Vodafone India results: incumbents coasting along
Vodafone India Ltd’s June quarter results suggest competitive pressures eased in the voice segment for the mobile services industry; although the data segment continues to struggle for growth.
The company said last week, “Voice revenues returned to growth as competition eased”, although the 2.2% year-on-year growth in June is nothing to get too excited about.
Revenues were flat in the March quarter.
Data revenue grew by 22%, year-on-year (y-o-y), down from 35% in the March quarter and as high as 65% just a year ago. Nevertheless, it’s heartening to note that the company has taken some steps to spur growth. On a quarter-on-quarter basis, data volume grew by 6.5%, up from a mere 0.7% growth in the March quarter.
In the fourth quarter of the last fiscal, some companies such as Idea Cellular Ltd and Vodafone had reduced promotions in the market, which had resulted in slightly better price realizations, but had hit growth. There seems to have been a reversal in strategy in the June quarter. It’s likely ldea, too, may report a bounceback in data growth sequentially.
Of course, the key is for this growth to sustain. As things stand, the incumbents in the sector seem to be content upgrading existing users to 3G and 4G services. The total number of data users has more or less stagnated at Vodafone India. They have grown by only 4% in the past one year. The only reason data volume is growing at a faster pace is that a much larger proportion of users have shifted to 3G/4G services, where consumption is about three-to-four times higher, compared with 2G data services (see chart). Of course, there’s a limit to how much the data segment can grow with this strategy.
This month, Bharti Airtel Ltd, Idea and Vodafone increased data benefits in an attempt to get subscribers to increase usage. But such a strategy is unlikely to provide a breakthrough in attracting new data customers.
As such, it seems like it will only be after Reliance Jio Infocomm Ltd’s launch that data prices will crash meaningfully enough to attract new users. Until then, the incumbents seem content to coast along as far as volumes and revenues go. It’s important to note that despite sluggish volumes and a drop in price realizations, they have managed to maintain (in some cases, even improve) profit margins and generate large amounts of cash. Vodafone India’s profit margins stood at 28% two years ago, and are at over 29% now. Avoiding a mad rush for volume growth looks like a sane choice after all.