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Voda Idea may follow Airtel in discarding low-value plans

Vodafone Idea is likely to follow Airtel in scrapping low-value monthly plans to shore up revenue per user.

Updated: May 15, 2019, 08.22 PM IST
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VIL’s leadership said capex would increase to Rs 16,800 crore FY20 from Rs 10,200 in FY19.
MUMBAI & KOLKATA: Vodafone Idea is likely to follow Bharti Airtel in scrapping low-value monthly plans to shore up revenue per user even though it could cede revenue market share to rivals in the fiercely competitive telecom market.

India’s top mobile telco is reviewing Airtel’s move and may take a similar call in some markets soon, chief executive Balesh Sharma told analysts on an earnings call Tuesday.

Airtel has scrapped its Rs 299 and Rs 399 monthly plans and made Rs 499 the entry price-point for its higher-paying users who make up 5-7% of its 284 million subscribers and contribute 20-25% of its revenue.

“We too have a Rs 299 plan and may decide to move in and start with a few markets first,” the Vodafone Idea CEO said.

analysing

Sharma spoke a day after Vodafone Idea said its fourth quarter net loss had narrowed to Rs 4,878.3 crore, helped by a tax refund and lower expenses, as revenue growth remained flat and 53.2 million users switched to rival operators.

Vodafone Idea shares plunged almost 10% to Rs 13.05 in early afternoon trade and fell 3.1% to Rs 14 at the close on the BSE on Tuesday.

Vodafone Plc on Tuesday reported an annual loss of 7.6 billion euros for the year ended March, partly attributed to the 3.4 billion euros incurred on the disposal of the erstwhile Vodafone India after its merger with Idea Cellular and other impairments.

Vodafone Idea’s service revenue rose 0.1 % on-quarter to Rs 11,775 crore in January-March.

Analysts said Vodafone Idea’s revenue growth and data parameters were behind those of rivals Reliance Jio Infocomm and Airtel, underlining the continuing challenges for India’s top telco.

Credit Suisse said the 4.3% and 7% sequential growth in India mobile revenue notched up by Airtel and Jio, respectively, indicates that Vodafone Idea “continues to lose market share.”

Brokerage J M Financial said Voda Idea needs to expand its LTE coverage quickly and target at least 10 million 4G customer additions every quarter to sustain a sequential revenue rise, although the telco’s growth prospects would also entail a steady decline in Jio’s net additions in the coming quarters.

Goldman Sachs said VIL would find it tough to close its 4G network gap with Jio and Airtel as its net debt-to-Ebitda or ‘leverage ratio’ is estimated to remain at uncomfortable levels of over 7x till FY21, even after raising Rs 25,000 crore in a rights issue.

“We see risks to market share on Voda Idea’s high-end customer base due to its lagging network quality as its capex levels are 60-80% below peers, and also amid Jio’s continued focus on customer acquisitions,” said the US brokerage, adding that the telco remained vulnerable to losing low-end customers with the popularity of Jio’s VoLTE feature phone called JioPhone.

VIL’s capital expenditure of Rs 3,230 crore in the March quarter was far below Jio’s Rs 14,000 crore. VIL’s leadership said capex would increase to Rs 16,800 crore FY20 from Rs 10,200 in FY19.

JM Financial said VIL’s business can be funded at best till June-July 2020 on the strength of its cash balance of Rs 7,600 crore at the end of March, the Rs 25,000 crore raised via the rights issue last month and prospects of getting Rs 6,000 crore from the sale of its stake in Indus Towers.

On a brighter note, brokerages Jefferies and CLSA said the 38% sequential jump in VIL’s Ebitda to Rs 1,550 crore in the March quarter exceeded estimates and was driven by higher-than expected merger synergies.

“Margins improved 380 basis points (bps), led by lower network costs, down 6% sequentially,” Jefferies said in a note seen by ET.

Sharma said interconnect usage charges paid by the company in the quarter were lower at Rs 400 crore compared with Rs 460 crore in the previous three months.
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