Vodafone India’s Postpaid Subscriber Base Likely to Go Down as Jio Enters the Segment

With Reliance Jio eyeing the high APRU customers using the latest Rs 199 postpaid tariff plan, the second largest telecom operator in the country, Vodafone India is finding themselves in a tough spot. To give you a context of what is conspiring after Jio’s blow to the telecom market, it is enough to understand that yet again in the fourth quarter of 2017-18 Vodafone India saw a decline of 4% in its postpaid user base which now stands at 14.93 million. This news comes up as the merger of Idea Cellular and Vodafone India is already along the way and is expected to be finalised in the month of June. Officials at Vodafone admitted that post the merger it is going to be a challenge to retain the existing high ARPU postpaid users of the telco who make up as much as 25% of the total revenue.

vodafone-postpaid-jio

A note at Jefferies Brokerage read “Vodafone India losing over 500K postpaid customers in the fourth quarter (effectively a 4% decline) is a key negative in our view, and with Jio targeting this same (customer) group by launching a postpaid offer at a 50% discount to incumbents, there could be an acceleration in the same.”

Speaking on the FY18 Jefferies said, “Vodafone India has lost 5% of its postpaid subscribers, which is important as postpaid ARPUs are five-time of prepaid ARPUs”.?? It was a concerning as well as disappointing news for the second largest telco in the country, as the statistics revealed that the postpaid user base which was once 15.68 million just a year ago, has now come down to 14.93 million. In December, this figure stood at 15.5 million. Credit Suisse also made some statements in this regard “Jio’s Rs 199/month price-point is aggressive compared to Vodafone India’s Rs 433 postpaid ARPU.”

It is because of the very competitive pricing of the postpaid plan by Reliance Jio which has caused this ruckus in the telecom market. While the Jio plan debuted at the meagre price of Rs 199 and was offering 25GB along with international calling benefits, telcos who were selling the same plan for Rs 389 or Rs 399, like Vodafone and Idea respectively suffered a massive blow because of this move. Not only that, the telcos were charging Rs 149 more for international roaming rental.

Vodafone India talked about its profits on Tuesday and reported that the company witnessed a decline of 29 percent on-year revenue which could only go as high as 979 million euros (Rs 7,902 crore) in the fourth quarter of the year 2017-18.

Brokerage JM Financial remarked that Vodafone Plc stashed a non-cash impairment charge of Rs 25,500 crore (3.2 billion euros) on a gross basis (2.2 billion euros net of tax). They cited this was “on account of a decline in the fair value of Vodafone India, driven by the recent collapse in the share price of Idea Cellular”.

Also, the stock market saw the effect of the launch of the competitively priced tariff plan by Reliance Jio. As a result, the stock price of Idea Cellular fell down further to Rs 50.80. According to experts the conditions are to remain grim for the incumbent telcos, as Jio is not looking to back off at any point of time. Lastly, at closing the Idea stock closed with a 0.57% down on Wednesday.

Coming back to Vodafone’s statement about the cash charge of 3.17 billion euros (2.24 billion euros net of tax), the telco remarked that it is a part of the FY18 results. They said that it was “to reduce the carrying value of Vodafone India to fair value less costs to sell”. Vodafone Group’s interest in Vodafone India was measured in part as the share price of the company was valued at Rs 75.9 on March 31, 2018.

Another brokerage firm, BNP Paribas also shared some insights on this new development “Vodafone’s confidence of the merger (with Idea) going through by the end of June and commitment to infuse further funds by selling its Indus stake were positives in terms of our view on Idea and the merger.”

The holding company of Vodafone India, Vodafone Group Plc also confirmed that the merger would be finalised in the month of June, after which Idea Cellular and Vodafone India will merge to become the largest telco of the country.

Chakri is a go-to guy for your next smartphone recommendation. Back in his engineering days, he used to play with smartphones by installing custom ROMs and that passion got him into the tech industry. He still goes nuts about a smartphone knocking his door for review. Currently managing everything at Telecom Talk, Chakri is trying to master PUBG Mobile in his free time.

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