Average revenue per user (ARPU) for Vodafone Idea (Vi) grew from Rs.139 in the first quarter of 2024 (Q1FY24) to Rs.142 in the second quarter (Q2FY24) of the year according to the company’s earnings call. The company attributes this rise in ARPU to changes in the cost of its entry-level plan, 2G to 4G upgrade, and migration of subscribers to higher ARPU plans. At the end of the previous quarter, the company had reduced the validity of its Rs.99 plan from 28 days to 15 days in 4 circles, the reduced validity has now been expanded to 15 of the 22 telecom circles in India. The company also saw a 2% rise in data volumes quarter on quarter, the data usage per broadband customer for the company stands at 15.8 GB/month.
Key insights from the earnings call:
Budgeting for the recent license fee capitalization: In October this year, the Supreme Court said that telecom license fees are a part of capital expenditure as opposed to being treated like revenue expenditure. This is important because revenue expenses are generally fully deductible from taxable income in the year they are incurred, while capital expenditures are not. Given that license fee was previously not considered taxable, telcos could potentially have to look at multiple years worth of tax records and make necessary payments. Vi said that as a result of this new classification, it has kept Rs.8.2 million as tax provisions. These provisions do not account for the interest the taxes might have accrued.
“We are not recognizing a deferred tax asset at this point of time, “Akshay Moondra, the chief executive officer at Vi, said discussing the tax figures adding that, “say some of these provisions have also been taken on a bit of a conservative side.” A deferred tax asset is an item on the company’s balance sheet that ultimately either reduces the income tax liability of an entity for future periods or results in a refund of an already paid amount of income tax. Moondra explained that since the company is not considering such deferred tax assets, it has budgeted for higher tax payments than what the company might eventually have to pay. Murthy GVAS, the executive vice president at Vi added that tax refunds are higher than the estimated payments and as such, the payments would not lead to any outflow of cash from the company immediately.
Rise in 4G subscriber base: The company reported a rise in 4G subscribers, going from 122.9 million in Q1FY24 to 124.7 million as of September 30, 2023. Vi says that this addition is the highest the company has seen in the past eight quarters. When asked what has led to the subscriber addition and whether this is an industry-wide trend, Moondra responded that the subscriber trends over the last few years are a, “mix of new subscribers coming in and multiple SIMs being consolidated.” SIM consolidation here refers to a contraction in the number of mobile connections which can be a result of factors like a rise in telecom tariffs and changes in telcos’s operations (companies merging or closing up shop). Moondra said that the impact of these factors has reduced over time and companies should start seeing real subscriber growth figures soon.
With respect to Vi’s subscriber growth, Moondra mentioned that the main reason was that the company had participated in a government scheme that brought in a significant number of new subscribers. While Moondra did not clarify which government scheme he was referring to, according to a report by the Economic Times, Vi has participated in a Rajasthan government scheme to provide free smartphones and mobile connections to women in the state. The report says that according to a Rajasthan government official, Vi provided the majority of the mobile connections under the state’s Indira Gandhi Smartphone Yojana (IGSY) initiative.
While the company has seen a rise in 4G subscribers, its cumulative subscriber base has been on a decline going from 221.4 million in Q1FY24 to 219.8 million by the end of this quarter. The decline becomes even more significant when one considers that Vi had 234.4 million subscribers in Q2FY23. Moondra, however, pointed out during the earnings call that this is the lowest subscriber decline that the company has seen post the merger of Vodafone and Idea in 2018 and attributed this to improved operations.
No significant impact of 5G launches: Earnings calls of other major telcos, Bharti Airtel and Reliance Jio, reveal that both companies have seen a rise in their 5G subscriber base. As of this quarter, Airtel has 55 million unique customers on its 5G plus network and Jio has seen the migration of 70 million subscribers from 4G to 5G networks. However, despite these figures, Moondra said that Vi has not seen a significant impact of not providing 5G services. “And the reason for that is that let’s say, if we look at our trends of churn [percentage of customers who stop using Vi’s services] for 5G device owners and non-5G device owners, there’s no significant difference which would be relevant,” he said. He further stated that the company has seen a rise in postpaid subscribers which bring in higher ARPU and are considered a surrogate for people with 5G devices.
“While 5G is a good technology, whether consumer feels the difference is one thing,” Moondra said. He said that while people are currently not paying for 5G usage when they eventually have to, the data consumption charges for activities like watching a YouTube video on 5G would be much higher than what people currently pay for data consumption.
No significant impact of Jio Bharat: In July this year, Reliance Jio launched the Jio Bharat bundled phone — a device with an Internet connectivity offering—targeting that part of India’s Internet user base that is still on feature phones. This device was anticipated to cannibalize users from other mobile operators, like Airtel and Vi, but Vi says that it hasn’t affected them. Moondra pointed out that the best indicator of this is that Vi increased its entry-level prices without any impact, “and that would probably have been a factor because the Jio Bharat phone was targeted more towards the people who were on entry-level pricing or let’s say, who were on the non-unlimited plan,” he explained.
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