Mumbai: Managing director and chief executive officer of Vodafone Essar Ltd, Marten Pieters, completed a year in India on 1 April. Pieters, who replaced Asim Ghosh, earlier worked with Vodafone in Africa, which gave him insight into how rural markets work.
New markets: Vodafone Essar’s Marten Pieters says the group’s next round of growth will come from rural India. Ashesh Shah / Mint
Having recently returned from rural Bihar, Pieters expresses optimism about India’s hinterland, which he says is far more developed than sub-Saharan Africa. He also says Vodafone’s next growth will come from rural India. While not committing any dates for an initial pubic offer for its flagship telecom business as well as for Indus Towers Ltd, Pieters admits that overtaking market leader Bharti Airtel Ltd is still some years away, and will likely not happen during his tenure. Edited excerpts:
How soon will you get to the next 100 million customers?
(Laughs) We are getting into real big numbers. One hundred million customers is fantastic news for us and also for India. There is a relationship between communication and (a) lot of other issues…be it democracy or economic goals. The growth (in India) is tremendous. In March we got 3.6 million customers. We have not seen a slowdown in growth. Although we have to realize in India, people carry more than one SIM (subscriber identification module) card. So we won’t fool ourselves thinking that these are new customers. We would say that half of these numbers are new customers.
You’ve been growing faster than the industry...
It depends. In revenue market share we are No.2 at 21%. We are one of the leaders. We haven’t always been growing faster. Because Bharti is (a) lot bigger than we are. We’ve seen months when Tatas were number one and some months when Bharti was number one.
By chasing this growth, haven’t you made sacrifices? Your average revenue per user (Arpu) from last year has declined from Rs309 to Rs200?
There were two effects on the Arpu. Some of it was expected last year and some came as a surprise. The expected part is typically if you go for deeper coverage and chase the next layer of customer, the revenues typically come down. The first customers are typically urban customers with higher disposable incomes. As you go deeper into the rural areas, the people have less disposable income. You see it everywhere. It has nothing to do with India. Last year, the introduction of the one-paisa-per-second billing followed by 50-paise-per-minute charge saw a steep drop in tariffs. It had an adverse impact on Arpu.
Will you join the price wars?
We have to be competitive. It is not a matter of following. We all have our pricing strategies. Different offers are out in the market. But the reality is you cannot be twice as expensive as your competitor. Customers are smart and will walk away from you if you are not competitive. Vodafone will always try to be competitive.
Will the new players intensify competition?
We have seen a lot of competitors. And we are seeing a lot of competitors knocking on the door. Etisalat has a licence but we haven’t seen much of them yet, Videocon has just started. The reality is that we saw a big effect last year when new players came in, and we anticipate much effect this year. Because it really makes an effect if you go from three, four, five players to seven or eight or nine. It doesn’t make a big difference if you go from nine to 11 as it is a dilution of (the) effect of competition because consumers get confused with so many offers. They know that in the end, the big operators have the best network coverage and the best service offering.
You are a telecom veteran. Have you seen such a market elsewhere?
I think the Indian market is very specific. There are always lessons to be learnt. In India, second-billing offering had to come. In Africa, we have a second-billing offering. Every country has it. You could see it coming. The Indian market is specific because of the number of telecom players, the scale of operations and the complicated regulation. The scarcity of spectrum. I have not seen it anywhere in the world. This makes it difficult to operate.
What is remarkable according to you?
The scale of operations. In the Vodafone Group, we are one of the biggest independent mobile operators in the group. Fifty percent of all the minutes of use in the group is from here. It doesn’t reflect in the revenues as the tariffs are very low...about 10% of the average tariff in the world. We are having now about 90,000 base stations. That is an amazing number. You won’t find those in any other country, except may be in China.
Are you worried by the number of players getting in?
I am not too worried. We are already in a strong position. I tell my people that when you run a marathon, you don’t look over your shoulder. I am only interested with the guy who is ahead of me. If you look at mobile markets all over the world, you’ll find a strong number one. Typically, they retain the strong No.1 position unless they horribly s***w up. I don’t expect Bharti to do that. I think they are in a very stable position. But the same is true for the No.2. It is actually difficult in the mobile industry to work your way up from a low market position. It is only possible in very fast growing markets, where you take a bigger share of growth than what your normal share would be. Once markets are more mature, you will see that it is extremely difficult to get revenue market share. The good news is Vodafone Essar is already at 21% market share...that is absolutely sustainable and we are aspiring to grow that number.
So when do you expect consolidation to happen here?
There needs to be some consolidation. I am convinced it is not sustainable to have 13, 14 players. The big question is, how is it going to happen? At this moment, the rules around M&A (mergers and acquisitions) are not favourable. There are three blocking rules: new players cannot sell out in the first three years; you cannot have more than 40% revenue share or customer market share in one of the circles; and the third is that if you merge, you would have to give up spectrum based on the rules on spectrum allocation, which are based on customer numbers.
This will probably mean that you’ll have to give up a lot of the spectrum that you have just bought expensively or merged expensively, and that’s not very attractive. I think we need some serious change before consolidation can happen.
You said that globally nearly 50% of minutes of use for Vodafone comes from India, though revenues are not comparable. Will 3G help bridge that gap?
We see good opportunity there. India is really behind in data services and one of the reasons is (the) lack of spectrum. So if that becomes available, then that can be used to stimulate usage of data services and that’s our plan also.
And how aggressive will you be in bidding for it?
I cannot comment on our bidding strategy.
You think 3G services will help improve Arpu?
Our expectation is that the data part of our Arpu will go up because it is at very low levels now. It is at 6% or so, if you take out the share of SMS (short messaging service). So, there is a good opportunity to grow the data services for two reasons. First of all, Internet usage is low and there is a kind of trend in the world that once people get used to browsing, they get addicted to it and they all want to use more. It is the next big opportunity in India.
Second, (with) new technologies like 3G, the services become attractive. I have a laptop at home but I never download a YouTube movie because it is a painful exercise. But when I was in Europe, I used to do it all the time, because it was quicker. So I think there is a demand for services that need broadband type of access and there will be new technologies coming in.