 "We will have to increase our rates every year: Marten Pieters")
What has been Vodafone’ basis to choose circles for 4G launch? Why are you looking at a tentative, rather than a pan-India, launch?
There is nothing tentative about our plans; we have selected circles where LTE (long-term evolution, a radio platform technology) on a high frequency such as 1,800 MHz will be suitable in the future. We have significantly enhanced our data capabilities by buying 4G spectrum for the next generation of mobile services in Mumbai, Delhi, Kolkata, Karnataka and Kerala. These circles make up over 50 per cent of our current data revenues and we expect them to be at the forefront of 4G adoption as they were for 3G. While Mumbai, Delhi, Kolkata and Bangalore are cities with high data adoption, Kerala combines a high literacy rate with a 48 per cent urban population.
When will you start 4G services? Do you think you will be at a disadvantage compared to players who have both 1,800 MHz and 2,300 MHz bands?
4G is the technology of the future, but it’s too early to commit to a timeframe. There is a lot to be done to get affordable low-cost 4G handsets into the country. Today in India, there is only handset that is 4G-enabled. The 2,300-MHz band is not quite suitable for 4G as it requires a much higher number of sites than 1,800 MHz. Four years after acquiring the spectrum, only one operator with 2,300 MHz has launched services (and that too) in just four circles. Our 3G data volumes have been growing, year-on-year, by over 100 per cent and our focus over the next few years will be on developing this business. India is already the second-largest data market for the Vodafone Group in terms of volume.
You have bought a huge chunk of spectrum in Mumbai. Will you use it for 4G services as well? Why did you buy such a large chunk of 900 MHz spectrum in Mumbai, but not in Delhi?
Our purchases in Mumbai have put us in a unique position: Vodafone Mumbai is the only operator in India to have data capabilities on all the commercial spectrum bands: 2G on 900 MHz and 1,800 MHz; 3G on 900 MHz and 2,100 MHz; and 4G on 1,800 MHz. We are exclusively placed to provide our customers with a unique and differentiated voice and data experience using the best of multiple spectrum bands. In Delhi, the price of spectrum rose to a level where it was not viable for us to purchase a similar amount of 900 MHz spectrum as Mumbai. However, we believe we have sufficient spectrum in both 900 MHz and 1,800 MHz bands in Delhi to cater to the growing needs of our customers.
Do you think prices went too high in the just-concluded auction? Will this impact tariffs?
If you look across the world, spectrum in India is expensive: we pay a lot per MHz in an auction and then five per cent of revenues in the form of spectrum usage charges. This will invariably have consequences for the industry. The payments to the government will be funded by debt and to pay for this debt, either tariffs will need to go up or operators will have to cut back on service levels and investments. The industry has not yet recovered from the excesses of the 2010 auction and this auction combined with others expected in the next couple of years, will further worsen the industry’s health.
There was one more factor at play in this auction: some operators had to bid for their own spectrum, or lose their business partly or entirely. So they were of course willing to pay a lot!
We have had declining tariffs for 18 years; this cannot be sustained forever. We believe the point has come where we will have to increase our tariffs every year depending on cost levels. The overall level of inflation in the economy dictates that like every other industry, the telecom industry, too, has to increase prices.
Considering that 3G has not quite taken off even after three years of its launch, what is the biggest challenge to data absorption? Won’t 4G face the same problem?
We don’t agree that 3G has not taken off; on the contrary, 3G is a success. It was launched only just over three years ago and 3G revenues and data volumes are growing rapidly. It will grow further with the adoption of low-cost smartphones. We will continue to invest for future growth of data and 3G, especially where smartphone penetration and data is very high.
Will the rollout of 4G require additional investment or merely a small top up?
Like 3G, we will have to make requisite investments for the successful rollout of our 4G services in the future.