Pricing in India is the lowest in the world; ultimately, prices will go up, says Read
Vodafone India and Idea Cellular completed their merger in August 2018
Indian telecom companies need to end the tariff war that has roiled the industry and agree to keep prices at a level that will restore the health of all operators, said Nick Read, chief executive of Vodafone Group Plc.
“This can’t be a sustainable position going forward and therefore, at some point, pricing needs to return to a more normalized level. That requires all players to ultimately sit back and say what is a healthy industry level," Read told reporters at the Mobile World Congress in Barcelona.
The entry of Reliance Jio Infocomm Ltd in September 2016 sparked a race to the bottom, squeezing revenue streams of rival operators and prompting Vodafone India Ltd and Idea Cellular Ltd to announce a merger in March 2017.
A few months later, in September 2017, the telecom regulator slashed interconnect usage charges from 14 paise a minute to 6 paise, angering incumbent operators, who said this hurt their revenue streams. Interconnect usage charges are what an operator pays another for landing calls on the latter’s network.
“We only ask for a level playing field. I think it’s fair to say that for the last two years we have had many regulatory outcomes that have worked against everyone in the market except Jio," he said.
Vodafone India and Idea Cellular completed their merger in August 2018 and are currently integrating their operations to create synergies and pare costs.
However, the merged company continues to incur huge losses as pricing pressure continues unabated. Vodafone Idea posted a loss of ₹5,004 crore in the December quarter. Its earnings before interest, taxes, depreciation and amortization (Ebitda) from wireless operations in India at ₹1,136.8 crore is the lowest among all operators. Jio, in comparison, posted an Ebitda of ₹4,053 crore, while Bharti Airtel recorded ₹1,949.8 crore.
“Pricing in India is lowest in the world. The average consumer is using 12GB data at price points you don’t see anywhere else. Ultimately, pricing will go up; that does not mean it jumps, it will moderate. Right now, heavy discounting is going on," said Read.
The fall in revenue of operators has also hit the revenues collected by the government in the form of licence fee and spectrum usage charges. According to data from the Telecom Regulatory Authority of India released last month, the licence fee revenue declined from ₹2,929 crore in the June quarter to ₹2,889 crore in the September quarter of 2018.
“Even from the government’s perspective... its own tax revenues have been suppressed as well. And then on top of that, are you going to have a healthy participation in 5G auction if operators are in a very challenged economic environment? So, I would encourage the industry to obviously get into a healthier place," he said.
Vodafone Idea last month said that its board had approved a rights issue of ₹25,000 crore to existing eligible equity shareholders in line with the recommendations of a capital-raising committee it had set up in November.
“That raise is going well. I would anticipate that closing in the coming months," Read said.
The writer is at the Mobile World Congress in Barcelona at the invitation of Huawei.
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