5G mass adoption won’t happen overnight: Vodafone Idea CEO and MD Rabindra

Upcoming 5G auctions will be quite different from past auctions because the massive acquisition of 5G will not happen overnight, Vodafone Idea CEO and MD Rabindra Takkar told FE. He said there is no value in buying and stocking spectrum today.
Takkar’s comments are significant as the telco’s bidding strategy for 5G auctions has been the subject of intense observation by analysts. In the three-player, access telecom services market, Vodafone Idea is still financially weak and has yet to complete its Rs 25,000-crore targeted fundraising exercise.

In an extensive interview with FE, Takkar declined to divulge details of the company’s bidding strategy for the auction, but said “the urgency of what you do tomorrow has changed.”

Regarding the company’s planned Rs 25,000-core fundraising exercise, he said lenders and investors are now feeling comfortable and once the government converts its debt into equity, the funds will come from these two sources. Tariffs, Takkar said, will only increase now because no operator will benefit by reducing rates.

“The situation has changed now, there is a lot of spectrum and very few players. There is this element in the use of 5G that similarly drives your auction strategy. 5G may be an enabler for digital services but whether that service will be available tomorrow or the day after tomorrow, I don’t think it will be, “he said of the 5G auction.

“These auctions will be very different from previous auctions. If you look at 3G, there was very little spectrum, 4G also had an artificial shortage and a lot of players. We are out of that mode now. Today, the use of 5G has this element that will somehow drive your auction strategy, ”said Takkar.

According to Takkar, the world today is struggling to find a use case like 4G, which has changed how mobile phones can access the Internet. “The massive adoption of 5G is not going to happen overnight,” he said.

Takkar says that even worldwide, where 5G services have been launched, operators are struggling to find a scalable use case. “There are some 100 countries that have launched 5G and many of them over the years, I would say most countries are struggling with what I would call the use of very large sizes. The 5G private network has a few uses for rural broadband usage, but with large-scale widespread use, the industry is struggling, ”he said. “Obviously, 5G provides power at a lower cost, which is well understood, but it’s an advantage to reduce costs, then a revenue or usage,” he added.
Regarding the company’s target of raising Rs 25,000 crore, Takkar said the company may have something to announce soon, but declined to give a deadline.

The promoters – Vodafone plc and Aditya Birla Group – have recently invested a total of Rs 4,500 crore in the company.

We said about a year ago that the company needs a total fund of around Rs 25,000 crore. That number is still accurate. There may be three sets of funds – promoters, lenders and potential third party investors or new investors. The money from the promoters has already arrived and they are the first to say that we are comfortable. They have Rs 4,500 crore, so we need another Rs 20,000 crore, which we want to collect from lenders and equity investors, including Rs 10,000 crore equity investment and Rs 10,000 crore loan, ”said Takkar.

“We are probably in a better position than we were when we closed two sources of funding (lenders and investors) and hopefully we have something to announce in the near future. We are in detailed discussions with the Consortium of Lenders, ”he said.

Following the equity conversion, the government will hold a 32% stake in Vodafone Idea and the promoters’ stake will be reduced from the current 75% to about 50%. “If more equity funds come in, the government’s stake will fall further. The government is clear that they do not want any control over the management of the company, “said Takkar.

He added that the Rs 25,000 crore fund would be enough for the company in the near future to take care of the cash flow as well as the capex.

“If you look at our total debt today, which is 1.98 trillion rupees, 90% of it is owed to the government. In the case of private loans, we are in a comfortable position for the size of our business and the size of Ebitda. Exposure has come down with the return of bank guarantee of Rs 15,000-16,000 crore by the government. There is a possibility of funding that banks will provide us and additional equity will come, ”Takkar said.

He acknowledged that due to funding constraints, the company’s capital lags behind its peers in adding more 4G sites. “What has happened in the last few years when they (competitors) have accelerated their capital investment, we have lagged behind, is a problem. But at the same time, if we look at how efficiently I have deployed my CAPX for so many different amounts, and how effectively I compete with them, then maybe there is a lesson to be learned, “said Takkar.

Highlighting the disadvantages of low capital spending, Takkar said: “We’ve been adding 4G subscribers for nine months in a row, 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 some customers. Second, because of SIM integration. “

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