Vodafone Group (VOD) reported a first-half loss of $5.5 billion on Tuesday. The company wrote down the entire Indian division, as new rivals have caused the company to engage in a price war.
Three things to know as the company announces the loss:
1. Reliance Jio Infocomm Enters the Market
Vodafone, one of three key telecoms in India alongside Idea Cellular and Bharti Airtel, engaged in a price war with a new company: Reliance Jio Infocomm. Mukesh Ambani, the richest businessman in India, backed Reliance.
Reliance introduced free calls and reduced data costs in September in an unprecedented move.
The introduction of Reliance into the market changed the outlook for all mobile companies. Vodafone was forced to reduce their prices and increase allowances to help offset customer loss to Reliance.
2. Reliance’s Promotions are Temporary
Reliance’s promotions, as per the regulator, should be temporary. Vodafone is paying close attention to the company to see if the promotions are within the 90 day threshold. Reliance’s initial offerings are viewed as temporary.
When Reliance starts to bill customers, mobile telecoms in India will have a clearer picture of the future of the industry.
3. Vodafone Plans to Spinoff Its Indian Division
Vodafone is mulling over the idea of spinning off its Indian division, but the plans have been put on hold. The company has intentions to spin off its Indian division with an IPO. The company will hold off on the spinoff until market conditions stabilize following the shakeup caused by Reliance.
The company lowered its top full-year earnings forecast from $17.3 billion to $17.2 billion. Lower-end forecasts remain the same at $1.68 billion.
Vodafone’s shares are down 17% in the past 90-day period. The company improved its network and data packages in Europe, which led to 4G subscribers increasing by 15 million and 525,000 broadband subscribers added.
The company’s earnings before interest, depreciation and tax reached $8.47 billion in the first half of the year.
