Pricing environment artificially low in India, says Vodafone CEO Nick Read
Vodafone India and Idea Cellular completed their merger in August 2018 and are currently undergoing an integration exerciseAverage revenue per user (Arpu) for Vodafone Idea is also the lowest among all three operators at ₹89
PremiumBARCELONA : All telecom operators in India are hemorrhaging cash as prices are artificially low, which is not sustainable and tariffs need to rise so that the industry becomes healthier, said Nick Read, CEO of Vodafone Group.
“This can’t be a sustainable position going forward and therefore at some point pricing needs to return to a more normalised level. That requires all players to ultimately sit back and say what is a healthy industry level," Read said at a press briefing at the Mobile World Congress in Barcelona.
Triggered by hyper-intensive competition after the entry of Reliance Jio in September 2016, which brought down tariffs to rock bottom and hit revenue streams of other operators, Vodafone India and Idea Cellular announced in March 2017 that they would merge their operations.
A few months later, the telecom regulator in September 2017 cut interconnect usage charges from 14 paise a minute to 6 paise a minute, which drew ire from incumbent operators who alleged that this hurt their revenue streams and only benefitted Jio. 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 in terms of regulation. 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. We have made these points clear even earlier," he said.
Vodafone India and Idea Cellular completed their merger in August 2018 and are currently undergoing an integration exercise to create synergies which are expected to bring down costs of operating networks.
However, the merged company continues to incur huge losses as pricing pressure from Jio is unabated. Vodafone Idea posted a net 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 Ebitda of ₹4,053 crore, while Bharti Airtel recorded ₹1,949.8 crore.
“Pricing in India is the lowest in the world. The average consumer in India is consuming 12 GB 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 on," Read said.
The average revenue per user (Arpu) for Vodafone Idea is also the least among all three operators at ₹89, compared with Bharti Airtel’s ₹104 and Jio’s ₹130 in the December quarter.
The damage to the topline of telecom operators has also hit the government’s revenues collected in the form of licence fee and spectrum usage charges. According to TRAI data released last month, the licence fee collection has declined from ₹2,929 crore in the June quarter to ₹2,889 crore in the September quarter in 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 auctions if operators are in a very challenged economic environment? So I would encourage the industry to 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 attending the Mobile World Congress in Barcelona at the invitation of Huawei.)
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