Vodafone Idea works towards cost efficiency


    There is a clear signal that the cash-strapped telco is preparing to stay and fight in the market.

    ET Bureau
    New Delhi/Mumbai: Vodafone Idea (VIL) said its call to bunch 22 circles into 10 clusters is a step towards a "new operating model, which is leaner, agile and more cost-efficient to address customer needs”.

    Analysts say this sends a clear signal that the cash-strapped telco is preparing to stay and fight in the market.

    "VIL is moving from circle-based operating model to cluster-based approach and is starting consolidation of operations to 10 clusters with a sharper focus on business,” the telco said in an email statement to ET. “This new operating model will mark a quantum jump in operational intensity, leading to stronger competitive positioning for VIL in the market place."

    ET had reported in its March 11 edition on the company’s plan to rejig its circles.

    "De-duplication of operations, resources and processes was addressed early in the merger journey, and now the company is moving to the new operating model, which is leaner, agile and more cost-efficient to address customer needs," the telco added.

    The operator, racing to complete its merger integration by June, went through one of the biggest rejigs since inception. In the process, it has been losing customer and revenue market share rapidly.

    "This will weed out costs by downsizing operational structure, reduce overhead costs, which in turn will increase chances of survival,” said Rajiv Sharma, head of research at SBICap Securities. “It suggests that in near to medium term, the company may come out of unprofitable markets, curtail investments in these areas and continue to invest in profitable circles."

    "The cluster-based model adopted by VIL will help it to rationalise its costs and hence improve EBITDA, at a time when customer and revenue market share is falling. This could potentially be the template that can be followed by the other operators in India as well," said Ashwinder Sethi, Principal, Analysys Mason.

    VIL's stock rose nearly 9% in intra-day trade, before closing 3.48% higher on BSE at Rs 5.65.

    This change comes at a time when the telco remains under a financial stress and has to pay most of Rs 58,254 crore worth of statutory dues to the government.

    "If the Supreme Court doesn't allow government to negotiate on the timelines, then all these changes will not hold up the fort," said an analyst who did not want to be named.

    The SC will take a call on whether the telecom department and the operator can negotiate on adjusted gross revenue (AGR) payment modalities. VIL has been hit most in this AGR crisis.

    But not all are convinced with the new cluster change as well.

    “Vodafone Idea’a EBITDA of around INR12 billion (Rs 1,200 crore) a quarter is unlikely to change meaningfully due to cost savings through consolidation of circles in 10 clusters,” said Nitin Soni, senior director-corporate ratings at Fitch Ratings. “EBITDA can improve mainly due to tariff hikes, which we expect to be realised in 4QFY20 and 1QFY21 for Vodafone Idea.”

    This rejig will lead to some employee rationalisation as well, specially in the senior roles as each circle will not need multiple heads and direct reportees.

    Sethi added that the primary efficiencies from this cluster-based approach is expected to be driven by streamlining of organization structure, which may lead to employee restructuring or reduction in some of the clusters.

    In an internal mail the employees, the telco said that cluster business heads will be based at the cluster headquarters and will report to respective operations directors. These cluster heads will focus on revenue market share growth (RMS), customer market share maximization (CMS), experience excellence across touch points (NPS), channel productivity and spend optimization.

    "The new operating model provides for more operational intensity and customer centricity, and marks a change in our ways of working," VIL told ET. It will provide opportunities to employees to upskilll themselves.

    "We believe that the new structure there will actually create bigger and consolidated roles that will afford opportunities for growth to a large number of internal resources and also lead to inducting specialized skills from the external market," the telco told ET .

    Analysts said fears of the operator becoming a regional player was allayed. "Even though telecom services are licensed circle wise, players have all licenses and therefore have de-facto nationwide operations," said Mahesh Uppal, director at Com First. "They may also like to break their service units based on commercial considerations."
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    7 Comments on this Story

    Friend127 days ago
    Cheaters like VIL shld have fortune like this. They cheat on customer to make them change plans, offer them services which they can’t provide later and then stops such plans in between and than penalise the customer for change in plans. Deliberately they put customer on highest billing plans and than threaten them of consequence. Firm with such practice may survive the wrath of govt but will never have loyalty of customers. Faster they move out of India better for customer. Happy to help, is slogan where by they are just helping themselves and not customers.
    Anonymous 128 days ago
    The due calculated on airtel and vodaphone has given a huge advantage to jio which is unfare as they never bid for the 4g license .
    Sugumar Iyer128 days ago
    Vodafone believed and still believes in irrational,advertisement oriented promotion tactics. This will not work any more.
    Idea staff were/ are good and honest.
    If as a joint venture company, if the services are merged and honest and truthful efforts are taken the chances of survival and competitiveness will improve.
    Please make the feedback system and corrective system efficient to derive customer satisfaction and continuation with them.
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