“The current pricing in the market is unsustainable and it’s unsustainable because it provides either very low or almost zero return on capital invested,” Vodafone Idea MD and CEO Ravinder Takkar said during the telco’s Q2FY21 earnings call on October 30. Echoing Bharti Airtel’s MD and CEO Gopal Vittal’s similar concerns, Takkar said that ARPU (average revenue per user) needs to get to ₹200 in the short term and up to ₹300 in the longer term. Absence of returns in a three-player market indicates that there is an issue with pricing, he said.
Throughout the call, Takkar kept repeating that the quality of the Vodafone Idea network would dampen the outflow of subscribers, lead to the acquisition of customers required, and basically act as the panacea for all of Vodafone Idea’s woes.
‘Tariff hikes are critical to improving industry health’
The government has recognised the need for ARPUs to increase, Takkar said, since the government earns a fair amount of revenue as a percentage of the licence fees and spectrum user charges.
The government is already looking at revamping floor pricing and has started a consultation process to that end, Takkar said. While all the three telcos — Airtel, Vodafone Idea and Jio — supported floor pricing in their submissions to the Telecom Regulatory Authority of India (TRAI), they differed on whether or not free inter-network calling should be available; While Jio supported it, Airtel and Vodafone Idea did not. Takakr reiterated that floor pricing would be required to restore the health of the telecom industry.
“[I]n the interim, there is no reason why prices cannot go up in the first place.” — Ravinder Takkar, CEO and MD, Vodafone Idea
‘Airtel, Jio lead in ARPU because of different customer base’
Vodafone’s ARPU for Q2FY21 stood ar ₹119, while Airtel and Jio’s ARPUs were significantly higher at ₹162 and ₹145, respectively. This difference, Takkar said, is in the mix of the customer base. “They have a higher mix of customers on 4G compared to ours and that’s the only reason why,” he said in response to a question by an analyst. Vodafone Idea’s aim is not to reach their competitors’ ARPU but to provide great customer experience, he said.
‘Dip in data volumes indicate normalisation of data consumption’
Takkar attributed the 4% QoQ dip in data volumes to normalisation of data usage compared to the significantly higher volumes witnessed during the early months of the lockdown. As the lockdowns ease and people move away from purely entertainment consumption, data consumption may come down, he said. However, there is no indication that data consumption or data usage is slowing down, he warned. “It will go back to what used to be normal levels,” he said.
During the previous quarter, Vodafone Idea had seen a 10.6% QoQ and 40.4% YoY increase in data usage over its network due to the sudden COVID-19 lockdowns which caused everyone to work from home, Takkar said.
‘Outflow of subscribers has reduced now’
The decrease in subscriber base is tied to the integration and consolidation of Vodafone and Idea, Takkar said. In Q2FY21, the subscriber base fell by 2.9% QoQ and 12.6% YoY. He said that the telco is losing fewer people every quarter now that the two companies have completely consolidated.
Gross additions also fell because of the lockdown. Takkar said that gross additions are an “essential part of the market function” which suffered because of the lockdown. Now that the market has started to reopen, gross additions have started to pick up but are not at a “normal level” compared to before the lockdown, he said.
CFO Akshay Moondra pointed out that the Vodafone Idea merger has helped them achieve ₹8,400 crore in synergies. They further got ₹2,500 crore in synergies in the last two quarters against the predicted ₹4,000 crore. Significant recovery and cash generation can only happen because of correction in tariff controls, he further said. An analyst on the call pointed out that despite a price hike in December 2019, Vodafone Idea’s revenues did not grow but Takkar and Moondra gave evasive replies to that.
‘Practically no impact of Jio’s ₹399 postpaid on existing subscriber base’
Takkar said that it’s too early to gauge the impact of Jio’s cheaper postpaid plan but so far, Vodafone Idea has seen “very little to none” impact on its existing subscriber base. Reliance Jio had introduced a ₹399 postpaid plan earlier this month.
“Postpaid customers tend to be less price sensitive; they tend to be much more sticky as well as sensitive to the company that they get their service from,” Takkar said. He further said that the ₹199 Jio postpaid plan, which was considerably cheaper than Vodafone’s plan, did “not gain any traction”. Calling the Jio’s plan a move in the right direction, he said that it indicated Jio’s need to move towards higher ARPU.
Investing in network infrastructure
On September 4, the board of directors approved the fundraising to support the telco’s network investment needs. This will allow the company to raise up to ₹15,000 crore in additional debt and up to ₹15,000 crore of equity as long as the total of that is ₹25,000 crore, Takkar said.
Going forward, the telco will make incremental investments in 4G in 16 priority circles which account for 94% of Vodafone Idea’s revenues and 86% of the industry’s revenues, Takkar said. He didn’t define the time period over which these investments will be made. The company will also invest in the profitable districts of the remaining six circles.
On 5G and AGR dues, cloud services
On 5G: “We are deploying an array of 5G concepts and technologies like massive MIMO [Multiple Input and Multiple Output], PSR, Open RAN, clarification of CODE, etc. while rolling out our 4G network,” Takkar said.
On payment of AGR dues: “The AGR uncertainty is largely behind us as the Honourable Supreme Court allowed a payment period of 10 years to clear the AGR dues,” Takkar said. The company has already paid ₹ 7,850 crore, more than 10% of the total dues, he said. The first instalment is due on March 31, 2022.
On cloud services: “Cloud services is becoming central to our growth strategy via both our own assets as well as through strategic partnerships,” Takkar said. This echoes some of the claims that Airtel made as it launched its cloud communications suite for enterprises, Airtel IQ, on October 26.
On recovery of M2M business: Due to the lockdown and closure of retail shops, the use of M2M (machine-to-machine) SIMs had slowed down, Takkar said. As the country is reopening, M2M business is starting to pick up, he said. M2M SIMs are used in devices, including IoT devices, to enable internet enabled communication services.
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