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Vodafone Idea losing steam after 2018 merger as disruptive rival makes gains

Since forming in 2018, India's Vodafone Idea Ltd. has struggled to live up to expectations and improve key metrics.

The product of a merger completed last August between Vodafone Group PLC's India unit and Idea Cellular, Vodafone Idea overtook incumbent Bharti Airtel Ltd. to become India's largest telco with a combined 422.3 million customers at the time. It held 36.6% market share in wireless subscribers in October 2018, according to the Telecom Regulatory Authority of India.

The merged company also has the largest network, with mobile sites covering 92% of the population, the largest spectrum portfolio and the widest reach with distribution deals with 1.7 million retailers, Idea Cellular said.

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Vodafone Idea's confidence has taken a knock from fast-rising Reliance Jio Infocomm Ltd. The merged company's market share eroded to 32.9% as of June, Telecom Regulatory Authority of India data shows, and its average revenue per user, or ARPU, remains the lowest among India's top three telcos at 108 rupees, according to data compiled by S&P Global Market Intelligence. Bharti Airtel's ARPU is currently the highest, at 129 rupees, followed by Reliance Jio at 122 rupees.

It is also handling the recent resignation of CEO Balesh Sharma, who oversaw the merger as COO of Vodafone India and subsequent integration. The announcement came a few days after a top-level leadership strategy session where challenges related to network, people and integration were discussed, sources told The Economic Times of India. Sharma, who has now been replaced by Ravinder Takkar, will be taking on a new role within Vodafone Group.

Meanwhile, Reliance Jio, which entered the Indian mobile market in 2016, has experienced rapid growth due largely to its aggressive pricing strategy. It held a 21.6% market share in terms of wireless subscribers and 252.3 million customers in September 2018.

As of June, Reliance Jio had increased its mobile customer base to 331.3 million, surpassing Bharti Airtel's 281.1 million and Vodafone Idea's 320 million, S&P Global Market Intelligence data showed. The company is targeting 500 million subscribers and will look to the internet of things sector, home and enterprise broadband services, and broadband for small and medium-sized enterprises as potential growth engines. The Mukesh Ambani-led company also achieved the highest service revenue among the top three telcos of 149.1 billion rupees, while expanding its market share to 28.4% in the latest quarter.

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Reliance Jio's more notable offers at launch included free voice calling and low-cost data. These triggered a price war in the Indian telco market, analysts previously told S&P Global Market Intelligence.

Incumbent Bharti Airtel has also been impacted by the rise of Reliance Jio. The telco's wireless market share fell to 27.5% in June 2019 from 29.4% in September 2018. It recently listed its African unit on the London and Nigerian stock exchanges and raised US$1.25 billion through a primary issuance to six global investors, a move analysts say will ultimately free up capital to spend on marketing and on building stronger networks in India. This could give Bharti Airtel a better chance of withstanding the price war triggered by Reliance Jio, they said.

As of Aug. 27, US$1 was equivalent to 71.50 Indian rupees.