British telecom major Vodafone ventured into the Indian telecom space in 2007 with the acquisition of a controlling interest in Hutchison Essar for $11.1 billion. Though it led to the company setting up shop in India, the acquisition also got it embroiled in a $2.5-billion tax issue.
Today, Vodafone India is the second-largest telecom operator in India by subscribers. Managing Director and Chief Executive Officer Marten Pieters says the company is focussed on market growth and not in a “numbers game”. In an interview with Business Line, he talked about policy and regulatory uncertainties, an imminent tariff hike and 3G services, among other things. Edited excerpts:
Very interesting, for sure. In six years, we have invested more than ₹56,000 crore making us possibly India’s largest international investor; increased our presence from 16 to 23 circles; invested in new technology and 3G spectrum, and paid the exchequer about ₹62,000 crore.
The Indian telecom sector is bogged down with scams and regulatory uncertainties. How have these issues impacted the industry?
I would not like to comment on issues pending before the courts. There was a situation where licences were given to too many players, which meant that pricing levels became extremely low, thereby impacting the financial results of every player.
Policy and regulatory uncertainties also had an adverse impact on the fortunes of the industry, which were made worse, post the licence cancellations as the Government became over-cautious. Key policy issues were delayed. I hope these issues will be resolved in the very near future.
Has the tax issue resulted in the company losing faith in the Indian telecom sector?
The tax issue is a Vodafone Group-related matter and we at Vodafone India are not connected to it. Our actions clearly indicate that it has not impacted our faith in India. As you know, when foreign direct investment in telecom was announced, Vodafone expressed its willingness to invest over ₹10,000 crore to raise its stake in the Indian operations. To me, it conclusively proves that Vodafone remains strongly committed to India, and its Indian operations.
Is a mobile tariff hike imminent as most operators are bleeding and debt levels mounting?
Growth is coming back to the levels before and, more importantly, most operators are now interested in rational pricing. Headline tariffs have not moved much, but discount schemes have been reduced.
The issue is that all major operators are leaders in some and challengers in other circles.
An operator needs a certain minimum market share to be sustainable in a circle. Hence, it is very difficult for an operator to grow to that level in a challenger market. These dynamics determine how much the market will allow you to raise prices. But I do believe that the days of irrational pricing are behind us.
Do we see Vodafone India raising tariffs?
A low-tariff regime may not be sustainable any longer for the industry.
We have seen tariffs dropping for 18 years against annual inflation of 8-9 per cent each year. Obviously, this cannot go on forever.
What are Vodafone’s plans for 4G?
The ecosystem for 3G (handsets) is evolving at a fast pace but it is still too early for 4G — the ecosystem will take far longer to develop.
The current spectrum for 4G is also not very good, so I see limited opportunity at this point for 4G in India.
In that case, what new revenue streams will operators have?
We see immense potential in mobile banking. We have already launched this product in 14 States and plan to take it pan-India in the next few months.
When do we see a nationwide rollout of 3G services from the present nine circles?
You are aware that we, like some other operators, were providing 3G services nationally. However, there is a dispute on the interpretation of the rules, and the matter of intra-circle roaming is before the courts.
Till there is a decision on the matter, or additional 3G spectrum put up for auction, our hands are tied.
Despite all the initiatives, Vodafone is still number two…
To us, it is not about the numbers but to be able to show steady growth, which we have done. We started our operations in India in 2007.
Since then we have grown from a subscriber base of 25 million to close to 160 million with a rural customer base of 83.2 million.
As per our H1 FY14 figures, we have the largest post-paid base of 9.6 million.
Of the 23 circles that we operate, only three circles have less than 10 per cent revenue market share.
Vodafone Business Services, our enterprise business arm, now contributes over 10 per cent of total revenues. On the data front, today we have 42.5 million customers.
Mobile Internet contributes to over eight per cent of total service revenues. These achievements, in a mere six years, are commendable.