‘Days of 20% growth will never come back’ Industry Saddled With 2L Cr Debt But Govt Yet To Get The Reality: Vodafone India CEO

Marten Pieters, CEO of Vodafone India, the country's second largest mobile phone operator, has worked in emerging markets for 17 long years but his Indian stint at the British telecoms giant over the last three-and-a-half years has been in one word — challenging. He has a similar opinion on life as an expat in the country's financial capital. A $2.2-billion tax dispute, regulatory issues that have troubled the telecom market and now the falling growth and subscriber numbers, Pieters has had to steer the telco through a tough market which has so far not delivered financially for the company's shareholders. In a candid chat with TOI, the Vodafone India boss says the wait for returns from India may get longer with the uncertainty that surrounds its license extension that comes up after two years. Excerpts:  It has been over five years since the Vodafone Group Plc bought a 67% stake in Hutchison Essar. Has the  Indian market performed as expected and been able to offset the slowdown in  Europe?  Overall, Vodafone has had a very good five years here. We came to India as it was a growth market just like the two other emerging markets we entered at the time — Turkey and South Africa. Till then, we were largely Europecentric. India was by far the biggest market in terms of size and potential but South Africa proved to be financially more profitable. However, India has delivered on the promise at least on the growth front — from 30 million to 153 million subscribers. Our revenue market share has grown from 17 % to 22%. All this while we made an investment of Rs 50,000 crore (including Rs 11,600 crore on 3G spectrum acquisition) in this period, of which the government got Rs 45,000 crore. Shareholders got nothing.  So what has been the big  challenge for you here  in India?  It is a financially troubled industry today and not well understood. It has been a good industry to create value but not for free cash flow production. Over the next two years, we have to get an extension of our licences that will be a huge additional financial stress. We are worried about this…  What is the kind of hit that you will take if you have to renew your licences keeping the benchmark of Rs  14,000 crore — the reserve price set by the government for 5 MHz of pan-India 2G spectrum?  Many billions of dollars, but it depends on a few factors like payment terms. Looking at the reserve price of Rs 14,000 crore, one wonders if that will work. We have to wait and see the outcome of the auction as that might be the benchmark for licence extension too. There is a disconnect between the realities and what the regulatory environment assumes it to be.  How is this disconnect impacting business…  The problem is that people are broke; the industry has a debt of an estimated Rs 2,00,000 crore. So at the moment your balance sheet is stretched and you cannot service your debt. But that reality has not landed with the government, which is a pity. The industry is on its knees and there are a number of new players whose losses are two to three times their revenues. How long can you sustain it? There are constant attacks on our revenue stream. SMS capping, which was done during the unrest in Assam last month, hurt us, as they (users) moved to other (free) applications.  For the first time in a decade, incumbent GSM players lost subscribers as the Indian mobile subscriber  base fell sharply by 20.7  million in August. How are you handling this low  growth phase?  This was due to two reasons, seasonality, but probably the bigger reason is the slowdown. People don't have the money or they are sitting on it. August was bad for business. I am preparing for a situation wherein those 20% growth rates will never come back. The total subscriber base now is over 900 million. How many more will you add? So, we will see flattening out of the real growth but I am still optimistic about India Inc as far as long-term growth is concerned. It is like the US, between 1910 and 1940, when consumerism was at its peak.  What about call tariffs,  where are they headed?  Lot of irrational pricing is there in the market which is not based on longer term costs plus profit margin, it is just opportunistic. We won't see any substantial change in pricing, so long as desperate players operate. The industry will rationalize with longer term sustainable players. I think it is a matter of time. The players who have scale can survive in such an environment if they do not have to pay for spectrum.      SHAREHOLDERS GOT NOTHING  ON INDIA EXPERIENCE  India was by far the biggest market in terms of size and potential but South Africa proved to be financially more profitable. However, India has delivered on the promise at least on the growth front — from 30m to 153m subscribers… All this while we made an investment of Rs 50,000 crore. Shareholders got nothing  ON TARIFFS  Lot of irrational pricing is there in the market which is not based on longer term costs plus profit margin, it is just opportunistic  Marten Pieters | CEO, VODAFONE INDIA