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If spectrum prices moderate, industry's condition could improve: Sunil Sood

MD & CEO, Vodafone India

If spectrum prices moderate, industry's condition could improve: Sunil Sood

Malini Bhupta
Vodafone, which is preparing to list on Indian exchanges, is not overtly concerned about the possible increase in competition in the coming months. The telco is ready for some bold moves, even as the sector's profitability continues to be under pressure. Sunil Sood, managing director and chief executive officer of Vodafone India, tells Malini Bhupta what's in store in the new financial year. Edited excerpts:

Are you profitable at the net level as you have still not disclosed those figures? Also, is profitability becoming a challenge for the sector as costs are increasing?

We have not been commenting on whether we are profitable or not. We have maintained that there is one abnormal cost as far as the industry is concerned, which is spectrum price. The pressure on profitability comes from that. If my revenue of 20 years is equal to spectrum cost, then I make zero returns. If spectrum prices moderate, the industry's situation improves. We believe some of the government's moves could help moderate it, which optimise spectrum that is already available through improved usage. Other measures also include harmonisation and putting more spectrum on the block.
 

Are you looking at a listing by year-end?

We will look at a listing as soon as we are ready and the board approves it. The market and environment has to be correct.

Is the industry responsible for such high spectrum prices through irrational bidding?

It is important to understand why prices went way higher than the base price. A lot of the money spent was on renewal spectrum. Renewal means you have already invested for 20 years in the circle and have subscribers there and it will go to zero if you don't renew. Yes, 3G (third generation) auctions also saw similar escalation. As Martin Pieters (former CEO of Vodafone India) says, what happens if you throw a bone at 10 hungry dogs?

Is this trend sustainable with pan-India spectrum in the 700-Mhz band priced at Rs 55,000 crore? Will you look at increasing your 4G footprint?

I would like to correct your figure. It is Rs 55,000 crore at 15 per cent service tax. Our industry body has said spectrum is priced too high. We are looking at adding more spectrum if there is a strong business case and if prices are right. Currently, our 4G circles cover 70 per cent of our revenues. As the ecosystem evolves, we will move to the next level.

Voice and data realisations are deteriorating, but industry is not showing the will to increase tariffs.

Pricing power comes with the construct of the industry. There are too many players at too many price points. Any form of consolidation will improve pricing power. What happens in the future depends on how consolidation plays out.

Do you see the sector's profitability getting challenged as costs continue to rise and competition puts pressure on returns?

It all depends on the price you pay for spectrum. The rest of the business, like capex and network, can be afforded. It all depends on how spectrum prices unfold. Not too much of spectrum is required once you meet your 4G needs. If you look at our Ebitda (earnings before interest, taxes, depreciation and amortisation) margin, it has remained at a healthy level, hence, we are investing a lot in a healthy bottomline. We continue to drive more efficiency. In financial year 2014-15, we spent Rs 8,000 crore to set up 22,000 sites and in FY16 we spent a similar amount for 35,000 sites. We feel we are ready for growth and have deployed a modern network with single RAN (radio access network), which is just a piece of equipment and can move from 2G to 3G and 4G with a software upgrade. We would be the largest single RAN deployed operator.

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First Published: May 18 2016 | 12:40 AM IST

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