Vodafone Idea Ltd has started an ambitious drive to expand its operating margins to as much as 40% and simultaneously raise revenue, top executives said. The company, India’s largest telco by users, last saw such margins before the entry of Reliance Jio Infocomm Ltd sparked a tariff war. The company’s faith in its ability to improve margins and revenues stems from its assumption that there are Indian customers willing to pay more for best-in-class services.

“We had given a pro forma calculation (to analysts) where we said that if Arpu (average revenue per user) two years ago was 170 with 0.6 GB of data and that is now going up to 6GB—10 times, definitely, the consumer is willing to pay at least what he was paying two years ago for at least 10 times the higher offering. If you do that, the margins would come to 40%, which the industry has seen in the past," Akshaya Moondra, chief financial officer, Vodafone Idea, said at a press meet.

But that will depend on whether Jio, controlled by Mukesh Ambani, will ease up on the tariff war which it unleashed two years ago, triggering industry consolidation and a data revolution.

“I can’t predict when will Jio change. We turn profitable by doing the initiatives that we are talking about—moving the revenue bar on the revenue growth story that we are talking about. Market repair has to happen because one, it is unsustainable; two, it is making India uncompetitive; three, even Jio is burning cash. So, ultimately, there has to be a rationale in doing business. With consolidation completed and with all three players being strong enough to sustain themselves, there is no motive left for anybody to reduce the size of the cake so much," said Balesh Sharma, chief executive officer, Vodafone Idea Ltd.

In its first financial results as a merged entity for the September quarter, the company reported a loss of 4,970 crore.

Vodafone Idea said customer migration to lower average revenue per user offerings led to a 4.7% quarterly decline in Arpu to 88 for the quarter. Rival Bharti Airtel’s Arpu was much higher at 101, while Jio’s was 131.7 in the same quarter.

Vodafone Idea is gearing up to fight rivals Airtel and Jio with an aggressive expansion of its network of fourth-generation (4G) mobile tower sites and segmenting its markets into four categories on the basis of leadership and profitability with a specific strategy for each. It also plans to hike minimum recharge tariffs to improve profitability and has advanced an ongoing synergy target of 14,000 crore by two years to 2020-21, Mint reported on Thursday. The target includes saving 8,400 crore in operational expenditure and 5,600 crore in capital expenditure. Some additional savings will also come in the form of sale of telecom equipment not being used by the merged entity.

Sharma disagrees that for Vodafone Idea to grow its revenues, Jio will have to relent on the tariff front.

“You have got a very clear economic funda out there. You have got limited capacity in every network... whatever you do, there is so much spectrum. You have got unlimited demand. By pure law of economics, unlimited demand, limited capacity, the prices should repair, especially if you are selling the lower price," Sharma explained, before referring to Jio where he said, “if data is the new oil, we have the maximum reserves in the oil rigs".

Voda Idea targets higher revenue from tariff hikes

1- Vodafone Idea plans to hike minimum recharge rates to boost profitability, advance synergy target of 14,000 crore by two years

2- The move is based on the assumption that there are customers who are willing to pay more for better services

3- Firm is gearing up to fight rivals Airtel and Reliance Jio with an aggressive expansion of its network of 4G mobile tower sites

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