India’s second largest telecom operator Vodafone is facing the heat from the free services offered by rival operator Reliance Jio. The company lost 4.6 million data connections during the quarter ended December 31st, 2016 (Q3FY17), taking the total to 65 million connections, down from 69.6 million in Q2FY17. Vodafone’s 3G/4G subscriber base was also down to 35 million connections during the quarter, a drop of 1 million connections from 36 million connections during Q2FY17. Overall the company has 205 million customers, up from 200 million in the previous quarter.

Apart from the falling data customers, Vodafone’s overall service revenue was also down by 3% QoQ at €1.450 billion during Q3FY17. Overall service revenue also declined by 5.4% YoY from €1.529 billion in the same quarter last year. Mobile revenues for the quarter stood at €1.145 billion, down 5.2% QoQ from €1.208 billion in the previous quarter.

The loss in data customers has also reflected on Vodafone India’s data usage which decreased to 105.45 Terabytes (TB), from 110.43 TB in the previous quarter. Voice usage, however, increased to 189.2 million minutes, from 183.55 million minutes in the previous quarter. Average Revenue Per User (ARPU) was also down to Rs 158 during Q2FY17, from Rs 171 in the preceding quarter. In the same quarter last year, Vodafone India’s ARPU stood at Rs 189, which is a 16% YoY decline.

On Vodafone-Idea merger

Vodafone Group’s CEO Vittorio Colao said that the company is anticipating “intense competitive pressure in India in the fourth quarter”. He added that the group’s India unit is currently “taking a series of commercial actions, including the extension of 4G services to 17 leading circles (and) as announced earlier this week, we have also entered discussions with the Aditya Birla Group about an all-share merger of Vodafone India and Idea.”

The company said in their earnings release that “any merger would be effected through the issue of new shares in Idea to Vodafone and would result in Vodafone deconsolidating Vodafone India. The transaction is however not certain or agreed upon at any stage of the discussion.

Other financial highlights

– Data browsing revenue growth slowed from 16% in Q2-FY17 to 0.6% in Q3-FY17
– Voice revenue growth declined by 3.0% during the quarter, from 2.7% in Q2-FY-17
– Smartphone penetration was 35% during the quarter
– Overall data pricing declined 11% YoY
– Growth in data usage per customer slowed to 15%  in the quarter compared to 28% in Q2-FY17, reaching 505MB in Q3-FY17.