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MOSL: TELECOM-Focus on leadership circles, merger with Idea progressing well

​TELECOM: Focus on leadership circles, merger with Idea progressing well; Weak spectrum/limited investments in weak circles bring risk of market share loss

We met senior management of Vodafone. Key highlights:

Vodafone has decided to adopt a segmental approach until the merger with Idea takes effect. The company is investing aggressively to protect its market share in the 12 leadership circles. Consequently, the remaining 10 circles (competitive and challenger circles) with weak spectrum and limited investments remain highly vulnerable to market share loss to peers, particularly Bharti which has eaten into the company's market share in these circles in the last quarter.

Overall market is witnessing signs of improvement after RJio starting to charge subscribers - recharges and usage are regaining momentum, and incoming voice traffic from RJio is reducing.

The risk of ARPU decline (led by down-trading) appears to be mitigating, with: a) reduction in the usage of second SIMs, mainly of smaller players, b) return of traffic, as evident from increased recharges and c) Vodafone's strategy of offering better value at same price, instead of re-pricing at lower value.

High capex intensity seen in FY17 should reduce, even as Vodafone continues to expand 4G coverage.