 million subscribers in India, still sees long-term value in the country. A Vodafone-Idea combination would have about 390 million users, exceeding current market leader Bharti AirtelBSE 0.04 %’s 266 million.
- Make Career in Media Management with MICA
- Easily Find Super Cheap Hotels
Recommended By Colombia
Vodafone and the Aditya Birla Group said on January 30 they were in talks to merge Vodafone India, the country’s No. 2 telco, and Idea CellularBSE -0.55 %, the third-largest, in an all-share transaction. Both companies want to forge a stronger front to take on Reliance Jio, which is backed by India’s wealthiest man Mukesh Ambani. Jio unleashed a price war by offering free voice and data since starting services in September, severely denting the financials of its rivals.
Competition with Jio, and to some extent, demonetisation, dragged Vodafone India’s service revenue down 1.9 per cent to 1.45 billion euros (. Rs 10,556 crore) in the three months ended December from a year earlier. Vodafone has 8 billion of net debt in the India business.
“We anticipate intense competitive pressure in India in the fourth quarter and are taking a series of commercial actions,” Colao said in an earnings statement issued on Thursday.
‘TRAI STANCE KEY’
He said a key factor would be the stance of the Telecom Regulatory Authority of India on Jio’s free offers. Vodafone, Bharti AirtelBSE 0.04 % and Idea have complained that Jio’s latest free offers are illegal and predatory and should be barred.
Colao said the inflection point in India’s telecom sector would be when Jio starts charging for its services, although he cautioned that the free service could be extended. “We are well-positioned to recover market share whenever the new entrant starts billing. We will recover from headwinds in India,” Colao said.
Between the third and second quarters, Vodafone India’s data browsing revenue growth slowed to 0.6 per cent from 16 per cent and its active data customer base fell to 60 million from 69.6 million. Growth in data usage per customer slowed to 15 per cent from 28 per cent. Voice revenue fell 3 per cent and average revenue per user shrank to . Rs 158 from . Rs 171 in the previous quarter.
Vodafone chief financial officer Nick Read said the Indian unit has a segmented strategy to respond to Jio’s offers.
“For high-value customers, which represent about 10 per cent of our base, our key focus is retention,” said Read. The company’s analysis showed it was able to retain most of its high-value customers with its voice and data bundled plans, although this has come at the cost of “ARPU dilution”. For mid-value customers, which represent about 30 per cent of its users, the company is trying to push them to 3G and 4G services. Read said this pricesensitive segment has seen the highest proportion of users opting for Jio in their multi-SIM devices, causing a decline in Vodafone’s active data users and ARPU though the company has managed to be the primary SIM for most of these users. “For the lower-value mass market segment, where we are the primary SIM, but experience high multi-SIMming, our goal is to capture 100 per cent SIM spend”, through the Rs 149 plan, Read said.
He added that price pressures are resulting in faster industry consolidation, which will ultimately repair the market. “We are well-placed to be one of the scaled players remaining,” he said.