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Only time will tell if price war is over; possibility of promoter infusion can’t be ruled out: Voda MD


The package from the government is a game changer. It is a very different position than where we were just few weeks ago. The response from the promoters have been very positive. They have both come out with praises for the reform package. The company will raise funds in the coming weeks once we get the details of the financial package from the government. We will update our business plans and take them to the board, says Ravinder Takkar, MD & CEO, Vodafone Idea.


How should one read into the government moratorium and the new guidelines? Is this just kicking the can down the road or will this moratorium make a meaningful difference to your business?
From package and a reform perspective, I would be the first one to say this is probably as big as it gets. It is a very bold move by the government and it will ensure that the sector not only survives and thrives but it remains a three-player market and does not turn into a duopoly or monopoly for that matter.

Also at the same time, the government has carried out reforms as part of this package. The government wants to make sure that the sector remains very competitive. Now with regards to the package itself and what it means for

, there are three different categories in which this package or reforms can be out.
One is what I would call structural reforms. These are mostly prospective in nature. Going forward the spectrum will be given for 30 years instead of 20 years. The definition of AGR is going to change going forward. Even as charges are not going to be levered on spectrum that is auctioned. So that is one category of reforms. The other ones are operational in nature which are around our customer acquisition form, acquisition of new customers in a digitalised manner and FDI approval which was already 100%, but now, it is 100% on automatic route.

Then last but not the least is what I would call financial reforms and there is the moratorium of four years on any government payments which is not only what we pay need to pay the government for spectrum but also what we pay to them for AGR dues. Those will be paid back in the form of instalments which will take a different shape for AGR versus spectrum but they will be paid back over a period of time. This is a very bold and important reform. It has far reaching consequences for Vodafone Idea.

There has always been debates and questions in the media about whether we will be around, whether we will stick around, whether the company will survive. We were always confident that we will, but now this is clearly a vindication and it is true to say that we will be around and hopefully that question can be put to bed forever now.

The second part is that with this moratorium, the government has clearly said that instead of paying it, they want us to invest into the business. So, all the money that we have leftover as EBITDA should be invested further into the business which we plan to do which means increased 4G coverage, more capacity, more digitalisation, more new services for our customers and better customer experience.

Also the company needs additional funding and this will open the doors for the next round of funding that the company can do. It will be a very different exercise than it has been in the past given this reform package and all those funds that have come in, can be further invested into the business. So I think this is really a game changer for the industry. I do not see any reason why this can just be called a kicking the can down the road as you said. These are serious structural reforms and the intent of the government as well as what the impact that will have on the industry is very clear.

Are the promoters group committed to do whatever it takes to ensure that Vodafone Idea as a franchise survives?
Both promoters have a very long history of supporting these businesses. The promoters have personally invested Rs 1.9 lakh crore in the business which has spent about Rs 4 lakh crore building this asset. As recently as 2019, Rs 25,000 crore of equity was raised via rights issue for the company.

The challenge that we have seen publicly and many times comments have been made in the media that reform is needed in the industry and the promoters have been very clear about that point because without reforms, one will keep on putting money into the business and not really take the industry or the business forward and that is what they had declined to do.

Now this package is a game changer. It is a very different position than where we were just few weeks ago. The response from the promoters have been very positive. They have both come out with praises for the reform package that the government has put together. The company will go through a fund raising process in the coming weeks as soon as we are able to get the details of the financial package from the government. We will update our business plans. We will take those business plans to the board.

Whatever the board approves eventually we will obviously disclose those plans and then the fund raising process will start. The promoters have always supported fund raising. They have always supported their company and I am sure going forward that they will do the same.

Would there be a strategic investor? What will be the combination – strategic, equity infusion by promoters or only debt?
Actually it is a little bit too early to answer that question because this is a debate that we will have with our board and will come back with a certain set of recommendations. As the management of the company, we are open to all paths of fund raising and we will certainly do the pros and cons in each one of those debates. The company needs funding. We will raise that funding and we will deploy those funds in the improvement of the service of the company.

So you are not ruling out the possibility of a promoter infusion?

I am certainly not ruling that out.

You have enabled approval to raise Rs 25,000 crore. Will that be enough based on your understanding of what the capex and 5G needs would be versus how the moratorium window has been shifted?

The way it would work is as soon as we have the exact details from the Government of India on the package in terms of the instalments or the payments, how long the delays are, we will update our business plans. Our business plans will look quite different compared to where they were just a few weeks ago because of this package.

After those business plans are updated, we will take those to our board and get those approvals. We will make appropriate disclosures as a public company and then the fund raising process will start. I think the exact amount of money and the exact amount of fund raising — a mixture of debt, equity, etc — will come out in the coming weeks and then the process for each one of those will start.

The challenge for Vodafone Idea has been that you have a very large market share in the voice business. That is a business where the yields and the ARPU uptick is unlikely to sustain. How are you planning to address that?

The business in the early days before the merger used to be a predominately voice business. After our merger, we worked diligently to make sure that our network is not only the best network in terms of quality but also it supports data, it supports 4G. Just to give you an example, we have doubled the 4G coverage that we provide to our customers since the merger. We now support one billion population coverage for that 4G network. Our customer numbers with 4G today are north of 100 million customers today.

So in some ways, we have already started the transformation of our business to a data business and a 4G business. 90% of our spectrum capacity are deployed towards 4G usage in the country. The transition from 2G to 4G is well under progress.

We have two types of customers; one set is interested in both voice and data and the other set is predominantly interested in voice and we have a healthy mix of both of those. But more and more customers are moving towards both voice and data business and that migration is well under way.

How will you address the whole challenge of subscriber loss?

It would be fair to say that as we merged the two businesses, we had to do consolidation of the network and the complexity and the amount of effort that was required was tremendous. In the process, we increased the 4G coverage, we increased 4G capacity and we increased the size of our network in the process. We continue to get accolades from third party providers as the best network in terms of speed. TRAI called us the best voice network in eight out of last 10 months.

The loss of customers has started to slow down. In 4G customer growth, we are seeing month-on-month and quarter-on-quarter increases. Overall, we have reached pretty much stability in our customer base.

We have debated in the past that Indian ARPUs are artificially low, Mr Mittal has indicated that ARPUs have to grow exponentially, where do you think ARPUs eventually would settle in your business?

Pricing is the most important element. It is fair to say that as an industry, we have not been very disciplined when it comes to pricing. Pricing has been used as a weapon many times to create stress in the industry. This has happened many times and in many cases to reduce competition. We are at a point where we are down to three players and the government has ensured that they will continue to stay, going forward.

In some ways, each one of those three players had written to the government to say that there is not enough discipline in the industry and please help us raise prices because there is a return that needs to take place. Each one of us were independently not able to make the decision to raise pricing because of the competitive nature of the industry.

The ARPUs have been discussed by other players in the industry. The ARPUs five years ago were about Rs 200. And now, they are actually below Rs 140 which means not only have we moved backwards, but if we look at inflation and buying value for money, we have gone very, very low. We continue to have the lowest ARPUs in the world by far and in some ways, while the consumers have enjoyed and taken benefit of that, it has been very important to make sure that the industry gets help here.

I think prices can go up organically and I expect that to happen. I believe that will happen gradually, instead of a one big swoop of price increases. In the medium term, ARPUs have to get to Rs 200, whereas in the longer term, an ARPU of Rs 300 for the industry will be a very good price level and will sustain the industry. At the same time, it will continue to provide one of the best and low cost pricing in the world to Indian consumers as well.

Is the price war over in the Indian telecom sector?
Only time will tell. As I said earlier, the price war has led to the stress in the industry. I think with this government package, there is a clear signal to move forward and in some ways that is a very, very positive sign. I think we are starting a journey in the right direction.

When the 5G rollout happens, how would you ensure that you have enough funds and are able to adopt smartly?
We spent two years integrating and consolidating our networks. Part of the efforts that we took at that time was to make sure that we put the latest technology. Many elements of our network today are 5G ready. There are many 5G technologies that we are using in our network today which are being available to customers as we speak. Also, the government package will allow us raise funds and invest further into the company. Part of that investment will be towards 5G spectrum and auction of the spectrum that takes place.



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