Vodafone India says IPO unlikely this year

Telecom operator Vodafone India on Tuesday said it may not go ahead with its proposed initial public offer (IPO) this year in view of the policy uncertainty prevailing in the country and the high prices of spectrum proposed by the Telecom Regulatory Authority of India (Trai).

“Looking at the uncertain telecom environment at the moment and regulation that keeps changing on a daily basis, it seems unlikely that our shareholders will roll the IPO this year,” Marten Pieters (pictured above), MD & CEO, Vodafone India said on Tuesday.

“However, talks are still on the table and the final decision will be taken after Trai’s recommendations are finalised,” he said.
The regulator has proposed starting prices that are nearly 10 times what the companies paid in 2008.

Vodafone has contributed Rs45,000 crore to the exchequer since entering India in 2007 and hasn’t got a rupee back, said Pieters.

“It does not make sense to take away spectrum from operators who have been in the country for so long and who have acquired a substantial subscriber base. Just giving away this spectrum to incumbent operators isn’t enough, pricing and availability of spectrum is also an important factor. If spectrum is sold at the price proposed by Trai, tariffs in Mumbai and Delhi are likely to go up by as much as Rs1,” he said.

Vodafone has already increased its Mumbai post-paid tariffs by 20%.

However, Pieters said this hike was long overdue, since most operators had already hiked post-paid tariffs in October-November last year.

Refarming of spectrum is another point of concern, said Pieters. “Refarming will mean setting up lakhs of additional cell sites, polluting the environment. Besides, in its proposed form, it will prevent continued spectrum rollout, which will be a deterrent to the Indian telecom sector, which still has a lot of scope for growth. Thus, Trai’s recommendations in their current form make further investment in the telecom sector economically unattractive, even if possible.”

Refarming involves pooling the excess, unused spectrum from each operator and giving it out to operators as and when needed.

For the current year, Vodafone has slashed its global revenue outlook by £4 billion in view of the European debt crisis and a marginal fall in core earnings of 1.3%. The company pegged its revenue growth outlook for 2013 at slightly below its previous medium-term target of 1-4 %.

However, Vodafone India kept hopes alive, reporting an increase of 19.5% in FY12 revenues at Rs32,000 crore and a net profit growth of 14%. Operating margins rose 26.3% to Rs8,549 crore. The company had increased its market share in India to 20.6% in Q3 (Trai data for the quarter ended March has not been announced yet), with a current subscriber base of 150.5 million, out of which 74.3% are active subscribers.

Given the competitive climate, average revenue per minute was flat for the first time at 44 paise, though minutes of usage increased from 170 million minutes to 183 million minutes and average revenue per user increased from Rs173 to Rs180 year on year, driven mainly by an increase in data customers.

Data users grew 81.5% on year, reaching 35.4 million, and Vodafone expects data revenues to keep growing on the back of healthy 3G uptake. Vodafone added 1.3 million 3G subscribers during the year and set up 6,000 3G sites. However, the company did not comment on its plans to slash 3G tariffs, stating simply that they have ‘dynamic 3G pricing’.

Subscriber churn during the year was at 67%. However, the company saw 1.7 million net port-ins, making it the second top mobile number portability gainer, with an increase in active subscriber base as well.

The company also said that subscriber acquisition costs have decreased, despite the competitive environment, pointing to strong customer volume growth.

Net debt of Rs40,000 crore, however, is a troublesome burden, which the IPO was supposed to ease. Still, after breaking even this year in seven new circles, the company is confident that the scale of business in India is growing at a healthy pace.

Vodafone also added a new business services unit for fixed line and enterprise customers, and plans to hire 600 employees this year.