Project Report on Vodafone Essar-Telecommunications Industry Analysis
Strategic and Financial Analysis of Vodafone Essar
Case Study on Company Analysis of Vodafone Essar
SWOT Analysis of Vodafone Essar
Strengths
Vodafone Essar
(Formerly Hutchison Essar)
|
Company
Performance
Financial Data
Operational
Indicators
Company Address
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- India's third-largest mobile operator with more than 124mn customers at the end of December 2010
- Vodafone plans major investment in network infrastructure
- Presence in 21 of India's 23 circles and market leadership in some of these
- High rate of prepaid customers (95%) is likely to ensure relatively low ARPU
- Highly competitive and fragmented market makes growth challenging for a new entrant and demands heavy investment
- Unlike rivals Bharti Airtel, Reliance and BSNL, Vodafone does not yet offer a fully integrated telecoms service
- Had an average quarterly churn rate of about 42% in 2010
- US$2bn in planned investments should help network expansion
- Catching up with second ranked operator Reliance Communications (125mn subscribers as of December 2010)
- Network sharing could accelerate operator's growth in rural India
- Indian mobile sector is the world's fastest growing market, with penetration still only 66.2% as of December 2010
- Mobile market leader Bharti Airtel continues to extend its lead over the Indian mobile market with more than 150mn subscribers
- The government is claiming a US$2bn capital gains tax bill for Vodafone's acquisition of Hutchison's majority stake in Hutchison Essar
- Next phase of growth to come from rural India; obstacles to rapid rural growth include a lack of electricity, expensive network roll-out and lower income subscribers
Company Overview
By the end of 2008, and just over one year after Vodafone had taken majority
control of the operator, Vodafone Essar had more than 82mn subscribers, having
captured more than 28mn net additions over the previous year. The total passed
91mn at the end of 2009 and 100mn at the end of March 2010. Of Vodafone's total
customer base, more than 95% were prepaid subscribers (at the end of December).
Vodafone is ahead of state-owned BSNL and is only just behind second-placed
conglomerate Reliance.
Recent Financial Results
Vodafone India reported total service revenues of GBP963mn in the quarter
ended December 2010, representing an increase of 25.6% y-o-y. The operator
reported 8.7mn net additions in the most recent quarter to bring its total
subscriber base to 124.255mn. Continued growth from data services was also
cited as a key driver for the revenue growth, which partially offset a decline in
mobile voice tariff rates due to strong competition. Capital expenditure was
higher in this quarter because import restrictions on infrastructure
investments were lifted in India and Vodafone has initiated its 3G network
deployment.
In the quarter ended September 2010, Vodafone India saw a total service
revenue of GBP899mn, representing a decrease of 5.8% q-o-q but an increase of
27.7% y-o-y. The operator saw a net addition of 6.492mn mobile subscribers in
the quarter to bring its total subscriber base to 115.553mn and Vodafone
believes it is starting to gain the benefit of scale in the region as a whole.
Growth was driven by an increase in the average mobile customer base and strong
usage per customer partially offset by a decline in the effective rate per
minute due to an increase in the penetration of lower priced tariffs into the
customer base. The operator also noted that delayed infrastructure investment
in India due to import restrictions resulted in a decline in the group's
capital expenditure.
Ownership
Until February 2007, Hutchison Essar was a subsidiary of Hutchison Telecom
International (HTIL), which owned a 67% stake in the operator. In February
2007, the UK's Vodafone acquired this stake for US$11.1bn. Alongside its new
partner Essar Group, Vodafone has a majority ownership of India's third largest
mobile operator (by subscriber numbers). Vodafone's acquisition was approved by
India's Foreign Investment Promotion Board in April 2007.
In January 2009, Vodafone appealed to India's Supreme Court in a bid to halt
the government's plans to impose a US$2bn tax bill on it. In December 2008, a
Bombay High Court dismissed a petition by Vodafone seeking exemption from the
charges. The US$2.5bn bill stems from Vodafone's purchase of its 67% stake in
Hutchison Essar. Following the purchase, Vodafone was informed it was liable
for capital gains tax as most of the assets it purchased were in India. The
Bombay High Court deferred the hearing of an appeal from Vodafone on February 8
2011 and the court is waiting for the Supreme Court of India to make a final
decision on whether the local tax authorities can tax Vodafone.
Mobile Services
Vodafone provides 2G services using GSM technology, but in addition also
offers value-added services such as voicemail, dual SIM capabilities,
missed-call alerts, SMS, GPRS and email services.
Vodafone Group plans to invest heavily in the establishment of a fibre-optic
network in India. This would appear to be an extension of Vodafone's strategy
in the UK and Germany, where it has also started to provide fixed-line and
broadband services to corporate markets. Vodafone Essar is looking to invest in
next generation services as part of its investment programme. Vodafone plans to
invest US$2bn on a yearly basis to increase and fortify its Indian network.
In August 2008, Vodafone introduced Apple's iPhone to the Indian market. As
in many of the other markets in which it operates, Vodafone has an exclusive
partnership with Apple for the sale of the handset.
After acquiring 3G spectrum licences for nine of India's 22 telecoms
circles, Vodafone expects to launch 3G services by March 2011 and aims to build
more than 5,000 base stations by Q411. The operator will launch the service in
phases, taking a city by city approach. Vodafone will also invest US$400-500mn
within the next five years to purchase 3G equipment.
Strategy
In February 2007, Vodafone unveiled a high-growth five-year strategy for
India, which involved bringing ultra-low-cost handsets and wireless
connectivity to rural India as well as contributing to community development.
Vodafone has made the availability of low-cost handsets a core part of its
Indian strategy. Its basic thesis is to make mobile telephony more affordable
to more Indian consumers. It is able to capitalise on its position as a major
international company in order to do this. The operator is also channelling
several billion dollars of investment into rural India on the back of network
sharing agreements with operators such as Bharti Airtel and IDEA Cellular.
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