Vodafone India CEO Marten Pieters – the longest serving chief executive of any telecom company in India -- will leave office after a 5-year stint at the company.
Discussing his time in India, the recently-concluded spectrum auctions and hurdles faced by telecom companies, Pieters said the country has been a difficult place to do business.
In an exclusive interview to CNBC-TV18's Shereen Bhan, Pieters said the company has paid Rs 75,000 crore to the government and zero to shareholders in the last 5 years. On spectrum auction, he said the company scrambled to make partial payment to government for spectrum.
According to Pieters, India has less than 40 percent spectrum available than other nations. He said Vodafone and telecom companies will survive, but India will lag behind in quality as "telcos have little capital available for network expansion."
Below is the transcript of Marten Pieters interview with CNBC-TV18's Shereen Bhan
Q: Let me ask you about whether you decided to in National Interest make the upfront payment to the government on March 31, to help them reach the fiscal deficit target?
A: We scrambled and found some money in the coffers and made a partial payment.
Q: You are not going to tell me how much you have decided to pay.
A: No, I am not going to tell you.
Q: Is it sizeable, will it reach the fiscal deficit?
A: We could have a very nice holiday of that amount.
Q: Let us talk about that journey here at Vodafone and I was just looking at the numbers. You came to India when you were 56, Vodafone was the fourth largest player, you have now taken it to become the second largest telecom company after Bharti Airtel . In six years you have doubled the size of the business to Rs 40,000 crore, earnings before interest, taxes, depreciation, and amortization (EBITDA) margins of about 30 percent. Vodafone India has the largest voice and data traffic within the Vodafone grid. This sounds like a dream story. It sounds like a walk in the park yet you have always maintained that India is perhaps the hardest place to do business in.
A: I can only talk about telecom, so I was only speaking from a telecom's perspective and I can tell you that the telecoms market in India is challenging for various reasons. One is that there is a strict regulation, second is that the industry structure is so that many players many more than in most other countries in the world and there is also very little spectrum available and all together makes it really tough to be a profitable telecom operator in India.
Q: But what you have been able to generate the kind of numbers I just talked about, yet you have been able to become the fastest growing upcore in the Vodafone group of companies. Yet you are I believe the most efficient upcore within the Vodafone group of upcores. One would say that if it is so tough to do business in India, how do you explain these numbers?
A: I can give you another statistic. We paid Rs 75,000 crore to the government in the last five years. Since Vodafone has come to India which is 8 years ago, we paid zero to our shareholders. So, we might be very efficient, we might be very big, but we do not give returns to our shareholders. So, how long can you as a company only work actually de facto for the government? That is the bigger question here.
Q: Given what they had to say in terms of the spectrum auction payout or what we are going to see in terms of the spectrum auction payout of the next 20 years, do you really see any significant expansion as far as the network is concerned? Significant investment in network expansion?
A: It will only happen if we as an industry will be able to raise tariffs. And that will only happen if we see some consolidation because the reality in the market is that tariffs are not related to spectrum auctions. Always when we have the spectrum auctions, after that newspapers are full of stories about tariffs are going to raise, tariffs need to raise. And of course from a financial perspective, we would love to raise tariffs because we need to be profitable in the end to make all these investments in the networks. But the reality is there are nine players out there. It is very competitive market and there are players who have not spent money in the auctions, there are players who have no reason to increase their tariffs, so we can only really see a more sustainable situation if the market fairly consolidates.
Q: I will come to consolidation in just a bit. Since you talked about the issue of tariff, we just had Idea on the channel talk about how they will be forced to do a significant hike in tariffs. What about Vodafone? Do you believe, minus what has happened as far as the spectrum auction is concerned because you said that that is not a direct correlation in terms of what happens to tariffs, do you feel the need for significant or even a minor hike in tariffs at this point in time? And do you have the capacity to be able to pass it off.
A: We have seen 20 years of telecom. I have said this before, this was kind of the close in the first chapter in the book of mobile telecoms in India. The first chapter was 20 years. Only the last seven years in the 20 years, the industry has really grown fast. Before that it was growing but it actually grew very slow. The first five years of mobile telecoms in India only created one million customers. So, the 950 million sims that are now in the market is something really of the last 5-7 years. What we need to see is pricing that is following in the end at least inflation. If you take the 20 years, only one year in the 20 years we have as an industry been able to increase prices. Now I can tell you that cannot happen in the next 20 years. We will have to be able to increase our prices because this is still an inflationary country. It may no longer be so high as it was a few years ago but it is still at a 6-6 and a half percent. So, even if we would keep our nominal prices equal, the same it would mean that every year the price actually goes down by six and a half percent.
Q: Every year? You are saying the tariff increases by 6 and a half percent.
A: No, I am just saying that if we do nothing like we have done in the last 20 years, de facto means that our income goes down by 6 and a half percent. What we need to do is at least partially compensate for inflation. If we could do that, then believe me this industry would be in a much better shape than it is today. We have not been able to do it in the last years because of competition.
Q: But competitive pressures remain but yet you have some players now, Idea was talking about a tariff hike, so are you going to be able to follow suit?
A: We will try to increase prices as I said because we need price increases due to inflation. Is that directly a related to the spectrum auctions? In my view, not. Spectrum auctions is something that happens, it happens once in 20 years for certain spectrum and certain places. That is not in itself the event that triggers it. It is more the situation that is the industry over time we will have to compensate for inflation and its prices.
Q: Let me ask you about the unfinished agenda – the Vodafone IPO. You in the past said that it was not held up because of the tax related issues but it was held up because investors had concerns about the uncertainty with regards to the regulatory environment. Now that you have been able to renew your license, the spectrum auctions are over and done with do you believe that it makes a business sense to go ahead for the IPO anytime soon?
A: Over and over we have said that being part of the Indian society in terms of a listed company here is probably the right thing to do over time.
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