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‘Idea merger deal will help build stronger asset base, not an exit strategy’: Vodafone CEO Vittorio Colao

Responding to whether the Idea merger talks is an exit strategy, Vodafone Group’s CEO Vittorio Colao said during an analyst call that deal aims to build a stronger asset base and that its “not and exit” move. “This (Vodafone-Idea merger) is creating the number one telco in the country, with a…huge spectrum capacity… and the possibility of being the best management team through the combination of the two management team,” he added.

Colao explained that the merger deal would look to create “a joint venture with equal rights” which can create a value for both companies and shareholders alike. “It indicates that we are flexible and pragmatic, and like in the Netherlands we do whatever strengthens our assets and has a good return. And we are not dogmatic on which form that has to take country by country,” added Colao during the call.

Competition in the Indian telecom market seems to have turned fierce post Reliance Jio’s launch in September last year. Smaller telcos like including Videocon, Telenor are looking for an exit, while bigger operators like Airtel are losing out on revenues and subscribers to free data and voice being offered by Jio. Days after Jio extended its free services, both Airtel and RCOM were speculated to be in talks to acquire Telenor, while Vodafone, the second largest operator confirmed that it’s in talks with Idea for an all-share merger.

Vodafone will focus on retaining high-value customers to combat Jio

Speaking about Vodafone’s strategy to combat Jio’s free services, chief financial officer Nick Read said that the company is employing a “segmented strategy” by retaining high-value users, which represents around 10% of the total subscriber base in India. “Based on a detailed cohort analysis of the behavior of our customer base since September, when Jio launched its free offers, I can confirm that we are retaining most of our high-value customers…albeit at the expense of ARPU dilution. Our goal for mid-value customers, who represent about 30% of our base, is to upsell 3G and 4G services,” he added.

Read said that “price sensitive” users depicted the highest proportion of multi-SIM activity, and these were the kind of users that left Vodafone in the last quarter causing a decline in ARPU and revenues. During Q3-FY17, Vodafone lost 4.6 million data customers, while ARPU declined significantly to Rs 158 from Rs 171 in the preceding quarter (Q2FY17). However Read claims that the bundled data+unlimited voice announced in December had an effect on some of its users as they remained on Vodafone with a primary SIM, while choosing to buy a secondary SIM.

“For the lower value mass market segment where we are the primary SIM but experience high multi-SIM-ing, our goal is to capture 100% of the SIM spend. Our 149 unlimited on-net voice offer is showing signs of traffic capture from the smaller traffic players, whose ability to compete effectively on price has been severely undermined,” Read added.

‘Jio might extend free services’

Speaking about competitive pressure from Jio, Read said “clearly, there could be further attempts (from Jio) to extend the free period. He added that although their bundled packs received a good response, the company expects “further deceleration in Q4 (next quarter).” On a quarter-on-quarter basis, Vodafone India’s service revenue declined by 3% at €1.450 billion during Q3FY17.

“However, we continue to view India as an attractive long-term growth opportunity. You are seeing industry consolidation accelerate in response to these pressures, which will ultimately contribute to the process of market repair,” Read added.

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