Vodafone Idea is in a state of rapid transformation, says management

Vodafone Idea working on a five-point strategy to help the company tide over its current challenges, which includes a potential fund raise post the outcome of its ongoing case in the supreme court over Adjusted Gross Revenue ( AGRD) dues, likely to come up for hearing again this week. In addition to the fundraise, according to the details of strategy, which the company shared with analysts recently, it has planned network rollout strategy across 16 key circles, aimed at driving ARPU growth through higher 4G upgrades, enterprise partnerships, digital revenue initiatives and cost optimisation measures that will help save around ₹4000 crores over next 18 months.

In the first quarter, Vodafone Idea suffered losses to the tune of ₹25460 crore due to exceptional costs in Q1 including ₹19,440 crore relating to total estimated AGR dues, ₹123 crore as one-time spectrum charge and ₹3.70 crore for integration and merger costs amounting to a total provision of ₹19923 crore. Despite the mounting challenges, the company said that it is in process of restructuring, which the management claimed will transform the company into a lean and agile workplace. The management also sees further optimisation opportunities from IT integration, digital initiatives and energy costs for towers.

“Our business has always been divided across 22 circles from a licensing perspective. Historically we have replicated the organisation structure across the circles irrespective of their size and importance. As the industry has consolidated, the circle level activities have become centralised and there is no reason to have a certain number of people across network planning or customer services in each one of the circles,” said Ravinder Takkar, CEO, Vodafone Idea.

The company has therefore consolidated a 10-cluster based approach instead of a 22-circle based approach now to optimize operations. The operator will also focus on 16 of the most profitable 22 circles for growth. These moves are likely to impact has about 11,000 odd employees of which around 1500 were arleady let go during the past quarter, according to reports.

The key consumer focused part of the strategy will be in terms of upgrading 2G subscribers to 4G . The company has already rolled out premium 4G plans for the same. The management added, similar to Bharti Airtel’s commentary, that their 2G user base will continue to exist as is the case even across top economies. However, instead of subsidizing the 4G device ecosystem as announced by rival Reliance Jio, the company will seek partnerships. “Subsidising devices is not our play. We will work with original equipment manufacturers and non-banking financial companies to help people upgrade to smartphones through easy EMIs where people can choose what devices they want,” said Akshaya Moondra, Chief Financial Officer, Vodafone Idea.

The company reiterated that their content strategy remains unchanged and they will focus only on partnerships rather than owning the value chain. They will also utilise their enterprise presence more effectively especially through their investments in Internet of things, metro fibre rings and enterprise connectivity.

While analysts are positive about the cluster level operational focus, they are still concerned about the operator’s ability to convert 4G subscribers effectively given their relative absence across digital acquisition channels. A report by Axis Capital said that while these cost optimization measures will result in margin benefits for the company, some of the (Q1) margin improvement due to lower gross additions and lower marketing costs may reverse in the coming quarters.

“We see increasing case for (Vodafone Idea’s business) continuity, if SC accepts 15 years or more payout period for AGR dues/penalties, as acceptance of staggered payment along with relief measures from government (floor pricing, reduction in levies, reduction in spectrum liability interest, etc.) and some steps by company itself like recapitalization or new investors/partners could improve its viability,” said a report by Axis Capital. Live Mint