 "For growth, we want more spectrum, less regulations: Marten Pieters")
As part of its £7-billion Project Spring, Vodafone will spend Rs 7,000 crore in India as capital expenditure to enhance its network till March 2016. While the company is hopeful that the upcoming merger and acquisition (M&A) norms for the telecom sector will be helpful for the bigger companies, consolidation might remain a “big question”, considering the huge debt that telecom companies are carrying. Vodafone India Managing Director and Chief Executive Marten Pieters tells Sounak Mitra he believes spectrum trading would be more “logical” than full M&A. Edited excerpts:
Vodafone Plc proposed to increase its stake to 100 per cent in its Indian entity, soon after the government permitted 100 per cent foreign direct investment (FDI) in telecom. This followed the announcement of Rs 7,000-crore capex by March 2016. The government is likely to announce the M&A rules next week. How serious are you to look for possible buyouts in India?
We are investing about 10 per cent of the total £7 billion in India, excluding our operating expenses. This shows how serious we are about India. Consolidation is necessary in India. For growth, we want more spectrum, less regulations and less operators. The problem in India is that all telcos are burdened with huge debts. Buying debt would not be justified. Considering the debt situation, consolidation may remain a big question in India. It’s not to do with rules anymore.
The Telecom Commission has approved mergers of up to 50 per cent market share (for the merged entity) in an operating circle. But, as the government would consider both revenue market share and subscriber market share, there may not be scope for big companies like Vodafone to buy another big company, as the merged entity would cross the cap in many circles. How much scope does Vodafone have?
So, what would you consider for potential M&A?
Consolidation in a market is good for us, irrespective of the fact if we participate or not. We need nation-wide operations in areas we don’t have. In some circles, we don’t have 900MHz spectrum: We need that. In some circles, we don’t have 3G spectrum: We need to have pan-India 3G spectrum. In these places, we might be looking at 3G assets. In some circles, we might have a very weak market position, where others might have a strong position. The issue is that you will not find all these in one operator. And, probably, even if u find any, that will come with huge debt. It makes sense to look for some good assets, rather than merging companies.
Trading of spectrum, if feasible, could happen. And, in fact, trading of spectrum is more logical in our current situation, rather than complete M&A. It all depends on the debt situation of the target. One of the operators went to the lenders, and the shareholders put in money to resolve debt situation. Those kind of opportunities might be there, but that a speculation.
So, you would prefer taking the spectrum trading route rather than buying fresh spectrum from auction.
We would always prefer to have fresh spectrum through auction even for 3G, as it would come for 20 years. While, in case of trading, it would be for 15-16 years, as it was auctioned a few years ago. But, if M&A happens in the meantime, it would happen. We need to ensure how we would be able to generate value with 3G.
In the recent FIPB application, Vodafone said it would infuse fresh equity in the Indian entity in future. How much would that be and why would you need that?
We have applied to FIPB for permission to convert Vodafone India into a wholly owned arm. There would not be any fresh equity infusion in this process. In that application, we have also expressed intention to infuse fresh equity by the parent company in future. This will depend on a lot of factors. If price of debt is too high, the shareholders might put in more equity. It’s more of a financial engineering, rather than an operational need.
What would be your focus over the next few years?
Data, of course. More than 60 per cent of our capex will be spent on 3G. Data revenue is increasing. India is a long-term opportunity, most of the data market is yet to be tapped, so is the huge scope across rural India. We are excited about the opportunity in the market.
Vodafone Plc proposed to increase its stake to 100 per cent in its Indian entity, soon after the government permitted 100 per cent foreign direct investment (FDI) in telecom. This followed the announcement of Rs 7,000-crore capex by March 2016. The government is likely to announce the M&A rules next week. How serious are you to look for possible buyouts in India?
We are investing about 10 per cent of the total £7 billion in India, excluding our operating expenses. This shows how serious we are about India. Consolidation is necessary in India. For growth, we want more spectrum, less regulations and less operators. The problem in India is that all telcos are burdened with huge debts. Buying debt would not be justified. Considering the debt situation, consolidation may remain a big question in India. It’s not to do with rules anymore.
The Telecom Commission has approved mergers of up to 50 per cent market share (for the merged entity) in an operating circle. But, as the government would consider both revenue market share and subscriber market share, there may not be scope for big companies like Vodafone to buy another big company, as the merged entity would cross the cap in many circles. How much scope does Vodafone have?
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We are happier now that the government seems to have arrived at a definite 50 per cent market share cap for M&A in each circle, at least now we know where we stand. Earlier, it was 35 per cent and up to 60 per cent with certain conditions. There were grey areas. We always preferred less ambiguity in regulations. Actually, 50 per cent is not a bad number at all. Globally, if you go beyond 50 per cent, the regulator questions the dominance as well. There is no doubt that the opportunity has increased. In reality, who can merge with whom is a different question. The issue isn’t market share. The issue is what sort of assets we get. If there are good assets, it might interest operators like us. For example, 3G spectrum assets might interest us, as we don’t have pan-India 3G spectrum.
So, what would you consider for potential M&A?
Consolidation in a market is good for us, irrespective of the fact if we participate or not. We need nation-wide operations in areas we don’t have. In some circles, we don’t have 900MHz spectrum: We need that. In some circles, we don’t have 3G spectrum: We need to have pan-India 3G spectrum. In these places, we might be looking at 3G assets. In some circles, we might have a very weak market position, where others might have a strong position. The issue is that you will not find all these in one operator. And, probably, even if u find any, that will come with huge debt. It makes sense to look for some good assets, rather than merging companies.
Trading of spectrum, if feasible, could happen. And, in fact, trading of spectrum is more logical in our current situation, rather than complete M&A. It all depends on the debt situation of the target. One of the operators went to the lenders, and the shareholders put in money to resolve debt situation. Those kind of opportunities might be there, but that a speculation.
So, you would prefer taking the spectrum trading route rather than buying fresh spectrum from auction.
We would always prefer to have fresh spectrum through auction even for 3G, as it would come for 20 years. While, in case of trading, it would be for 15-16 years, as it was auctioned a few years ago. But, if M&A happens in the meantime, it would happen. We need to ensure how we would be able to generate value with 3G.
In the recent FIPB application, Vodafone said it would infuse fresh equity in the Indian entity in future. How much would that be and why would you need that?
We have applied to FIPB for permission to convert Vodafone India into a wholly owned arm. There would not be any fresh equity infusion in this process. In that application, we have also expressed intention to infuse fresh equity by the parent company in future. This will depend on a lot of factors. If price of debt is too high, the shareholders might put in more equity. It’s more of a financial engineering, rather than an operational need.
What would be your focus over the next few years?
Data, of course. More than 60 per cent of our capex will be spent on 3G. Data revenue is increasing. India is a long-term opportunity, most of the data market is yet to be tapped, so is the huge scope across rural India. We are excited about the opportunity in the market.