“This is not an exit”
Vodafone Group CEO Vittorio Colao, while largely declining to comment on the impending merger with Idea Cellular, took great pains to point out that the merger between two of the largest telecom operators in India is “a joint venture with equal rights”. Colao was speaking on the earnings conference call, at the end of the three month period ending December 31st 2016.
“This is creating a much stronger asset”, he said. “This is creating the number one telco in the country, with a little bit short of 400 million customers, the largest network by far in the country, and the possibility of being the best management team through the combination of the two management teams. I wouldn’t call it an exit. It’s, as you correctly put it, a joint venture with equal rights, which creates, we are convinced, value for both companies and for the shareholders of both companies. That’s the principle. 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.”
Will Vodafone put more capital into India?
“It’s an interesting question,” Colao said, “because then it would require a definition of what is Indus Towers: is it Indian money or is it Group money? And don’t forget that Indus Towers is not or would not be part of a possible deal with Idea. So, let me say we have plenty of ways of looking at the future. For the time being, we are focused on the joint venture ambition to self-fund.
We are devoting significant energy now to find a solution both commercial and strategically in India. We are well-positioned to capture the inevitable recovery of the market, whenever the newcomer starts billing.”
The newcomer is hurting Vodafone
“India clearly is a different story.”
“Outside India, we continued to see excellent performance in South Africa, Turkey and Egypt.”
“Excluding India, we enjoyed strong commercial momentum during the quarter…”
“Excluding India, traffic increased 63%, similar to the prior quarter.”
“Total traffic increased 53%, with continued strong growth in Europe, offset by slower growth in India.”
Colao and Group CFO Nick Read, throughout conference call, took great pains to emphasise that the groups performance, excluding India, had been strong.
They were also quick to criticise the impact that Reliance Jio is having on the telecom business, with its India business dragging down growth. “it is clear,” Colao said, “that the free services from the new entrant have led to some data leakage for us.” The impact: “a significant reduction in active data users, in prices and in ARPU.”
Dealing with Jio: A segmented retention strategy
- Retention of high value customers: Read said that for 10% of Vodafone’s base, which is its high value customer base, the focus has been on retention, “albeit at the expense of ARPU dilution.”
- Upselling to mid-value customers: “Our goal for mid-value customers, who represent about 30% of our base, is to upsell 3G and 4G services. This more price sensitive segment has seen the highest proportion of multi-SIM activity to Jio, causing a decline in active data users and ARPU. However, there are positive signs of elasticity in data usage, where our new bundled offers introduced in December are helping us to remain the primary SIM.”
- Mass market: Vodafone is trying to capture 100% of SIM spend in the mass market, for customers for whom it is the primary SIM, but there is still multi-SIM usage”…”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. In addition, we are seeing a net ARPU uplift.”
Vodafone saw deceleration during the quarter, but also expects it to continue into Q4, while the industry consolidation accelerates, before the market “repairs”. What will lead to that situation?
“Clearly the key point of inflection for India is going to be when Jio starts to charge for its services, and then we need to see the dynamics and how the market plays out for India going forward.”