5G mass adoption won’t happen overnight: Vodafone Idea CEO and MD Ravinder Takkar
According to Takkar, the world today is struggling to find a use case like 4G, which transformed how internet could be accessed on a mobile phone. “Mass adoption of 5G is not going to happen overnight,” he said.
The upcoming 5G auctions would be quite different from the past auctions as mass adoption of 5G would not happen overnight, Vodafone Idea CEO and MD Ravinder Takkar told FE. Buying and hoarding spectrum has no value today, he said.
Takkar’s comments gain significance as the telco’s bidding strategy for 5G auctions is a matter of keen observation for analysts. In a three-player, access telecom services market, Vodafone Idea is still financially weak and yet to fully complete its targeted fundraising exercise of Rs 25,000-crore.
In a wide-ranging interview with FE, Takkar declined to divulge the details of the company’s bidding strategy for the auctions, but said that “immediacy of what you do tomorrow has changed”.
On the company’s planned Rs 25,000-core fundraising exercise, he said that lenders and investors are now comfortable and once the government converts its debt into equity, funding would come from these two sources. Tariffs, Takkar said, would now only go up as no operator is going to benefit from cutting rates.
“Conditions have changed now, there is plenty of spectrum and very less players. There is this element of what are the use cases of 5G which in a way drive your auction strategy. 5G can be an enabler to digital services but can that service be available tomorrow or day after, I don’t think that is the case,” he said with regard to 5G auctions.
“These auctions would be very different when compared to past auctions. If you look at 3G, there was hardly any spectrum, in 4G also, artificial scarcity was created and there were so many players. We are out of that mode now. Today, there is this element of what are the use cases of 5G which in a way would drive your auction strategy,” Takkar said.
According to Takkar, the world today is struggling to find a use case like 4G, which transformed how internet could be accessed on a mobile phone. “Mass adoption of 5G is not going to happen overnight,” he said.
Takkar said that globally too, where 5G services have started, operators are struggling to find a scalable use case. “There are some 100 countries which have launched 5G and many of them for several years, I would say, that most countries are struggling with what I would call very large scalable use cases. There are few use cases, like for 5G private networks, rural broadband use cases, but for large scale mass use cases, the industry is struggling,” he said. “Clearly, 5G provides capacity at cheaper cost, which is well understood, but that’s a benefit for cost reduction, then a revenue or use case,” he added.
On the company’s targeted Rs 25,000-crore fundraising plan, Takkar said the company may have something to announce soon, but declined to give a fixed timeline.
The promoters – Vodafone Plc and Aditya Birla Group – recently put a total of Rs 4,500 crore into the company.
We had about a year ago said the total funding need of the company was about Rs 25,000 crore. That number is still correct. There could be three sets of funding – promoters, lenders and potentially third-party investors or new investors. The promoters’ money has already come in and they are the first ones to say we are comfortable. They have put in Rs 4,500 crore, so another Rs 20,000 crore is needed, which we are looking to raise from lenders and equity investors, of which Rs 10,000 crore is equity investment and Rs 10,000 crore is debt,” Takkar said.
“We are probably in a good position as we ever were in closing those two sources of funding (lenders and investors) as well and hopefully, we have something to announce in the coming period of time. We are in detailed discussions with lenders’ consortium,” he said.
After the equity conversion, the government will hold 32% stake in Vodafone Idea, and the promoters’ stake will get diluted to around 50% from the current 75%. “If further equity funding comes in, the government’s stake will further be diluted. The government is clear that it does not want any control in the running of the company,” Takkar said.
He further said the Rs 25,000-crore funding would be enough for the company in the near future to take care of capex as well as cash flows.
“Today, if you look at our total debt, which is Rs 1.98 trillion, 90% of it is owed to the government. On non-government debt, we are in a comfortable position for the size of our business and size of Ebitda. The exposure has also come down with the government returning Rs 15,000-16,000-crore bank guarantees. There is funding opportunity that the banks will provide us and the additional equity that will come in,” Takkar said.
He conceded that because of funds constraints, the company’s capex in terms of adding more 4G sites has lagged behind peers. “What has happened in the last few years when they (competitors) have accelerated their capex investments, we have been left behind, that is a disadvantage. But at the same time, if we look at how efficiently I have deployed my capex for the amounts that are so different, and I compete with them effectively, maybe there is a lesson to learn there as well,” Takkar said.
Illustrating the disadvantage of low capex spend, Takkar said: “We have added 4G customers for nine straight months, but the 2G base has shrunk, so the net is negative. If a Vodafone Idea 2G customer wants to upgrade to 4G but in that particular area, there is no 4G coverage, the customer will have no choice but to go to another operator…This is the area where we have lost out some customers. Second, is due to SIM consolidation.”