Vodafone India is optimistic about the opportunities in the telecom sector here. But the country has to get its policy environment right to speed up investments and catch up with global service standards, says Marten Pieters, Managing Director and CEO, Vodafone India.

While the capital gains tax dispute between the Vodafone group and the Government is ‘daunting’, the company believes it has done right in coming to one of the largest emerging markets. But spectrum availability has to increase and pricing has to come down, he insists. Excerpts from his interaction with journalists of The Hindu group.

What are the challenges the industry is facing here?

The cost for operators has to be brought down and return on capital has to grow. I am not complaining about the Government; I think it has done better and things are changing, even if it’s slow. I am far more optimistic now than I was a year back.

Spectrum auctions have happened following Supreme Court orders. But with auctions, there is nothing much that can be done about pricing. So a secondary market with spectrum trading is needed to increase availability. Also, spectrum that is locked up with the Defence Department has to be freed up.

There is also the high usage charge of five per cent of revenue, a recurring expenditure. It is unusual to have both a high cost for spectrum and a high running cost. You can have one or the other, not both. We have paid over ₹66,000 crore to the exchequer alone. Then there is the universal service obligation of over ₹3,00,000 crore. We are collecting money from poor farmers to roll out services in rural areas.

Do you see a consolidation in the sector happening to address the shortage of spectrum?

There are operators who are sitting on unutilised spectrum but the problem is that spectrum trading is not allowed. So the only option is to buy the whole company or the business in a whole circle.

For example, Aircel has 3G spectrum in Karnataka but we do not. We would love to have 3G spectrum in Bangalore, the IT hub. (But buying the entire business) means we will get all their towers and the 2G business as well. Then it is no longer attractive because we already have these.

Also, companies with spectrum are laden with huge debts of over ₹4,000-5,000 crore; their 10-15 year contracts with tower companies have to be paid off. So in reality, consolidation could be tough. It would be far better to allow spectrum trading. Then, we just get the 3G spectrum while the original licensee holds on to the 2G business.

What are the changes in spectrum trading policy needed here?

The industry structure, in my view, has to change and that is the responsibility of the Government. It is not just about increasing competition to keep prices low for consumers. There are 12 players in India and billions of dollars have been wasted in building network and towers. This money could have been spent in expanding the reach and rollout of services. Globally, it has been shown that having more than four players does not help much in bringing down costs for consumers.

In China, for instance, there are just three players. Services are low-priced and there is better rollout of bandwidth. Spectrum was free but there were stringent rollout obligations. Over $50 billion has been invested in the last one year. User price is not just about increasing competition but increasing scale of operations.

But with fewer players will cartelisation be a concern?

Where is the question of cartels? How about the rest of the globe? The industry structure in telecom doesn’t have to be any different in India, the US or Japan.

You cannot deny that there is low broadband penetration in India, low returns to investors and that companies are not doing well. There is a huge pending demand for data services.

The Government’s policy document targets 600 million broadband users by 2020. Something has to be done to achieve that.

As it is we are sitting on a bit of a time bomb. In all major cities where 3G has been introduced it has taken off well. But we will soon reach a ceiling. That is why Vodafone bought over 900 MHz in Mumbai. The existing bandwidth has been used up.

But India has a huge subscriber base…

Yes, but that is why you have such low prices. In any (other) market in the world, four players will make for maximum competition. The only thing that having 12 players in India has done is destroy good operators. You do not get investments, rollout of broadband is not fast enough and services are far behind the rest of the world. At the country level, this is not good news.

I am not saying the number of players in India should go to four. Maybe there can be six, but 12 is too much. All of them need capital, bandwidth and rooftops.

What is Vodafone’s view on investments here?

We have made huge investments. But shareholders are yet to see any money (come back to them). You need investors with deep pockets to sustain in this kind of an environment. It also means people needing quicker returns have no future here.

But testing the patience of investors, even if they have deep pockets, is a dangerous game. Vodafone has been in the market for seven years and is yet to pay dividends.

How long can we not pay dividend? We have evolved well. We entered the market, we have grown the enterprise and are rolling out value-added services, such as mobile money.

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