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Updated: June 2, 2013 23:16 IST

The industry construct is wrong

Yuthika Bhargava
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There are too many limitations and regulations: Vodafone India CEO

Vodafone, which is dealing with several issues such as licence renewal, high spectrum prices and a Rs, 11,000-crore tax demand in the country, still believes India to be an attractive market.

The company is optimistic about its opportunities here and foresees a huge scope for growth in 3G services. In an interview with The Hindu, the Managing Director and Chief Executive Officer of the country's second largest telecom services provider, Marten Pieters, talks about company's journey in India, the roadblocks it has had to face and the way forward. Excerpts:

3G is an important area of focus for Vodafone. However, objections have been raised over intra-circle roaming (ICR) agreements. What does this mean to Vodafone?

The matter is in court. What we have learned about these regulatory cases is that they can run for a long time. In between, we can not take new customers on board. So, we are thinking about what that would mean for us.

But we think 3G has a great future in this country. It only started three years ago, and is taking off very well now.

A structured solution for us would be to buy our own 3G spectrum. So, let’s hope the government makes more spectrum available. We would be willing to then invest if the price is right.

Court cases take time. In the interim, what is your expansion plan?

I can’t do much about this. We would continue to pamper our existing customers, but we cannot take on board new customers. So, we are kind of stalled there. We think this is not going to go away quickly.

The issue is in court. The next hearing is in end of July, the next might be in September and the next in December. It goes on and on.

So, we need to think about the plan B, and the only plan B is to acquire our own spectrum over time. I don’t think there is any other plan B.

Some of your licences are up for renewal next year, and that matter is also in court.

The difference with this one is that it cannot be in court for five years as the licence needs to be renewed. I think the government has a clear interest to get this out of the way.

We are in quarrel mainly over the government auctioning our existing spectrum. This is the principal point. If you forget about that point, then it’s really about the price of the spectrum. We have not said we don’t want to pay for licence extension. We extended it, and we need to pay for that. It’s just a matter of at which level.

You saw us participating in the November auction. Why did we participate?

Because we thought price level was acceptable. And, we did not participate in March, as we thought the price level was not acceptable. After all, in the end, this is a business. It is like getting a mining licence. If the licence is too expensive, you can never make money.

This is for us a mining licence meaning that if the price is too high we don’t see an economic picture for it. The price needs to come down. It’s all about the price.

Not everything has gone according to plan for Vodafone in India. What are your views on the market here?

If you look backwards, when Vodafone invested in India, two things for sure were not foreseen. One was taxes, and the second thing was that six new operators would start in two years. So, from that perspective, there have been a few setbacks.

But we have our money in the ground now. So, we are here to stay, and we are very optimistic about future. We are now on a very nice trend now. If you think about India Inc, there is so much development that is needed…decades of development that’s my personal opinion.

This is not going to be a quick fix. It will be a long journey before you see the markets mature. Actually, the wealth of people is not increasing anymore. It is just stabilising. But for a country like India that is very far away.

It is very attractive market for services like ours, which is a very basic infrastructure service. There will always be demand for it.

But, at the same time, it is a very capital-intensive industry, and people don’t always realise that we keep kind of replacing stuff. We bought service five years ago. Now technology has completely changed, we need to replace it… 2G becomes 2.5G, 2.5G becomes 3G, which will very soon become 4G, and they are already talking about 5G. And these are huge investments.

The capital intensity of the business needs to be translated in allowing people to make a return on their investment, and that is the issue.

It is not the attractiveness of the market. It is the whole construct of the market — too many operators, not enough spectrum, spectrum too highly priced, too many charges like USO Fund, and high spectrum usage fee from the government.

We pay about Rs.10,000 crore to the government every year just as a running cost of the business. Now that is certainly high on about Rs.35,000 crore of revenue.

During the auction, new foreign players did not come as expected. In fact, existing foreign players reduced their investment. We are clearly on a downward trend there.

It has nothing to do with attractiveness of the market. The market is very attractive; it’s just that the industry construct is wrong.

When can we see things stabilising in the industry, and the telecom sector returning to high growth?

I think that will probably need another 18-36 months to see that really happening. In the end, consolidation needs to happen. The number of operators is down from 12 to about 9-10. This needs to go back to 5-6 at best. There is another round of consolidation that needs to happen - one way or the other.

Do we see Vodafone also getting into an acquisition mode?

We have always said that we are willing to look at opportunities.

Take the example of 3G. I would be interested in buying 3G spectrum. It could be new spectrum or it could also be existing spectrum from an existing player. But here we again run into regulations. Even if a guy is willing to sell it, I am not allowed to buy because you cannot trade spectrum.

There are too many limitations and regulations to make it happen. That is why you are not seeing consolidation. It’s not that people don’t want it, but rules make it impossible. So, we are waiting for new M&A rules. The rules need to make it more attractive.

yuthika.b@thehindu.co.in

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