The increased cost will now be made uniform across all the 22 circles, the company management told analysts a day after it posted a wider net loss at Rs 5,005 crore during the October-December quarter.
In a move to further enhance its Arpu (average revenue per user), Vodafone Idea (VIL) has decided to substantially increase the cost of acquiring new SIM connections. The increased cost will now be made uniform across all the 22 circles, the company management told analysts a day after it posted a wider net loss at Rs 5,005 crore during the October-December quarter.
Earlier the cost of acquiring a new connection was paltry and varied across circles. Now, a customer will have to spend Rs 76 in acquiring a connection plus paying a minimum recharge of Rs 35 for 28 days validity. This means an upfront payment of Rs 111. As reported earlier, only those customers will remain on the network who make a monthly recharge of Rs 35.
Both VIL and Bharti Airtel in November had decided to discontinue with the recharge plans lower than Rs 35. As a result, in the recently declared October-December quarter earnings, both companies have shown improvement in their Arpu numbers.
VIL said on Wednesday that headline tariffs remained stable during the third quarter with customers moving to lower bundled offers and Arpu increased 1.5% to Rs 89 compared to Rs 88 in the preceding quarter. Like Bharti, VIL also removed the low-paying, mostly incoming users, some 35 million who recharged for less than Rs 35 a month. This reduced Vodafone Idea’s total subscriber base to 387.2 million versus 422.3 million in the previous quarter.
A similar move by Bharti saw its customer base reduce by a higher number of 48 million users during the quarter, bringing its total subscriber base down to 284 million from 332 million earlier. VIL management told analysts on a conference call on Thursday, that the move to have a common acquisition plan across its 22 sectors at Rs 76 would basically mean that existing customers get a better deal than the new customer.
Vodafone Idea CEO Balesh Sharma said that if a new customer wants to get a similar deal, they must then therefore buy a SIM card at a price point of Rs 76, which will create better loyalty with the existing base and stop the low-quality acquisitions and therefore higher churn. He added that this model will bring in better base management and also a better management from the cost of acquisition. “During the quarter we will align therefore our postpaid and prepaid plans across the offerings by both the brands,” he said.
Highlighting the reason and impact of removing lower value recharges, Sharma said this was done to incentivise the subscribers to opt for high annuity charges. “So, there’s a levering and therefore we can take the customers up from 35 to 65 to 95 and ultimately to unlimited unit vouchers of various denomination,” he told analysts.
According to analysts some signs of improvement have started to become visible, though the stretched balance sheet remains a concern. Analysts at UBS said, “Customer engagement continues to improve with MoU increasing from 568mins/mnth in Q2 to 580mins/ mnth in Q3”.
Analysts at Goldman Sachs Equity Research wrote that Ebitda, though up 15% q-o-q, came in below their estimates, with the miss driven by lower synergies, especially in network costs. “However, the biggest concern for Voda Idea, in our view, remains its stretched balance sheet; the company had a net-debt-to-EBITDA of 25x as of 3QFY19,” analysts observed. Ebitda is for 9MFY19 annualised.
Analysts at BNP Paribas noted, “VIL has seen revenue increase month-on-month in December 2018 as and January 2019 which we believe could result in revenue growth returning in 4QFY19. On the other hand, costs are likely to fall further as the company moves from Rs 3,000 crore annualised synergy benefit in 3QFY19 to its Rs 8,400 crore target by FY21. Integration has been completed in eight circles without any adverse impact on customer experience”.
“Results should allay some of the investor concerns,” said analysts at Deutsche Bank Research, though highlighting that capex for 3Q19 at Rs 1,170 crore is a third of Bharti’s India mobile capex at Rs 3,730 crore. “VIL indicated increase in capex for 4Q19E as many contracts were finalised during 3Q19. We estimate VI’s FY19E capex at about $2 billion compared to nine month FY19 proforma capex at $1 billion.”