After Airtel, Vodafone Idea hikes minimum recharge tariff

New Delhi: Vodafone Idea Ltd is gearing up to fight rivals Bharti Airtel Ltd and Reliance Jio Infocomm Ltd 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, said a person aware of the plans. India’s largest telecom operator by users 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. The target includes saving 8,400 crore in operational expenditure and 5,600 crore in capital expenditure, said the person on condition of anonymity.

Vodafone Idea’s growth strategy and its future plans were discussed at a meeting between its management and telecom analysts in Mumbai on Wednesday.

The loss-making company told analysts that it would continue to operate both brands, Vodafone and Idea, and “that there will be a price repair (tariff hike), which will be very significant as the company’s negative free cash situation makes the price repair imminent”, said the person cited earlier, who was present at the meeting.

Vodafone Idea plans to augment its 4G coverage from the current 50% to cover 70% of the country over the next six months, and 80% in 2019-20, said the person. The step is expected to help close the 4G coverage gap with rivals, who have so far outpaced Vodafone Idea on this metric.

“We are expanding our 4G coverage nationally to cover a billion Indians. We are executing a plan that enhances the services available to customers of both brands,” a spokesperson for Vodafone Idea said in response to a query seeking comment.

The company is, meanwhile, awaiting realization of merger synergies as a result of integrating the spectrum assets and the networks of both Vodafone and Idea.

Triggered by intense competition in the sector following the entry of Reliance Jio in September 2016, the merger of Vodafone India with Idea Cellular, first announced by the companies in March 2017, was completed on 31 August.

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 (arpu) 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.

“In order to improve profitability, the company will radically accelerate integration to reduce cost of production; prioritize investment in profitable areas and drive Arpu simplification,” the person said.

In October, Bharti Airtel announced it had simplified seven or eight tariffs, with minimum recharge plans starting at 35, with an aim to reduce the number of marginal customers, rein in selling, general and administrative expenses and focus attention on improving services to better-paying users.

Regarding progress on the merger, spectrum consolidation and network integration had started, Vodafone Idea said on 14 November. Circle-level capex planning for the network integration had been completed, including vendor selection, and equipment ordering was in the final stages, it said.

In order to infuse funds, the board of Vodafone Idea has established a committee of directors to evaluate a potential capital raise of up to 25,000 crore. It would also actively explore a potential sale of the company’s fibre network, comprising more than 156,000km of intra- and inter-city fibre routes to provide further balance sheet flexibility, the company said on 14 November.

Vodafone Idea desperately needs to add funds and also made informal presentations to the department of telecommunications on Wednesday to discuss its pending payments, said a senior government official, requesting anonymity

The company also flagged concerns on liquidity crunch in the sector and sought financial relief from the government for spectrum-related payments, said the official, adding that the department was awaiting a final presentation from the company.

Earlier this month, Moody’s Investors Service placed Bharti Airtel’s Baa3 ratings on review for downgrade, as it expects the company’s cash flow generation to remain weak and leverage elevated.