SECTOR: TELECOM

COMPANY: VODAFONEIDEA
INDUSTRY AND THE COM PANY,

Telecom Industry: India is the world's second-largest telecommunications market, with around 1.20 billion subscribers as of
December 2018. The telecom market can be divided into three segments – wireless, wireline and internet services. The wireless
market segment comprises of 98.20 per cent of the total subscriber base, as of February 2019.

Strong policy support from the government has been crucial to the sector’s development. Foreign Direct Investment (FDI) cap in
the telecom sector has been increased to 100 per cent from 74 per cent. FDI inflows into the telecom sector during April 2000 –
December 2018 totalled to US$ 32.45 billion. The Indian Telecom Industry is a four-player market namely, Vodafone Idea, Bharti
Airtel, Reliance Jio and BSNL/MTNL.

About VodafoneIdea: Vodafone Idea Limited is an Aditya Birla Group and Vodafone Group partnership. With the recent merger
(31st Aug, 18) of Vodafone and Idea, Vodafone Idea has become the India’s biggest telecom service provider. The Company
provides pan India Voice and Data services across 2G, 3G and 4G platform. With the large spectrum portfolio to support the
growing demand for data and voice, the company is committed to deliver delightful customer experiences and contribute
towards creating a truly ‘Digital India’ by enabling millions of citizens to connect and build a better tomorrow. The Company is
developing infrastructure to introduce newer and smarter technologies, making both retail and enterprise customers future
ready with innovative offerings, conveniently accessible through an ecosystem of digital channels as well as extensive on-ground
presence. The Company is listed on National Stock Exchange (NSE) and Bombay Stock Exchange (BSE) in India.

Company’s Vision: To create world class digital experiences to connect and inspire every Indian to build a better tomorrow.

DESCRIBING THE MARKE T SIZE,

As of September 2018, in terms of total internet users, India ranks as the world’s second largest market with 560.01 million
internet subscribers. India is also the world’s second largest telecommunications market with 1,197.87 million subscribers, as of
December 2018. In next five years due rise in mobile-phone penetration and decline in data costs will double the number of
internet users in India, creating opportunities for new businesses.

India’s current mobile market size has been shared by four players- Vodafone Idea being the market leader with 34.7% share,
Bharti Airtel at second position (31.7%), Reliance Jio holding strong at 22.4% share and govt. operator MTNL/BSNL at the 4th
position with approx.. market share of 11.2%
GROWTH PROJECTIONS OF THE INDUSTRY AND THE COMPANY

Telecom Industry:

The main factors for Telecom sector benefits are a. Growing demand b. Policy support c. Increasing investments. Growing
demand factor is basically classified within a. Higher real income and changing lifestyles, b. Growing young population and c.
increasing MOU and data usage. Growing demand is inviting Policy support which is a. Reduction in license fee b. Relaxed FDI
norms c. Encourages firm to expand to rural areas. Policy support is resulting in Increasing investments which are a. Higher FDI
inflows and b. increasing M and A activity.

Robust demand - India ranks second in terms of telecommunications subscriptions, internet subscribers and app download
globally. Attractive opportunities – With 70% population staying in rural areas and telecom penetration of 58.45% as of July,
2018, the rural market would be a key growth driver in the coming years. Policy support – The government of India unveiled the
National Digital Communications Policy 2018 in September 2018.The policy aims to attract US $100 billion worth of investments
and generate 4 million jobs in the sector by 2022. Increasing ratings – Telecommunication ratings in the country are expected to
start rising within the next two quarters (Q3 and Q4 2018-19), providing higher pricing power to players.

Vodafone Idea:

Vodafone has real GDP growth 7.3% (Avg from 2014-17). It has become 7.5% (Avg from 2018-20). For Vodafone incremental
population coverage is greater than 350 by march 2019 and for Idea, it is greater than 250 by march 2019. EBITDA growth for
Vodafone is 11.8% by 2018. It is expected expansion of 4G population coverage will be greater than 80% of Vodafone Idea by FY
20.

RELATIVE PERFORMANCE OF THE COMPANY WITH RESPECT TO COMPETITION

Performance Assessment:

VodafoneIdea is the third largest mobile telecommunications operator in the country in terms of subscriber base, with Pan India
operations offering Voice, Broadband Data, Value Added Services (VAS), Digital Content and Mobile Banking Services. The
Revenue Market Share (RMS) on Adjusted Gross Revenue basis (AGR) for VodafoneIdea stands at 16.6% for the quarter ended
March 2018. As of March, 2018, the subscriber base of VodafoneIdea stands at 207.7 Mn (on VLR), with subscriber market share
of 20.8%.

VodafoneIdea provides mobile telecommunications services Pan India, 2G services in all 22 Service Areas, 3G services in 21
Service Areas and 4G services in 20 Service Areas. While the Company offers 3G services in 15 Service Areas and 4G services in
20 Service Areas pursuant to spectrum acquired, the Company also provides 3G services in six additional Service Areas through
intra-circle roaming arrangements with other mobile telecommunications service providers. The Company also offers carriage
and passive infrastructure services.

KEY FUNDAMENTALS:
 Bharti Airtel Vodafone Idea Reliance Communications Tata Communications
Company Name
Ltd. Ltd. Ltd. Ltd.

Market Cap (₹ Cr.) 182,638.00 33,707.00 497.80 13,981.00

Earnings Per Share (EPS) 0.2 -11.97 -36.68 9.36

Dividend per share (DPS) 2.5 0 0 4.5

P/E Ratio ) 2,013.63 0 0 66.39

BV/share 257.15 58.7 33.68 308.89
P/B Ratio 1.55 1.29 0.65 2.01
PAT Growth 100.8 -476.25 -450.56 -62.35
Debt/Equity Ratio 0.64 2.27 3.85 0.06

Return on Assets (ROA) 0.04 -5.99 -17.09 2.07

Return on Equity (ROE) 0.08 -20.44 -60.1 2.95

Return on Capital Employed

3.17 -3.86 -19.64 5.48
(ROCE)

KEY CHALLENGES

Telecom Industry:
 Lack of fixed line penetration:
o India has very little penetration of fixed line in its network whereas, most of the developed countries have a
very high penetration of fixed lines.
o The countries having high fixed line penetration are able to operate broadband over the fixed line and thus are
much ahead of India in terms of download speeds.
o Though India has almost 1.2 billion connections the fixed line is around 18 million. Broadband Connectivity on
fixed line is also poor.
o Only around 25% of Towers in India are connected with fibre networks, whereas in developed nations, it is in
excess of 70%.
o 5G Network requires towers to be connected to with very high-speed systems. Those high speeds are not
possible on the present radio systems. But are possible on fibre system.
 High Right-of-Way (ROW) cost: Sometimes, states governments charge a huge amount for permitting the laying of fibre
etc. (A right of way is a type of easement that allows a person to pass through another's land)

 It takes a long time to get right-of-way permissions and thus India is yet not able to exploit the full potential of 4G
networks.

 Huge fluctuations in the duties on Telecom Equipment which contribute to connecting the whole system from centre
server to the consumer.

Vodafone Idea

 As per a Bloomberg Quint report, the merged unit will have 1,120 MHz spectrum across the five bands, making it the
biggest holder of spectrum in India. But the consolidated entity cannot have more than 50 percent spectrum in any
individual circle and more than 25 percent overall spectrum in order for the deal to go through, as per TRAI rules. This
poses a problem for the Vodafone-Idea merged entity as it will have more than 50 percent spectrum in five circles,
namely Maharashtra, Gujarat, Kerala, Haryana, and Uttar Pradesh (West). Thus, the companies will have to sell either
sell the excess spectrum to other operators or give it back to the government without any monetary compensation.
 The scale, size, and synergies, if integrated appropriately, will show results soon for the merged entity, and may even
result in another price war. Even if VodafoneIdea becomes the number one in terms of subscriber base, it still would
need to fight Reliance Jio and Airtel in getting 4G subscribers as it lacks in content ecosystem space.

 They cannot be running both networks. The equipment is from different vendors. In any given geography, they will
have to decide which the primary vendor is. One network will shut down but the sites that they need have to be aligned
to the other network.

 The company will also have to decide the long-term brand strategy, apart from rationalising pricing plans quickly so that
there is no arbitrage between the two brands. This is also crucial as Bharti Airtel and Reliance Jio continue to outpace it
in 4G coverage. For boosting 4G, huge sums of money will have to be pumped into expanding the network, which
inarguably would be Vodafone Idea’s biggest challenge.