Vodafone sees signs of stability as Reliance Jio hangs up on freebies

MUMBAI: Vodafone sees early signs of stability returning to the Indian telecom market with Reliance Jio Infocomm starting to charge for services from April 1, but cautioned that the industry is still fragile and could again be disrupted by a new promotional offer from the telco.

“I think it is a bit early to call the bottom of the market,” Vodafone Group chief financial officer Nick Read said during an analyst call after annual results.

“It remains fragile and Jio could always determine a new promotion but we are starting to see stabilisation in important metrics going forward,” Read said.

Vodafone has seen stability of recharge values and high-value customers as well as a slight uptick in medium value customers, though those in the lower value chain remained vulnerable, when comparing March with January data by segment during the quarter. The key time frame will be the September quarter when Jio completes a year of entering the market. “We start annualising and that is when you should start to see some improvement in year-over-year performance,” he said. Jio had started commercial services on September 5, 2016, sparking a brutal price war.


That has eroded Vodafone India’s operating profit in the year ended March by over 10% while service revenue slipped 0.5% as Jio’s free services dragged down both the voice and data business of the country’s No. 2 telco, forcing its UK-based parent to post a loss.

Despite management seeing signs of stabilisation since Jio has started charging for services, “the market remains uncertain and is likely to remain so for a couple of quarters,” brokerage firm UBS said in its report on Vodafone India.

In the last 10 days, competitor Bharti Airtel, which saw its net profit drop by 72%, and Idea Cellular, which posted its second successive loss of Rs 325 crore, said they are seeing the industry settling down. The latter had even mentioned that a growing number of customers are returning to their original operators for both voice and data usage. Incidentally, Vodafone India and Idea Cellular are in talks for a merger that will create India’s biggest phone company, overtaking Bharti Airtel, a consolidation forced in part by the entry of Jio.

Vodafone Group CEO Vittorio Colao said the merger process is on course and clearances are being sought from regulators. Meanwhile, volumes returned to incumbents because they slashed rates to match Jio, hurting the average revenue per user, the crucial operating metric in this highly competitive environment. “We expect profitability to be under pressure over next 12 months, driving our cautious view on operators,” said brokerage Morgan Stanley.

Overall average revenue per user (ARPU) dropped 10% from the preceding quarter and 19% from the year-earlier, Morgan Stanley said, which was similar to that of Idea but lower than Bharti Airtel’s. “Vodafone has suggested seeing early signs of high-end ARPU stability,” it added.

Colao said the company is in discussions with Idea and Bharti Airtel on ways to monetise its stake in Indus Towers, India’s largest telecom tower company. Vodafone and Bharti Airtel own 42% each in market leader Indus, with Idea holding around 11%. “We are again flat out on that as well,” he said. When asked about ways to tackle the high debt levels at the combined entity, Read said both companies want to dispose of their directly-owned towers besides the Indus stake. “But currently we feel comfortable from a go forward basis,” Read said, reiterating that the merged entity would be self funded.

Vodafone India’s net debt as on March 31 was about Rs 62,000 crore, implying annualised net debt to EBITDA of about 6 times. Idea Cellular ended March 31 with a net debt of nearly Rs 51,000 crore, with a net debt to Ebitda of 5.7 times.