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Vodafone Idea Rules Out Possibility Of Duopoly; CEO Expects Pricing To Improve

Vodafone Idea Ltd. (VIL) has ruled out the possibility of the telecom industry moving towards a duopoly, saying the authorities have made it clear that they will ensure the current industry structure of three private players is maintained, which will also be in the interest of consumers.

“They (policymakers) have very clearly said so. It is not in the interest of consumers. From whichever political point of view you look at, it will not be received well,” Balesh Sharma, Chief Executive Officer of India’s largest mobile phone operator, told ET.

He added that the government has also made it clear that it wants the health of the industry to improve, and that telcos are offering services below cost and the tariff structure has to change.

“If you look at the National Digital Communications Policy (NDCP) itself, it very clearly calls out that this (telecom sector) should not be seen as revenue creator and should be seen as a critical infrastructure. If you want to do digital India and want investments in the future, then the industry has to make a comeback and become a level playing field,” said Sharma.

Vodafone India and Idea Cellular, once India’s No 2. and 3 telcos, were forced to merge due to intense price competition since the entry of Reliance Jio in September 2016. Jio’s free voice and dirt-cheap data prices forced rivals to match, hurting revenue and profits of the industry at large and led to rapid consolidation, leaving just three private players. In addition, the sector is burdened with a debt of nearly Rs8 lakh crore of debt, mainly on account of the spectrum payments.

Sharma though is optimistic that market repair is inevitable and has seen some amount of stability after almost two years of intense tariff wars. “The change in the pricing in the marketplace will be for the unlimited bundle. We believe very strongly that will happen for various reasons, but we don’t know when.”

He said that telcos are currently selling below cost in the market which is limited in capacity, while the demand is unlimited.

“We are limited by the amount of spectrum on hand and unlimited on demand. All networks on the industry are practically choked, so why would anyone sell below cost…people like to believe they are using one eighth of capacity or 50% of the capacity but then speeds would have been way better,” said the CEO.

“There is unlimited demand and limited supply, then why would anybody with a sense of economics sell it below cost? That’s a typical scenario of price escalation. Therefore, it is being done for beyond economics,” he added.

Vodafone Idea, which is in the process of raising Rs 25,000 crore via a rights issue, said the level of competition is “optimum” now. Sharma also said that the three players will be “sufficiently funded” for the long haul although they are “burning cash big time”.

Besides Vodafone Idea, Bharti Airtel is also raising money via rights issue of Rs 25,000 crore.

“We see Jio also making moves towards deleveraging and everyone is preparing for a long haul,” said Sharma. Mukesh Ambani-owned Jio has demerged its fibre and tower units into separate entities to ease out the balance sheets and monetize these assets.―Gadgets Now

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