Tariff war: Pricing power critical, says Birla

Vodafone Idea, which earlier received an in-principle approval from its board to raise funds to the tune of Rs 25,000 crore through share sale and debt to pay its adjusted gross revenue (AGR) dues, on Wednesday said revival of pricing is critical for the health of the telecom sector, underlining that while tariffs continue to be the lowest in the country, data consumption is the highest in the world.

Addressing shareholders at the company’s 25th annual general meeting, chairman Kumar Mangalam Birla said, “The telecom industry witnessed first round of tariff hikes taken by all operators in December 2019. However, tariffs are still very low, therefore pricing revival is critical for the healthy growth of the sector.”

Birla said AGR dues have added to the financial woes of the sector but efforts are being made to resolve the financial burden through staggered payments, which have been upheld by the Supreme Court.

He said the department of telecommunications (DoT) is also looking to restore the financial health of the sector through a two-year moratorium in payment of spectrum instalments.

According to Birla, the long-term opportunities in the telecom sector, however, remain intact as the increase in content consumption through videos and social media has driven strong data demand. Work-from-home is also driving increased data consumption and will provide a significant uptick to all telcos, he added.
Birla said the company is continuing to expand its 4G penetration to increase Arpu (average revenue per user) and is focussed on strengthening its share in the enterprise services, especially in the fast-growing segments of IoT and cloud services.

He also added that Vodafone Idea is undertaking an organisation-wide cost optimisation initiative which would drive annual savings over the next 18 months.
According to Birla, all these initiatives would improve revenue and profitability of the company and strengthen its overall competitive advantage and position in the market.

The company management, however, did not answer shareholders’ queries on the rising losses and how it intends to return to profitability.

Birla, however, stated that the company has achieved several milestones ahead of expected timelines since the merger. He added that the company continues to focus on its strategies and expand its coverage and capacity. “All these strategic initiatives will ensure that your company continues to provide best of customer experience to retail and enterprise customers and help in creating an agile and future fit organisation,” he said.

Vodafone Idea needs to pay total outstanding AGR dues of Rs 50,250 crore, which would entail annual instalment of around Rs 7,000 crore, including interest from FY23 till 2031. Concurrent to this during this period, it also needs to pay around Rs 16,000 crore as deferred spectrum instalment.

At the end of June quarter, the company hardly had cash on its books with its cash and cash equivalents at Rs 3,450 crore and a net debt of `1.16 lakh crore. The company would get around Rs 6,870 crore from Vodafone Plc, which would be latter’s share towards merger liabilities (Vodafone and Idea had merged in August 2018).

The company had posted one of its biggest losses during the April-June quarter at `25,467 crore, largely due to provisioning for AGR dues. Operationally, Vodafone Idea has continued to lose market share ? it lost 11.3 million subscribers during the April-June quarter to 279.8 million in total, including 1 million 4G subscribers, taking the number to 104.6 million and total data subscribers declined by 3.8 million to 135.7 million.