Telecom industry unsustainable, can't keep burning cash: Vodafone-Idea

Balesh Sharma said operating margins are on an upward trajectory now but declined to give a target.

Mumbai: Largest telco Vodafone India Thursday said aggressive competition has made the domestic telecom market "unsustainable" and warned that if this continues it will make the country "uncompetitive".

All three operators, including Bharti Airtel and the deep-pocketed new entrant Reliance Jio whose aggressive pricing has impacted the sector, are "burning cash" at present, even though a 1.3-billion population presents enough opportunities for sustainable existence, the company said.

There is a need for a "rational" play, Vodafone Idea chief executive Balesh Sharma said at his maiden media interaction after the mega merger--something that was forced on them by the aggressive pricing by Jio since its entry in September 2016.

Pointing to the halving of the key profitability gague Arpu or the average revenue per user, even as their data and voice consumption has grown six times, Sharma said, "the industry cannot invest in digital India, which will be the key to the success and competitiveness of the country in the coming years".

He compared the domestic telecom industry with that of China, saying the Arpus have come down to USD 1.3 per month here from USD 2.6 two years ago, while in China the same is above USD 8, making it possible for companies there to invest for growth and technology.

In the September 2018 quarter, Jio led the Arpu chart with Rs 131.7 (still down from Rs 135 y-o-y), followed by Airtel at Rs 101, but massively down from Rs 142 y-o-y, and Vodafone Idea had the lowest at Rs 88.

"Market repair has to happen, because, for one it is not sustainable and two, it makes India uncompetitive as even Jio is burning cash. There has to be a rational approach," Sharma said.

It will be very difficult to predict the changes in the market for the better or the pace at which the changes happen, he said.

Jio's entry two years ago has hurt each of the entrenched telcos, resulting in the merger of Vodafone and Idea, and exit by RCom and Tata Tele, apart from the financial and job losses and even bankruptcies.

Also, barring Jio, none of the other two operators showed any growth in profit. While Jio reported a net income of Rs 681 crore, up from Rs 612 crore a year ago, Airtel reported a steep 65.7 percent fall in its net income at Rs 118.80 crore and Vodafone Idea a massive consolidated net loss of Rs 4,973 crore on a consolidated revenue of Rs 7,663 crore for the September quarter.

Sharma also shared the way forward for the merged company, which is the largest with 422 million subscribers, irrespective of the pricing situation.

He said work over the past 17 months since the announcement of the merger and completition on August 31 this year, has helped it advance its projected Rs 14,000-crore savings from the merger synergies by two years to FY21.

Lots of benefits will come in by reducing towers where there is doubling, he said, stressing that this will be done without compromising on service quality as the better of the two towers will stay on.

He said the merged entity, which covers less than 50 percent of the overall population with the high speed and high revenue 4G services, is targeting to increase the coverage to 70 percent by end of FY19 and 80 percent by the end of FY20.

"This will be possible on the back of redeployment of the towers released in the doubling replacement," he said.

When pointed out that rivals Jio and Airtel will cover over 90 percent of the population by the end of fiscal under such network, chief financial officer Akshaya Moondra said Vodafone Idea will chase only profitable opportunities and underlined that 80 percent coverage is sufficient.

The company is also doing away with life-time free plans as a way to boost revenue by charging at least Rs 30 a month from such subscribers who are "substantial" in number, he said.

The 1.2 billion SIM cards in use are largely because of double SIMs being used by a single user as over 40 percent of the rural population is still untapped, making it a handsome opportunity, Moondra said.

Only half of the users are on 4G broadband and 48 percent of such "2G customers" are with Vodafone Idea, he said, pointing it as another opportunity and added that the company is also in talks to have affordable handsets and better tariff plans to ensure customer stickiness.

Sharma said operating margins are on an upward trajectory now but declined to give a target.

The company has drawn up plans to invest Rs 27,000 crore in FY19 through FY20, Moondra said, adding it has obligations of Rs 3,000 crore and Rs 12,000 crore, in remainder of FY19 and FY20, respectively, towards spectrum payments and interest cost.

However, Moondra did not comment on the reports of the company starting roadshows for the planned Rs 25,000 crore capital raising exercise.

When asked on 5G rollout, Sharma said at this juncture the country doesn't need 5G as there is no enabling ecosystem.