Vodafone -Tariff decline, slowdown in minutes’ growth: Alchemy

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Vodafone India
Telecom
Tariff decline, slowdown in minutes’ growth
Vodafone reported its 2QFY11 numbers today. We focus on its performance in
the Indian market and the likely implication for its Indian peers, who are yet to
announce their 2QFY11 results. Vodafone Essar reported a 0.2% QoQ decline in
revenue (constant currency) to `64.7bn. Growth in voice minutes slowed down
significantly, QoQ.


Slowdown in voice minutes
Growth in voice minutes slowed significantly to 1.6% QoQ compared with strong
double-digit growth in the previous two quarters. This is in sync with rival Idea’s
performance. Idea reported a 3.1% QoQ growth in total minutes in 2QFY11, against
strong double-digit QoQ growth in the last three quarters.
Sharp dip in average revenue per user (ARPU)
ARPU dipped 7.3% QoQ to `177. As expected, the decline was higher in the prepaid
segment. ARPU in the prepaid segment declined 7.6% QoQ to `145, against a fall of
2.3% QoQ (to `760) in the postpaid segment.
Other highlights
 EBITDA margin for 1HFY11 declined by 160bps to 26% over 2HFY10.
 Annualised churn increased to 41.4% compared with 38.8% in 1QFY11,
primarily attributable to the prepaid segment.
 The management mentioned that the rate of tariff decline is slowing down;
however, the direction is still negative.
 Capex for 1HFY11 was low at `20bn due to import restrictions.
 The company has no plans to sell its non-Indus towers, estimated at ~7,000.
 3G services will be launched in 4QFY11; the company is in discussion with
various operators about providing the roaming facility.
Key takeaways from the result
 Bharti is expected to follow the trend set by Idea and Vodafone and is expected
to register muted numbers (decline in tariffs, coupled with slowdown in
minutes’ growth) for Indian operations. However, the focus will be on the first
full quarter of African performance and guidance (of any sort) for Africa.
 The postpaid segment remains lucrative as reflected in the over 5x higher ARPU
(over prepaid) for Vodafone and a relatively lower churn. The data released by
the Telecom Regulatory Authority of India (TRAI) also indicates that 1QFY11
Indian GSM postpaid ARPU stands at `509 against `106 in the prepaid
segment. The postpaid segment will be the target of intense competition after
the mobile number portability (MNP) facility is made available to users.
 We remain cautious on the Indian telecom sector.