Vodafone balances Indian nightmare with solid numbers elsewhere

The latest numbers from telecoms group Vodafone are a mixed bag, with India casting a shadow over some solid performances elsewhere.

In the UK Vodafone said it had its best ever quarter for new customers, with nearly double the number of mobile contract customers joining in Q3 2019 than in the year-ago quarter. On top of that the prepaid business grew for the first time in a decade and Vodafone managed to steal Virgin’s MVNO business from BT, so not a bad quarter at all for Vodafone UK.

Across the whole group revenue was flat year-on-year, EBITDA was up a bit and operating profit was back in black. As you can see from the table below Europe is pretty stable and Vodafone has upgraded its EBITDA guidance by around a billion euros, thanks mainly to the completion of its Liberty Global acquisition. That has massively increased its debt, however, and any optimism is tempered by Vodafone’s exposure to the dire situation in India.

“I am pleased by the speed at which we are executing on the strategic priorities that we announced this time last year,” said Nick Read, Vodafone Group Chief Executive. “This is reflected in our return to top-line growth in the second quarter, which we expect to build upon in the second half of the year in both Europe and Africa.

“The consistency of our commercial performance has improved in both regions, and we have made a fast start on integrating the acquired Liberty Global businesses, where we see significant long-term opportunity. Our digital transformation is already creating a better experience for our customers, improving our differentiation, supporting growth and at the same time reducing our structural costs.

We have now secured network sharing agreements across most of our major European markets, and we recently announced a major long-term wholesale partnership with Virgin Media in the UK, in order to improve the utilisation of our network assets. And we expect our European TowerCo to be operational by May next year, enabling us to continue to unlock the significant value embedded in our tower infrastructure.”

Amit Pau, former Vodafone Managing Director and currently Chief Operating Officer of Accloud, had this to say. “It has been a year of two halves for Vodafone and their new CEO. Nick had a tough start with the reaction to his dividend cut, but Vodafone has fought back and today sees one of the best set of results from across its peers in 2019 thanks to successes in key markets, including Germany. Vodafone now seems to be operationally stable and gives the impression it’s turned the corner of organic growth.

“But, dig a little deeper, and the top-line results disguise the fact that there has been little innovation, which would drive Vodafone’s long-term growth and expansion. Given the phenomenal levels of innovation in the mobile world, it is strange that it is in decline at the business. A clear example is how they have failed to recognise the vast opportunity that exists in the Indian market. A decision that is likely to prove unwise in time, simply because they are ignoring one of the largest and most diverse mobile economies in the world.”

We don’t know the extent of Vodafone Group’s exposure to the Vodafone Idea joint venture, but it presumably remains a major shareholder and, even if it doesn’t have to cover the Indian government’s cash grab, still has a massive interest in the company’s success. Considering how much debt Vodafone is already in, it’s questionable how much more cash it will be prepared to chuck at the Indian market.

Public cloud gathering momentum in India – Gartner

Few countries are speeding towards the digital economy as quickly as India, and it seems the bug is catching as enterprise organizations start to surge spending on the public cloud.

Today’s India is almost unrecognisable from bygone years. With a renewed focus on digital from Government and regulatory agencies, telcos finally spending on networks and consumers demonstrating an incredible appetite for data, India is quickly closing the divide. An increase in public cloud spending only adds further confidence in progress.

“Moving to the cloud and investing in public cloud services have become imperative to the success of digital business initiatives,” said Gartner Analyst Sid Nag.

“It’s no longer a question of ‘why’, but a matter of ‘when’ organizations can shift to the cloud. We have entered the cloud 2.0 era, where organizations are adopting a cloud-first or a cloud-only strategy.”

Those who are of a certain age will remember the excitement which was drummed up around the ‘BRIC’ nations. The acronym described the economic potential of slumbering giants (Brazil, Russia, India and China), four countries with large population that were supposed to be the growth engines for international businesses around the world after growth in domestic markets slowed.

China certainly offered fortunes for those who were strategically savvy enough, while there has been some promise in Russia and Brazil. India was always the nation which undermined the BRICs theory, though it is quickly entering its own digital era.

According to Gartner estimates, public cloud investment from enterprise organisation will increase by 25% over the next 12 months. Software-as-a-Service (SaaS) remains the largest segment, representing 42% of all investments, though this is the same journey many ‘developed’ nations took in bygone years. The team estimates SaaS cloud application services will total $1.4 billion over the next 12 months, an increase of 21%.

Segment 2018 2019 2020
Platform-as-a-Service (PaaS) 284 363 461
Software-as-a-Service (SaaS) 900 1,105 1,364
Business-Process-as-a-Service (BPaaS) 172 189 212
Cloud management and security 187 228 274
Infrastructure-as-a-Service (IaaS) 558 744 996

Figures in millions (US$)

As you can see from the figures above, spending has been steadily increasing year-on-year, though considering the size of India as a country, the potential is significant. However, there might be a challenge on the horizon unless all the cogs click into place.

CIOs across the market are suggesting there could be consolidation in the market as smaller players are replaced by the global power houses of the cloud economy, however with such potential money will have to be spent to ensure the digital infrastructure is in place.

This is where India has traditionally struggled. It was a ‘chicken and egg’ situation, with low ROI discouraging infrastructure investment, though inadequate infrastructure seemed to hobble potential profits. This conundrum does seem to be in the past, though there is still plenty of work to do to increase the data centre footprint, as well as ‘fibering up’ the nation to take advantage of future applications, both consumer and enterprise.

Amazon Web Services announced in May it would open a new Availability Zone in the AWS Asia Pacific (Mumbai) region due to customer demand, Microsoft Azure currently has three Availability Zones in the country and has partnered with Reliance Jio to boost its presence, Google is currently hiring very aggressively in the country, while IBM recently said it was focusing more acutely on SMEs to gain traction.

India still does not compete with the top nations around the world when it comes to digital readiness, but all the pieces do seem to be falling into place. Increased investments in public cloud services and infrastructure is more evidence this country is flying towards the digital economy.

Jio accuses Indian cellular trade body of foul play

India’s leading mobile operator group thinks the fact that the trade body lobbied on behalf of two others is proof of bias against it.

The trace body in question is the Cellular Operators Association of India (COAI), which apparently wrote to the Indian government yesterday to lobby for some kind of assistance for its members: Vodafone Idea and Bharti Airtel. The thing is Reliance Jio is also a member of the COAI and presumably doesn’t want its competitors to get extra help, so it’s not happy about the letter.

Jio communicated its displeasure at considerable length in a letter of its own to the COAI, which it also shared with Indian media. It characterised the COAI letter as having alleged an unprecedented crisis in the telecom industry and said it was shocked that the letter was sent before Jio had had the opportunity to contribute. It went on to say this is typical bad behaviour by COAI, which calls into question just how shocked Jio actually was.

“Evidently, submission of this letter… is another manifestation of COAI’s prejudiced mindset completely laced with the one-sided thought process,” continued the letter, warming to its theme. “By such unwarranted behaviour COAI has just proved that they are not an industry organization but just a mouthpiece of two service providers.”

It then bangs on about all the things that were wrong with the letter, which amount to the aforementioned bias in favour of Vodafone Idea and Bharti Airtel. Jio clearly doesn’t want its rivals to get any help from the government, and even went so far as to insist that the disappearance of its two main competitors wouldn’t harm competition, which feels like a bit of a reach.

Neither the COAI nor the Indian state seemed to have responded to the letter at the time of writing, but they both seem to be stuck in the middle of an increasingly acrimonious war between Jio and the incumbents whether they like it or not. This is what happens when the state pokes its nose into the commercial sector too much. It created a very benign regulatory environment for Jio and is now staring at a potential monopoly. Nice one.

Vodafone Idea is reportedly struggling, Indian government may step in

Indian operator group Vodafone Idea is reportedly looking to refinance its massive debt, while the government mulls a bailout for the whole sector.

The Indian telecoms sector is a bit of a mess these days. The arrival of Reliance Jio lowered prices and squeezed profits at a time when capital investment was most needed. Meanwhile the government seems to be doing everything it can to make the situation worse by first giving assistance to some operators, while further hindering others. You could be forgiven for thinking the Indian state is determined to drive incumbents Vodafone Idea and Bharti Airtel out of business.

So it comes as no great surprise to read reports that Vodafone Idea is struggling to meet its debt obligations and wants to renegotiate the terms. It should be stressed, however, that this report is based on anonymous sources and a spokesperson for Vodafone Idea has said the company hasn’t asked lenders to rework payment terms, so it all comes down to who you believe.

Even if Vodafone Idea hasn’t explicitly sought renegotiation with its creditors, with $14 billion debt and a fiendishly difficult trading environment it’s hard to believe it won’t soon. The merger seems to have bought the respective companies precious little time, but massive potential rewards await those companies that can ride out the current storm in what will soon be the world’s most populous country.

It seems possible that the Indian government is belatedly realising what a catastrophe the collapse of one on the few remaining national operator groups would be and, according to another report, has created a panel to look into a bailout for the whole sector. How much of this will be straight cash as opposed to regulatory concessions remains to be seen, but it the mere creation of this panel indicates an acknowledgement by the state that it hasn’t managed the sector very well.

Allowing the creation of Reliance Jio was fine, but it seemed to get a bigger regulatory helping hand than, in hindsight, seems appropriate for a company bankrolled by India’s richest person. At the same time the state is still active in the sector itself and seems to have been using the incumbents as a cash cow. The role of this panel should be to correct some of those mistakes, but we’ve seen little from the Indian state to make us optimistic about it succeeding.

Indian operators hit with $13 billion government bill

The Indian government charges operators 10% of their gross revenue in license and spectrum fees and the operators would like to pay less.

This resulted in a demand from the government that operators hand over 920 billion rupees (~$13 billion) in underpayments plus interest. That demand found its way to India’s top court, which has upheld it according to a Reuters report. That would appear to be the end of the matter, if the share price hit the operators took is anything to go by.

The issue doesn’t seem to be the fees themselves, although they do seem suffocatingly high, but the definition of ‘adjusted gross revenue’, from which they are derived. It seems safe to assume that the operators reckon that figure is considerably lower than the government does and the courts have gone with the latter.

“This decision has come at a time when the (telecoms) sector is facing severe financial stress and may further weaken the viability of the sector as a whole,” said an Airtel statement to Reuters. “Today’s order has huge impact on two private operators while most of the other impacted operators have exited the sector,” said the Vodafone Idea statement.

The backlog of fees would appear to stretch back quite a few years as the impact on Reliance Jio, which has only been around since 2016, is far less. The bill comes at a very trying time for the sector in India, with the incumbents struggling, state-owned firms needing to be bailed out and even Jio starting to feel the strain. Not the best time for a government cash grab.

Indian government bails out BSNL

It turns out that state-owned operator BSNL isn’t very efficient, but the Indian government reckons merging it with even less efficient MTNL should sort things out.

That’s the cunning plan recently unveiled by Indian Telecoms Minister Ravi Shankar Prasad, according to reports and Twitter (see below).  BSNL, which has over 100 million subscribers, will be merged with MTNL, which has three million. It’s not known whether they will pick a new, unhelpfully vowel-free abbreviation for the combined effort.

On top of the merger they will apparently have 350 billion rupees chucked at them (if we have understood crore correctly), which is around 5 billion bucks. In return they will have to ‘monetize’ a similar value of assets held by the two companies. Various other chunks of cash are being mentioned in reports, so it’s hard to pin down the precise size of the bailout, but it’s substantial. On top of all that MTNL alone seems to have accumulated around 200 billion rupees in debt, which is a good effort.

“Neither BSNL/MTNL is being closed, nor are they being disinvested, nor are they being hived off to any third party,” Prasad is quoted as saying. “With all these measures, I’m confident, BSNL will become EBITDA positive in the next two years.” They’re also getting a bunch of 4G spectrum to help with the great turnaround, and will be offering thousands of employees voluntary redundancy.

The concept of a state-run telco is a pretty anachronistic one and it’s not at all surprising to hear BSNL and MTNL are struggling in the fiercely competitive Indian market. Apart from the expensive streamlining it’s not at all obvious what a state bail-out will achieve other than keeping them on life support a bit longer and we wouldn’t be surprised if this is a fairly contentious move.

India promises spectrum reform as telcos bemoan status quo

The Indian Government has promised it will reform the pricing structures of spectrum auctions over the coming months as telcos cast their eyes to the 5G horizon.

Speaking at the India Mobile Congress, Telecom Minister Ravi Shanker Prasad suggested a new wave of spectrum auctions would take place over the next 12 months, and much to the happiness of the telcos, the team will work to make it cheaper.

While numerous nations around the world have been pushing forward with their own spectrum auctions to ready economies for the 5G euphoria, India is one where progress has been incredibly sluggish. There have been attempts to get the ball rolling, however industry has pushed back due to the high base prices which were set by the Government.

In 2016, 2354.55 MHz of spectrum ranging across the 7 bands was auctioned off, with many of the telcos applying to participate. Unfortunately, the end result was only 40% of the licences being allocated, with price seemingly being the reason.

In 2017, another consultation process was launched by the Telecom Regulatory Authority of India (TRAI), with the aim being to push out 5G spectrum and the unallocated assets from the 2016 edition. No further action was taken following the end of the consultation, with industry requesting the auction be pushed back.

The comments from Prasad might well be a watershed moment in the stalemate. It seems the Government was the first to twitch on the pricing conundrum.

Speaking at the same event, Vodafone Idea Chairman Kumar Mangalam Birla said, “while we stand committed to support the growth of the industry, we seek enabling regulatory environment to ensure that necessary investments are made.”

Reliance Jio board member Mahendra Nahata also suggested pricing for 5G spectrum should “critically looked at”. The general feeling appears to be the Government is not looking at the big picture, targeting revenues derived from spectrum sales in the short-term, instead of looking long-term at national economic growth which can be achieved through the continued progress being made in the connectivity world.

This is of course an equation which is difficult to balance. The telcos will always want to make sure they are paying as little as possible for spectrum licences and will promise the difference will be invested in network deployment. This is a reasonable assumption, though there is no way to prove charging less for spectrum licences would result in increased network deployment. The telco might well have spent the same but is trying to reduce expenditure.

Industry is of course perfectly entitled to push back against what it would perceive as pricing structures which are too expensive, but this will have a negative impact on the business and the nation. Pricing of spectrum is very difficult balance, as there is no rule which can be applied everywhere.

India is a very unique market, as while it has the second largest population of consumers worldwide, it does also have low ARPU and significant expenditure to make on network deployment.

While telcos moaning about the price of spectrum is nothing new to consider, a slight concession from the Indian Government is certainly a step in the right direction. There will be months of negotiation and research to understand what a suitable pricing structure actually is, but this is a much more promising sign that spectrum auctions in the near future will be successful.

Jio starts charging for calls and its punters aren’t happy about it

Disruptive Indian operator Reliance Jio has announced it will start charging its customers for calls to other networks due to a regulatory change.

Until now Jio had been swallowing the 6 paise (hundredths of a rupee) per minute interconnect usage charge (IUC) incurred when its users called someone on another network. This formed part of the super-aggressive pricing strategy designed to steal market share from the incumbents, which was an unqualified success.

The cunning plan seemed to be to follow the classic internet business model of focusing on building up a massive user base first, then working out how to get cash out of them later. But now Jio seems to be going back on that and is looking to recoup that IUC from its users, who aren’t too happy about the sudden moving of the billing goalposts.

Jio is insisting it’s just as much of a victim in this situation and is only introducing the charge because the Indian telecoms regulator – TRAI – is mucking it about over plans to scrap the IUC entirely next year. In the press release announcing the news charge Jio goes into great length about how often TRAI said the charge would be scrapped by the end of this year, but then claims it’s having a rethink – hence the new charges.

As well as blaming TRAI, and also to some extent the other operators, who it accuses of some kind of poor form too arcane to dwell on, Jio is also attempting to sugar the pill by throwing in some ‘free’ data in exchange for money spent. Free must have a different meaning over in India. Here’s the table it has sent its punters announcing the new state of affairs.

jio voice call charges

If Indian Twitter is anything to go by, this hasn’t gone down well among the millions of Indians who switched to Jio, seduced by all the actual free stuff, as opposed to free stuff you have to pay for. The hashtag #boycottjio is trending, with the tweet below a typical example of the kind of stuff it’s yielding.

We don’t know why TRAI is having another look at this IUC thing; maybe Jio has been naughty, maybe the other operators have lobbied against it, maybe TRAI just thinks Jio is getting a bit big for its boots and need knocking down a peg or two. Alternatively the TRIA decision could be nothing new and Jio is just using it as a smokescreen to start taking back some of its freebies. Regardless of the reasons this may represent Jio’s first major setback since taking the Indian telecoms world by storm. This video alone is unlikely to resolve it.

 

India mobile subs continue to climb as fixed falls

Mobile subscriptions are continuing to rise in India, though the fixed market is increasingly looking prime for disruption as the number of users falls once again.

According to the latest data from the Telecom Regulatory Authority of India (TRAI), mobile subscriptions across the country increased by 0.31% over the three-month period ending in June. Although this might not sound that impressive, 0.31% is the equivalent of 3.65 million subscriptions. The total now stands at 1.165 billion.

The impact of Jio should not be underestimated here. This is a company which revolutionised accessibility to connectivity in the country, and momentum is continuing through 2019. At some point the ceiling will be reached, though in many countries around the world, mobile penetration exceeds 100%.

With a population of roughly 1.33 billion, smartphone penetration across the country stands at approximately 87%. There are of course factors in play which distinguish India from other markets, though there is certainly still more room for growth in the market.

Interestingly enough, while mobile is surging, demand for fixed broadband services is declining. The number of ‘wireline’ subscriptions across the market decreased by 5.47% to 21.17 million. There are roughly 250 million households in India demonstrating the vast room for growth in the country.

Country Number of households Broadband subscribers Penetration
India 249.5 million 21.17 million 8.4%
China 455.9 million 378.5 million 83%
US 138.5 million 109.8 million 79.2%
UK 31.8 million 26 million 81.7%
Japan 49 million 40.4 million 82.4%

As you can see from the table above, the number of broadband subscriptions does not tend to exceed the number of households, but 80% penetration seems to be a fair estimate in the more developed markets.

Due to the vast size of the country and the environmental challenges which are presented, there is perhaps good reason this market penetration is so low. Another factor to take into account is ARPU compared to the heightened expense of deploying a fixed network compared to mobile. These are all factors to consider, but for a company which can balance the equation, the opportunity is clear.

Jio is one of those which is attempting to crack the fixed market.

Having secured the attention of the Indian consumer, it will surprise few the ambitious Jio is seeking to compound this success with a venture into broadband. Last October, the firm announced it had acquired stakes in Den Networks and Hathway Cable to put one foot through the door, though it has not made the blockbuster move some are anticipating.

India has been one of the most interesting markets for telecommunications over the last few years, but there is plenty left to discuss if someone can figure out how to crack the broadband conundrum.