* Vodafone strengthens spectrum position
Vodafone has acquired €2.74bn / c$3bn (cons €1-3bn) of spectrum in India in the
1800, 2100, and 2500 MHz bands. This compares with total auction proceeds of
$9.9bn, with Bharti Airtel spending $2.1bn, Idea $1.9bn, and R Jio c$2bn. None of the
700MHz or 900MHz spectrum was sold in the auction, and this spectrum may be reauctioned
in the future. However Vodafone has stated that it now has 4G capabilities
in 17 of 22 circles or 94% of mobile data revenues, so its future need for spectrum in
India may be relatively more limited.
* Further detail on the spectrum Vodafone acquired
Vodafone acquired 2 x 42.6MHz of 1800 MHz spectrum, 2 x 40MHz of 2100MHz
spectrum, and 200 MHz of 2500 MHz spectrum. This improves Vodafone's overall
spectrum position from 590MHz before the auction, to 958MHz of spectrum post the
auction, with improved coverage in the metro areas.
* Low visibility on Indian growth near term given Reliance Jio entry
Near-term focus for the Indian market is likely to remain on the impact of Reliance Jio's
entry, and how the pricing of its offering develops. As visibility increases on Reliance
Jio's plans, the medium-term growth potential for the Indian market is likely to become
clearer.
* Valuation: PT based on SOTP/DCF
Overall India is c10% of Vodafone compared to Europe at c65%, and with the UK at
c10% of EBITDA, VOD is likely to benefit from any GBP weakness. We reiterate our
view that recovery and operational gearing at Vodafone has been underestimated and
that growing mobile data usage should help drive 'more for more' price increases
across Europe. Separately, we see M&A optionality should Vodafone undertake a
broader deal with LBTY. On UBS estimates VOD offers a 7% EFCF yield on a
calendarised basis for 2017E rising to 9.5% for 2018E with a 5.5% dividend yield.