Vodafone Idea to begin life with focus on cost cuts

New Delhi: Vodafone Idea is expected to officially start as India’s largest mobile phone operator next week — on what is internally termed ‘Day Zero’ — with cost-cutting measures aimed at returning to profitability topping its priority list, people familiar with the matter said.

The measures include rationalisation of its distributor and tower networks, reduction in advertising and marketing spending, a hiring freeze and letting go of redundant offices across circles, the people said.

“Substantial cost and capex synergies will be unlocked at earliest. As network-related costs are the highest in the telecom sector, maximum synergies will be derived from its optimisation,” said a source aware of the developments in the merged company.

“IT integration and rationalisation of real estate as well as all operations, too, will add to the savings from synergies.”

When Vodafone and Idea announced their merger in March 2017, they had projected about Rs 8,400 crore in annual cost savings by the fourth full year of operations. The financials of both companies have weakened substantially — revenue down about 20% and revenue market share about 400 basis points lower — since then, underlining the criticality of cost-saving measures, experts said. “Areas which are cash guzzlers will be looked into. Some of the distributors will definitely drop out as the two companies start working as one,” said an executive at one of the two telcos, who did not want to be identified.

‘Day Zero’ for the merged operator, with 430 million subscribers,

37% revenue market share, over Rs 60,000 crore in revenue and some Rs 1,25,000 crore in debt, is expected next week, another person said.

Having obtained government approvals last week, Vodafone India and Idea Cellular now need clearance only from the National Company Law Tribunal to form India’s largest telco, Vodafone Idea, which will displace Bharti Airtel.

The two companies did not comment on ET’s queries.

The new entity will have a recruitment freeze, continuing a policy they have practised for a while.

“Hiring will only happen when it is absolutely critical,” said the second person aware of the developments.

Both telcos had let go of thousands of direct employees in the run-up to the merger and currently have some 15,000 people working for them. Sources said the “best person for the job” approach will be followed and employees will benefit from opportunities by working in a larger company.

The workforces of the operators will operate from one office space instead of separate units.

“Shifting will start immediately across circles,” said the first person. Promotional events for the new entity have been included in the list of expenses that can be curtailed.