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Vodafone defends India strategy amid pending merger

Vodafone UK CEO Vittorio Colao defended the group's strategy for its Indian operations, insisting Vodafone is "well-positioned" to reap the market's long-term benefits.

The FTSE company confirmed Jan. 30 that its Vodafone India unit, the country's second-largest mobile operator, is in talks with India's third-biggest network, Idea Cellular. Industry observers said such a deal is likely to trigger further consolidation and a new price war in an already hyper-competitive market.

Speaking during a Feb. 2 earnings call, Colao told analysts that merger discussions with the Aditya Birla Group-owned operator would create a "much stronger asset" through a joint venture with equal rights rather than an exit opportunity for the group.

"This is creating…… the number one telco in the country with just under 400 million customers, [making it] the largest network by far," Colao explained.

Competitive pressure following last year's launch of low-cost rival Reliance Jio has weighed heavily on Vodafone's customer usage, as free services offered by the new entrant led to a 1.9% drop in underlying revenues in India.

Hit hard by Reliance Jio's aggressive pricing, Vodafone India's active data customer base for the third quarter ended Dec. 31, 2016, recorded a decline to 65 million, from 69.6 million in the previous quarter. The British mobile giant said its 3G and 4G customer base also decreased slightly.

CFO Nick Read admitted the group "severely undermined" smaller players and their "ability to compete on price but maintained Colao's position that Vodafone would continue to view India as "an attractive long-term growth opportunity."

With the market consolidating as a result of competitive pressures, Vodafone is "well-placed" to be one of the few players of scale remaining, Read said.

Total group revenue for the quarter was €13.7 billion. Vodafone saw a 3.2% decline in U.K. service revenue due to heightened enterprise competition, lower MVNO revenues and the continued impact of roaming regulation. This led to a 4.6% decline in European revenues for the quarter.

Meanwhile, overall service revenue was a bright spot for the company, growing 3.3%, with Vodafone's internet-of-things connections up by 38% year on year to 49.1 million.

Colao concluded by saying that, apart from the situation in India, he is "pleased" with the commercial momentum across the group.