Vodafone India’s Q3 revenue declines as tariff war continues
Mumbai: The telecom tariff war continued to take its toll on Vodafone India Ltd’s revenue, which declined 23.1% to Rs8,496 crore in the quarter ended 31 December.
Revenue was also impacted due to a regulation-induced cut in interconnect usage charges, parent Vodafone Group Plc said in a statement on Thursday.
“While the competitive and regulatory environment in India remains intense, we continue to make good progress in securing the required approvals for the merger with Idea Cellular, and we have taken steps to strengthen the combined company’s financial position,” the company said in a statement.
A fierce price war triggered by the entry of Reliance Jio Infocomm Ltd in September 2016 and heavy spectrum acquisition costs have hit Indian telecom firms. Mukesh Ambani’s Reliance Jio Infocomm Ltd started charging customers after offering its services free for at least six months but continued to offer its services at ultra-cheap rates, which did not allow incumbents room to improve their profitability. As a result, the industry went through a phase of consolidation that resulted in Vodafone India announcing its merger with Idea Cellular Ltd. Both the firms expect to complete the merger in the first half of 2018.
Vodafone India, in the statement, said that its parent continues to explore potential monetization options for shares held by Idea and Vodafone in Indus Towers. Vodafone and Idea will also receive about Rs7,850 crore from the announced sale of Vodafone and Idea’s standalone towers to American Tower Corp.
The company also said that it will match any incremental equity raised by Idea prior to completion of the group. On 4th January, Idea Cellular announced its intention to raise up to Rs6,750 crore of equity in order to strengthen the balance sheet of the merged entity. Under the terms of the merger agreement, Vodafone will contribute net debt equivalent to Idea’s net debt at completion plus Rs2,500 crore into the joint venture, subject to customary closing adjustments.
Vodafone said that Indian operations faced 29.2% decline in inter connection revenues due to a slash in Interconnected Usage Charge (IUC) rates. The Telecom Regulatory Authority of India (Trai) in September more than halved the IUC to six paise with effect from 1 October and abolished it all together for all local calls starting 1 January 2020, dealing a blow to older telecom firms, such as Bharti Airtel Ltd, Vodafone India and Idea Cellular Ltd, and a boost to newcomer Reliance Jio Infocomm Ltd.
Vodafone said the company’s service revenue Arpu (average revenue per user) took a beating due to stiff price competition and it now stands at Rs146 per user.
Vodafone said that the prepaid Arpu of its Indian unit remains under pressure, declining 28% during the December quarter.
“This reflects increased customer adoption of unlimited packages, the continued drag from longer tariff validity periods and regulatory pressures,” the company said.
Analysts say that tariff wars are expected to continue for a few quarters during which Vodafone India may see a further decline in its Arpu.
“We expect Vodafone India’s revenues and Arpu to decline for the next two quarters before bouncing back. Both Idea Cellular and Vodafone India will look for non-core asset sales and equity infusion as IUC cuts have hit them hard,” said a Mumbai-based telecom analyst, who didn’t wish to be named.
Vodafone India’s overall customer base grew by 5.1 million subscribers to 212.5 million for the December quarter.