Vodafone: Prepping For The Top Slot
When Sunil Sood first joined Vodafone India (then Hutch) as Vice President, Sales and Marketing, the telecom company was just taking off on the back of low telephony penetration. Business growth was smooth over the years as demand for data and smart phones and the need for communications sent revenues soaring. Sood witnessed Vodafone India growing from a fledgling Rs 400 crore company to the Rs 42,000-crore telecom behemoth, it is today.
But what used to be seen as a steady and FMCG-like industry, is now seeing massive disruption due to technology — and competition. In fact, across the sector, revenues have been getting slammed. Now that Reliance Jio has entered the fray with its bundling of voice and data packages, the tempo of competition has been raised far higher. Telecom players are struggling to achieve break-even at lower cost and are taking the consolidation and mergers route to optimise customer base and spectrum, among other benefits.
According to IBEF reports, India has the second largest telecom market and third highest number of Internet users in the world. The numbers are only growing. And as managing director and CEO, Sood has a difficult job. He not only has to steer Vodafone India to newer growth segments and data products like IoT and cloud, but also prepare the groundwork for a merger with Idea, which was announced back in March.
This is one of the most decisive stages of the foreign telecom player, and Sood is all fired up. Telecom revenues, though, are nothing like they have been in the past. Average revenues per user or the ARPUs have been diving. Industry body Cellular Operators Association of India (COAI) reports that all India ARPUs have declined from Rs 124.78 in October-December 2016 to Rs 104.68 in January-March 2017.
For starters, Vodafone India has matched the competition by lowering tariffs and bundling voice and data together in one package. But that means ARPUs taking the hit.
Vodafone India’s ARPU for the quarter ending March dipped to Rs 140 from Rs 160 levels in the same quarter last year.
The job on hand is to keep costs low and simultaneously enhance customer experience, and find new segments such as enterprise. Yet Sood is no stranger to such competition. Like its peers, Vodafone India, too, is now mapping out plans to keep growth areas in new technologies like IoT, Cloud, artificial intelligence (AI) and data analytics in focus at the same time use technology to reduce costs. 
“All the future products in which India has a big chance to be ahead whether it is AI, robotics, IoT, cloud, all of these needs a base. The startup industry also needs a base, which is telecoms. You need telecom to do well; to really enable the future. That’s what I strongly believe,” says Sood.
More than three-fourths of the world uses a mobile telephone and nearly half of those use smartphones. That means that demand for data will continue to increase. Half of the world’s web traffic is driven via mobiles. Convergence of entertainment and content apps means high-speed connections at work or play is a must. Vodafone itself has seen data usage increase by 30 per cent over the last year. At the same time, the lower ARPU means that the industry is looking at viable options to stay competitive. And it is here that consolidation comes into play. Vodafone India announced a merger with Idea in March. The Vodafone-Idea combine is expected to usher in savings of more than $2 billion per year. Vodafone has several JVs across the world. Vivek Badrinath, CEO, AMAP (Africa, Middle East & Asia Pacific), Vodafone Group Plc, says that there are lessons to be gleaned from their successful JVs in markets such as Australia, Netherlands, Kenya, Egypt. “Our partners acknowledge and appreciate the experience and skills we bring on board both via our technology and the calibre of our people. I expect India to be similar. We have to bring the best of our telecom knowledge and our experienced talent.”
Sowing The Tech Seeds
In an increasingly low revenue environment, a big factor that will play in the future will be savings in costs. Vodafone has 210 million subscribers and over 140,000 cell sites and it is working on enhancing its connectivity at lower costs. Vodafone India is driving the ‘IP-fication’ of its network to improve phone connectivity. Given the amount of its legacy telecoms estate of more than 140,000 sites, the task is huge. Even then, Vodafone has already connected 100 per cent of its 3G and 4G networks on IP. The IP protocol helps to efficiently and seamlessly transfer data from one end to another. In 2G and 3G, data moves in a straight line and is slow and cumbersome. Through an IP protocol, there is no dedicated line, and data packets switch lines and traverse multiple routers, combining at the receiving end to result in continuous voice or data. IP is the new mantra that will significantly enhance the data-carrying capacity of networks.
On the technology front, VoLTE has only recently been introduced in India, Vodafone has worked on this technology in other geographies with new data-friendly technology such as Super-Net for 4G technology. Says Thomas Reistan, CFO, Vodafone India: “Broadband sites now comprise more than 75 per cent of our total site base. Going forward, we will focus necessary investments in our leadership circles, where we are No. 1 or 2 in revenue market share and represented 96 per cent of our Ebitda last year.”
In financial year 2017, Vodafone India prioritised investments of Rs 8,311 crore driven by significant investments in new broadband site roll-outs to deliver a superior customer experience. “We expanded our Vodafone SuperNet 4G footprint across all circles where Vodafone has 4G spectrum — these circles contribute more than 95 per cent of Vodafone’s data revenue,” says Reistan. “Our 4G services are now available in more than 2,400 towns across India.”
Cloud Clusters
Over the years, Vodafone has invested over Rs 1.4 lakh crore in various technologies to improve network architecture, and these investments are continuing on a massive scale. Last year, it invested Rs 8,100 crore on new technology. In another initiative, the company is working on ‘virtualisation’ of its network, which improves time-to-market or launch. Among other things, Vodafone has also embarked on “cloudifying” or putting up much of its virtual telecoms real estate on the “cloud”. This will be used jointly by network and IT services.
Says Vishant Vora, Director, Technology, Vodafone India: “The cloud that we are going to create will serve various needs. We were seeing that the hardware we bought in the IT and network space was the same, and so were the skills required to build the systems. So we made a recent decision not to buy separate hardware, and use the ones we buy in network for the IT issues. It becomes cost-efficient for us.”
Vodafone used to purchase huge platforms to run its network, but all of that power was used for a fraction of the time. Now with the ‘cloud’ and a common hardware interface, the company is now virtualising many of those applications and putting them on the same cloud, like IT and hardware.
What’s more, two-thirds of Vodafone’s 1.42 lakh physical sites are 3G and 4G capable, which means faster speeds for customers. Besides, the Vodafone network is the first to have 100 per cent HD voice, and over 100 million calls a day are being made on this platform.
Vodafone is also embarking on a project to reduce the equipment on its physical sites and house much of that on the cloud. This means that the company will reduce its rentals for the site, and be able to provide superior services as most of these networks will be pooled. Here again, Vodafone will be sharing that infrastructure on the cloud.
The Merger Goodies
In the next month or so, Vodafone is digitalising its network where it will have all the finer details of the company’s inventory on the ground. This will enable it to provide significantly improved services to enterprise clients or corporates in need of vast data capabilities.
Of course, all these initiatives and cost-saving measures will get a further leg up for the company, once some of the approvals for its merger with Idea have been secured. The merger process is expected to save the merged entity nearly $2 billion in costs in each of the first few years. “It’s a 50-50 JV. We have to bring the best of our telecom knowledge, and they (Idea) bring the best understanding of the Indian market and consumer,” says Badrinath, who believes that the company has the edge in driving the next leg of the journey.
“Most of the senior management team has extensive international experience. That helps move things much faster, especially when you have to look at both, preparing for the merger and running the business in active telecom market,” says Badrinath.
If Vodafone India can pull off that transformation, the group will have one more example to add to is list of successful mergers. And pursuing gains from technology could up its game to the next level with data now becoming more important. “Globally, data constitutes 33 per cent of telecoms revenues; in India, it is 20 per cent. But we are getting there. We are gearing up for that,” remarks Sood.
And for Sood, there’s no more exciting way to reinvent the telecom behemoth.
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