Vodafone, under intense competitive pressure in India from new rival Reliance Jio, on Tuesday posted a steep fall in its financial earnings for the fiscal year ended March 31, even as it looks to conclude its proposed merger with another competitor Idea Cellular in order to secure future growth.
Vodafone’s India adjusted EBITDA fell 10.5% on year to EUR 1,596 million in the last financial year 2016-17 from EUR 1,815 million in the previous year, it said. The adjusted EBITDA in rupee terms was at Rs 11,784 crore. Further, the telecom giant’s adjusted EBITDA margin also fell by a steep 2.2 percentage points to 27.3% in FY17 from 29.5% a year ago, it said.
Vodafone, the second-largest telecom services operator in India, also posted an operating loss of EUR 4,171 million in FY17 as compared to operating profit of EUR 423 million a year ago.
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The Indian telecom sector has been operating under tremendous pressure after the entry of Reliance Jio, which with its free-to-dirt-cheap tariff offers has forced the incumbent players to drastically cut their tariffs in order to retain their customer base. Reliance Jio has managed to add 10.89 crore users on its network out of which 7.2 crore are prime subscribers who have paid a one-time fee of Rs 99 to sign on for the service for voice and data services in return for a monthly rental.
Further, the bloodbath in the telecom industry has forced unprecedented consolidation with the giants Vodafone India and Idea Cellular agreeing to merge to gain scale to compete. Vodafone said on Tuesday that merger will help to capture synergies with an estimated net present value of $10 billion. On the other hand, Bharti Airtel – India’s largest telecom services operator for now – has acquired smaller rival Telenor India to further augment its customer base and network.
The proposed Vodafone-Idea combine, with a total subscriber base of 39 crores, will surpass Bharti Airtel as the largest telecommunication company and will be far ahead of Reliance Jio’s 10.89 crore subscribers. Further, the combined entity would have a revenue market share of 43% and active subscriber base market share of 40%.
The two operators also complement each other, with Vodafone having a strong presence in urban areas while Idea being an established player in the hinterland. The new capital that Vodafone brings in may also be used to pare the substantial debt that Idea has on its books.