Reliance Jio effect: Vodafone writes down €5bn against Indian business

Reliance Jio’s official entry into the Indian telecom landscape has been perhaps the biggest news for mobile users this year. The launch was equally damaging if not more for its rivals. Something that was merely being talked off up till now has now been officially ‘written down’.

UK-based telecom major Vodafone, reported a first-half net loss of Euro 5 billion ($5.5 billion) on Tuesday, after writing down the value of its Indian business by the same amount due to increased competition sparked by the entry of Reliance Jio Infocomm.

Jio that went live a couple of months back is currently offering customers three months of free access leading to a price war that is hurting revenue and profit and clouding growth prospects of the incumbent players.

The write-down is the latest in a series of massive impairment charges at Vodafone including a $3.3bn hit in 2010 related to its Indian division.

Given the market conditions, the planned initial public offering of the India unit is “unlikely to take place during the current financial year,” the group said in its earnings release for the first half of the financial year ended September 30.

Vodafone’s first half revenue hit €27bn which was 4 percent lower than last year due to foreign exchange movements. Its organic growth rate was 2.3 percent.

The telecom company also slightly lowered the top of its forecast range for the group's full-year earnings to Euro 16.1 billion from Euro 16.2 billion. The lower limit was left unchanged at Euro 15.7 billion.

Vodafone India’s service revenue grew 5.9 percent on year to Rs 22,579 crore in the first half as the country’s No. 2 telco added 2.8 million subscribers for a total of over 200 million.

Chief Executive Vittorio Colao said Jio’s free trials were “unprecedented” and Vodafone was watching carefully to see that the promotions were limited to 90 days, as required by the regulator.

“For the time being, we have reduced our prices, we have increased our allowances, we made special offers for the value seekers in the market, but of course it’s harder to assess the impact until players play by the same rules,” Calao added.

The British company is also planning to float a portion of the Indian business but said on Tuesday it would now wait for market conditions to stabilize before listing Vodafone India's shares. This would not happen before the end of March, it said.