Re-branding of Indian telecom giants Vodafone and Idea as VI
Created on 16 Sep 2020
Wraps up in 7 Min
Read by 5.5k people
Updated on 12 Sep 2022
Imagine a day without the internet, no Netflix, no Instagram, no Google Maps, no browsing, and no real-time updates of what's happening around the world. But why would you imagine that? After all, we are living in the 21st century, where life without the internet seems like a myth.
But what if the situation is slightly tweaked; you have internet but not as cheap as you get it today. Tariffs are higher, and you have to make a trade-off between more GBs/high speed and less dip into your pocket.
This is exactly what may happen if India's telecom industry emerges as a duopoly (situation in which two suppliers dominate the market) of Jio & Airtel down the road. What about the third big player- Vodafone Idea, you may ask. Well, the Company has had some hard blows in the last few years, and one cannot see far through the fog of war.
It has been more than 2 years since the merger of two big telecom companies- Vodafone India & Idea Cellular. Recently on September 7, 2020, they announced their new brand name 'Vi' (read as We) along with a new logo. But why did the Company rebrand itself after so long? That's a question worth asking!
But maybe the answer lies in understanding the need for doing so given that rebranding is a costly affair, and the Company is already struggling with liquidity issues due to the AGR ruling. So, before we delve into whether this new name & logo will be a breakthrough for Vodafone Idea or not, lets first understand their past.
Telecom industry before and after Jio's entry
When it comes to the telecom sector, not mentioning Jio is inevitable. Needless to say, when Mukesh Ambani led Reliance Jio launched its services on September 5, 2016, it changed the dynamics of the industry completely.
The market share of telecom companies in the pre-Jio era looked like this (As on August 31, 2016) –
But through offering free services for the first few months and then ultra-cheap data & voice calls, Jio was soon able to capture the hearts of Indians and the market share from its competitors in a spectacular fashion.
This is evident in the below post-Jio market share of various telecom companies (As on August 31, 2018) -
In just 2 years, Jio disrupted the market completely. All small players ('Others' falling from 29% to just 2%) were either eroded or bought by big players; the telecom industry became a mix of 4 players majorly- Airtel, Vodafone, Idea & Jio.
The merger between Vodafone and Idea
As a consequence of Jio's looming dominance in the industry, all telecom companies scratched their heads in order to maintain their stand in the market.
On March 20, 2017, the Board of Directors of Vodafone India and Idea jointly announced the merger between them, which finally got all the approvals by August 30, 2018. It was decided that both the brands will continue to operate under their ongoing brand names.
The merger made this newly formed entity called Vodafone Idea Limited, the largest Company in the Indian telecom sector, in terms of market share & displaced Bharti Airtel from top position after over 15 years, making the telecom service provider industry into a three-fold competition between Vodafone Idea Ltd, Airtel and Reliance Jio.
While merging companies are typically quite confident about their synergy benefits, most analysts agree that the Vodafone-Idea merger holds the potential for significant cost savings. With a larger scale and elimination of duplicate costs, margins can rise substantially. But did it happen? Let's find out –
The Profit & Loss statements of the past 5 years are clear as a bell. The net profit margin has slipped from 7.39% in FY 2016 to -163.55% in FY 2020. Also, forget adding new subscribers; the Company is failing to retain its existing customers, which is quite alarming.
Even the stock market has been responding to the Company's quivering fundamentals and murky future, the share price of the Company has been in a downward trend for the past 5 years.
As per TRAI's latest press release, Vodafone Idea Limited's market share as on May 31, 2020, was 27.09%, which is much lesser than their combined market share (Pre-merger) of 38% as on August 31, 2018. On the other hand, Jio saw a whopping rise from 20% to 34% during this period. Airtel has managed to stay stable with a market share of 27%.
To add to the Company's ailments, there came another setback - AGR Ruling.
The AGR Chronicle
We all know telecom companies have to give license fees to the Government. Still, the revenue (read Adjusted Gross Revenue or AGR), which shall be used to compute this license fee, has been a disputable matter between Government & telecom service providers (TSP) from the last 15 years.
The companies contended license fee should be calculated only on revenue from core telecom operations, but Gov. argued to include more items like
- The proceeds from the sale of shares;
- Interest and dividend earned;
- Income from consultancy & management services;
- Interest from inter-corporate loans, etc. within the ambit of AGR.
The Supreme Court, on October 24, 2019, finally put a full stop to this long battle by giving judgment in favor of the Government.
So, telecom companies were now asked to pay the following differential license fees by Jan 2020 for all the past years put together.
Vodafone Idea: 58,254 Cr
Airtel: 43,980 Cr
Jio: 195 Cr
The AGR dispute dates back to 2005, and the claim amount has ballooned because of interest and penalties levied since that date. Here Jio had the advantage of joining the industry late & managed to clear its dues in a timely manner.
Still, the other two TSP demanded staggered payment over the next 20 years on which SC finally gave its verdict on September 1, 2020. Instead of 20 years, companies were asked to clear payment in 10 years starting April 1, 2021.
With marginal operating cash flows & remaining unpaid AGR dues of Rs. 50,400 Cr, Vi has landed in hot water for sure.
To ensure this AGR liability does not become a nail in Vi's coffin, the management has to now drag the Company by looking for possible fund-raising avenues irrespective of whether the Company already has a debt liability of Rs. 96k Cr.
Can rebranding give a new boost to Vodafone Idea?
Well, it definitely gave netizens something new to fuss about! At a time when customers/investors were expecting some investment news in the Company, the revelation of new ad and the brand name became trending fodder for memers to churn out hilarious memes.
There was a lot of buzz on social media, and the Company was quite successful in creating awareness about its new identity.
Even their biggest competitor (rather the reason for their merger) congratulated them in a humorous way -
Coming to rebranding, a successful rebranding strategy can solve various problems and challenges such as stagnating business growth, change in target markets or expansion to new ones, unaligned management, confused or alienated clients, loss of competitive advantages, and so on. So, when a company wants to rebrand, it's not about just changing the logo. It's also about changing goals, messaging, tone, voice, style, and anything else that contributes to its image.
Jio has undoubtedly been in the limelight since its launch, be it by revolutionizing the internet consumption in the country or by being at the forefront of brand sponsorships, picking up programs like Filmfare, KBC, Big Boss, IPL & so on.
With their new high decibel ad, Vodafone Idea have tried to reposition them back in the spotlight. Also, when a company needs to rejuvenate itself, rebranding makes sense.
As per Vodafone Idea, their new brand name using just the two companies' initials is not only shorter & simpler but reflects the spirit of integration & collective nature of Indian society.
Ogilvy, the agency which has been working with Vodafone for many years—even when it was known as Hutch (the pug campaign) and later Vodafone (the ZooZoo commercials)—has executed the rebranding exercise.
With their new tagline – Together for Tomorrow, the Company is giving a strong message about its optimistic future.
Ravinder Takkar, managing director and chief executive officer, Vodafone Idea, said:
"The new brand launch signifies our desire to not just deliver, but delight our customers, stakeholders, communities, and our employees and signals our passion and commitment to be a Champion for Digital India. With Vi, we are confident of building a brand that continues to command respect and trust and will be admired and loved by all. We look forward to your continued support as we get ready to deliver a superior Vi experience".
Whether they will get customers' love & support largely depends on their service quality and the moves taken by their competitors- Airtel & Jio. They are yet to garner the synergy benefits and, most importantly, need to bring out a revival plan. But if this new rebranding strategy turns out to be successful, we can exclaim – "What an Idea Sirji!"
Recently there were rumors about US wireless carrier Verizon Communications & e-commerce major Amazon proposing to invest in Vi, which later turned out to be bogus.
With Facebook, Google investing in Jio, should big companies like Amazon invest in Vi?
What are your thoughts?
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