?We are keen on high-value customers?

Vodafone Essar, the country’s second-largest telco by revenue share with about 20% of the market, has notched up 100 million customers. Marten Pieters, who’s been with Vodafone India for about a year, as its MD&CEO, tells Shobhana Subramanian that with the change in foreign ownership rules, there are no concerns on Essar exercising its put option. Pieters also says that while there are no plans to list the company at this moment, Vodafone hasn’t ‘excluded’ the idea and that it would also depend on what Essar does with its put option as also foreign ownership rules. Excerpts :

When do you see consolidation in the industry?

People think the market is big so it can sustain more players but actually smaller markets can sustain more players. The expenses of a nation-wide network are high in bigger markets so you need scale to survive. So in my view five or six players can survive in the longer term, today there are more than 12 players and I think consolidation is necessary and it will be driven by scale. We see ourselves as one of those that will survive so, yes, we do see ourselves as a potential consolidator. But right now the rules don’t favour consolidation.

Will Vodafone’s strategy be to focus on revenue share?

Well, we won’t ignore any customer. Every customer is welcome even if he doesn’t use the phone too much. But the reality is that we will probably focus more on high-value customers who stay longer not only because they use more in terms of minutes and money but also more in terms of data services, which by definition have a little more stickiness, they will not throw the SIM away.

Are falling operating margins a concern?

It’s not actually true that our Ebitda margins have come down all the time, we saw a slight effect of the tariff drop last year but the effect was not that big. The third quarter numbers for the Vodafone group, all India including Indus, saw a very small drop in ebitda margins compared to the other operators. So we have been defending our profitability pretty well. Also, our Ebitda margin is a mix of 23 circles and of these seven are start-ups. And telecom companies never make money in the first few years, it’s a capital intensive business. So we have quite a few circles still that have negative Ebitda margins, so the overall mix for pan-India is 24% and that includes Indus and that is going up because we will, by growing scale in the C circles, grow our margins. Our mature circles have a higher ebitda margin.

How big are Vodafone’s 3G plans?

I can’t talk about the bidding strategy but Vodafone is seriously interested in 3G because, as you know, we don’t have enough spectrum which creates quality problems for the service. Also, especially in the data market, with the low speeds that we can deliver today, the services haven’t been good enough for customers.

I can’t talk about specific spends on 3G but I can say that in the last three years we have invested Rs 20,000 crore. We will continue to invest and if we are successful at the auctions part of the money will shift to 3G. We have a track record of investing a lot, and that fits in with the growth strategy, this is a market that’s growing. We also have to invest in capacities and maintenance, last month we added 3.6 million customers and we’re also investing heavily in services in enterprise services.

Where’s the tariff war headed? Are Arpus bottoming out?

I know quite a few people in the industry in the past have said this must be the bottom, probably based more on hope rather than insights because nobody knows. What we see is that tariffs have come to level where many customers are not so interested in tariffs; it has come to a level where if you say one paise for second or one paise for six seconds, it doesn’t really trigger the mind of the customer so much any more. It’s so cheap, they really don’t think about it anymore. The big effect that the introduction of the one paise per second tariff had, followed by the 50 paise per minute, that was the trigger point where customers started to really think about what they were paying. But it was the trigger new users to come in and existing users to use more. We don’t see that effect any more with new price action. From that perspective, I don’t say it’s flattened out but the effect of tariff apparently is slightly less than it used to be 6 months back.

Despite tariffs coming off, we haven’t seen price elasticity in the Indian market

We have been seeing it in the last few months, though it was disappointing that it didn’t happen earlier. If you map the industry’s growth of customers against the revenues, it’s a strange picture because the customer growth has been steep whereas the revenues in the last six quarters has been flat and on occasions has even come down. For the first time, lower users are starting to talk more and that is the effect of the per second billing.