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Event update: Telecom; Vodafone results – Defend market share with focus on merger

1QFY19, a more moderate revenue decline:  Total revenues for the quarter came in at Rs76bn, down by 1.6% QoQ in INR terms. While price competition remains intense, the pricing pressure in the quarter has been mitigated to an extent through SIM consolidation and bundled offers. Vodafone has 29% of the pre-paid customers have moved to bundled plans. Vodafone is focusing on their 12 leadership circles which drive 90% of their EBITDA.

SIM consolidation impacting net adds, data sub net adds look weak: Total subscribers declined by 1.3% QoQ (-2.9m QoQ), prepaid subscribers declined by 1% to 205m QoQ and post paid subscribers declined by 6% QoQ to 14.1m. As per Vodafone customer losses are mainly on account of SIM consolidation driven by rising penentration of bundled offers. Vodafone’s focus is on defending high value subscribers bv offering larger bundles at lower price points, which is reflecting in ARPUs. 

Data subs addition and ARPU key monitorables: In our view, the pace of ARPU decline and the data sub addition remains the key near term metrics to monitor in the sector. While Vodafone has done decently on the Blended ARPU front, where pace of decline as eased a bit, on the data sub addition performance isn’t as good. Blended ARPU declined by 3.3% QoQ to Rs. 102 in Q1FY19 (Q4FY18: 105:). Prepaid ARPU declined by 2.5% QoQ to Rs. 79 in Q1FY19 (Q4FY18: Rs.81). However total data subs are up only by 1mn qoq to 77m in Q1FY19 from 76m in Q4FY18. Vodafone used to provide data subs break up, but this time they provided 4G subs break up which is at 30.9m in Q1FY19. Usage continues to expand and 1QFY19 data usage stood at 7.5GB for 4G users.

Vodafone-Idea merger update: The Company has received conditional approval for merger from DOT and the target is to close the merger by end of August. The JV has now paid the spectrum liberalsiation fee of €0.5bn and has provided the bank guarantee under protest.

Read for the incumbents: Overall a mixed result with some moderation in ARPU decline but total data sub performance looks soft. The commentary on the conference call indicated that Vodafone is focusing on defending its RMS/EBITDA which comes from its 12 key leadership circles. While ARPU moderation is a good read for the upcoming incumbent’s results, we think a sharp market share loss for Vodafone remains an ARPU risk. We maintain that market share loss remains a risk for Vodafone-Idea combined entity and we have already begun to see some erosion. The data sub add performance of Idea vs. Bharti Airtel will be a key monitorable for us in Q1FY19 results.