Merger with Idea not an In­dia Exit: Voda’s Co­lao

Talks on for self-funded, equal-rights JV to take on Jio

The Economic Times - - Front Page - Our Bu­reau

=<5 5 - <6 6 - <7 7 - <8 => 8 Mum­bai: Voda­fone Group Plc chief ex­ec­u­tive of­fi­cer Vit­to­rio Co­lao said the com­pany is in talks with the Aditya Birla Group to cre­ate a “self-funded” In­dian joint ven­ture with equal rights to take on the com­pet­i­tive threat posed by Re­liance Jio In­fo­comm and the move doesn’t por­tend its exit from what was once a key mar­ket.

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% 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 third-quar­ter 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 Air­tel’s 266 mil­lion.

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 Cel­lu­lar, 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% to 1.45 bil­lion eu­ros (Rs 10,556 crore) in the three months ended De­cem­ber from a year ear­lier. Voda­fone has 8 bil­lion eu­ros 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.


He said a key fac­tor would be the stance of the Tele­com Reg­u­la­tory Au­thor­ity of In­dia on Jio’s free of­fers. Voda­fone, Bharti Air­tel 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% from 16% and its ac­tive data customer base fell to 60 mil­lion from 69.6 mil­lion. Growth in data us­age per customer slowed to 15% from 28%. Voice rev­enue fell 3% and av­er­age rev­enue per user shrank to Rs 158 from Rs 171 in the pre- vi­ous 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% 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% of its users, the com­pany is try­ing to push them to 3G and 4G ser­vices.

Read said this price-sen­si­tive 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% SIM spend”, through the Rs149 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 play­ers re­main­ing,” he said.

READY­ING FOR FIGHT: Vit­to­rio Co­lao

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