Sign up
Tech Capital

Vodafone grabs India's telecoms tiger by the tail in merging its operations with rival Idea Cellular

More than 10 telecom operators are battling it out to try and attract India's one billion mobile users, forcing firms to keep tariffs low, significantly impacting their profitability
Tiger
Vodafone’s revenue growth from data browsing at its Indian division slowed from 16% in the second-quarter of 2016 to just 0.6% in the third-quarter

The decision of Vodafone PLC (LON:VOD) to reduce its exposure to the fast-growing, but intensely competitive Indian telecoms market by merging its operations with those of Idea Cellular draws a line under a tricky situation for the global mobile phones giant.

More than 10 telecom operators are battling it out to try and attract India's one billion mobile phone users, forcing firms to keep tariffs low and significantly impacting their profitability.

The move to deconsolidate Vodafone India by creating the joint venture follows on from the launch last year of challenger operator Reliance Joi, which shook up the market by offering very competitive pricing plans and free data for the last six months.

In its last results, Vodafone took a €5bn write-down from “increased competition” in India, reflecting a 14% drop in data prices caused by Jio’s free promotional offers.

In a note today, Neil Wilson, senior market analyst at ETX Capital said: “The fact that Reliance Jio is to start charging for data from April 1st is good news for rivals (and Reliance shareholders), but even if it shows you can’t keep giving it away indefinitely, prices will remain very low and we can still expect its cheap deals to cause heavy losses for rivals.”

Revenues slowing …

Vodafone’s revenue growth from data browsing at its Indian division slowed from 16% in the second-quarter of 2016 to just 0.6% in the third-quarter because of the impact of free services from Jio – which is owned by the country's richest man, Mukesh Ambani.

The number of Vodafone India’s data users actually declined from almost 70 mln in 2016’s second quarter to 65 mln in the third quarter.

ETX’s Wilson said: “Cost synergies are the Vodafone-Idea deal’s big selling point. The companies think they can save US$2.1bn per year by 2022, four years after completion. Total synergies after integration costs are estimated at about US$10bn.

“Not bad value when you think Jio has spent more than twice that in six months giving away data in its bid to be the largest operator.”

Reversion focus …

Although there is some hope that those customers who took up Joi’s free offers as a second SIM but kept existing contracts will revert back to Vodafone and Idea, Wilson points out that the six months from April 1 will be “highly instructive.”

Undercutting rivals in such a competitive markets left few options but to cut costs through mergers, with Bharti Airtel - the country’s largest telecoms operator - having also recently agreed to buy Norwegian firm Telenor’s Indian arm.

Vodafone India’s ‘merger of equals’ with Idea will create the largest mobile operator in India, with around 400 million customers, overtaking Airtel, and making it four times the size of Jio.

After drifting lower at the start today, by late morning trading, Vodafone shares had edged 0.1%, or 0.2p higher to 211.6p.



Register here to be notified of future VOD Company articles
View full VOD profile

Vodafone Timeline

View All

Related Articles

© tech Capital 2017

Tech Capital, a subsidiary of Proactive Investors, acts as the vanguard for listed tech companies to interact with institutional and highly capitalised investors.
Headquartered in London, Tech Capital is led by a team of Europe's leading analysts and journalists, publishing daily content, covering all key movements in the Technology market.