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After Tough Times, Future Is Bright For India Telcos, Says Sunil Mittal

Sunil Mittal, chairman of Bharti Enterprises, spoke to reporters on a wide range of issues around India’s telecom industry, including its health and future. Speaking on the sidelines of the Mobile World Congress in Barcelona, Mittal said Airtel is hoping to form a fibre JV with VodafoneIdea and that the company should gradually raise the minimum ARPU levels from the current Rs35.

Can you give an overview of the telecom industry?

The situation now is mixed, some good and some not so great. I would say still a mixed thing, but overall, I remain optimistic and we have to look forward and not look back. We have had 2.5 years of real difficult period in Indian telecom.

It is time to look forward. 3 players in a country of 1.3 billion, per capita consumption highest in the world, 12 gigabytes a month is absolutely awe-inspiring. Market remains very large, lots of people are migrating, getting squeezed out. If you look forward, what does any investor or market player looks for, big market. We have smaller markets in Africa and we see Seychelles – whatever you may do or ARPUs you have in the end, it is a small business. From their point of view India is a large market. Then, per capita consumption should be more. People are now hooked onto smartphones, getting 10-12 gigabytes a month, so that usage pattern is now settled as well. The third part is you want a market structure which is sustainable and you do not want competition in an infrastructure where there are too many players. Twelve operators were unsustainable and you see where that has gone now.

It has come at a cost, money have been written off, bankruptcies have happened, but that is in the past. Looking forward, these 3 ingredients as market corrects itself now whenever it does, will be a huge upside.

Let us look forward and be positive.

Vodafone Group CEO Nick Read said all three telcos should sit together and discuss tariffs. Your comments?

No question of sitting together. All have to do their own things. I agree with regulator that it is the operators who have to decide. Even at GSMA we have discussed that more than regulation, it is the operator worldwide in their quest to have dominance and superior market share have been killing each other. It is not India but we have seen all over the world that return on telecom investment has been low.

Everybody has realised that it is unsustainable and unlike other utilities, you cannot reap the benefits. The evolution of tech is so fast you have to keep buying spectrum. This is not utility-based infrastructure project and has to be based on innovation. This means return on capital needs to be good, otherwise, you will go bankrupt.

We have done minimum ARPU plans, have done Rs 35. If you look at before Jio entered the industry, the revenue was Rs 200 ARPU and all we need to do is get back to that. We are not saying India needs to go levels where the world is. But can India be at 3$ a month, what is was before Jio came in? If you get back from RS 100 today, if you get back to Rs 200, the industry will become sustainable. But Rs 300 will be an ideal situation if you are consuming 10-12 gigabytes of data. Customers can comfortably pay Rs 300, everybody does not need to pay Rs 300. Eventually market has to correct itself and this is not wishful thinking, it will happen. No one can be against it for too long, but question is when.

Your views on the next spectrum, auctions…

Spectrum pool is one of the highest. In the last 3 auctions and lot of trading and acquisitions including the one of Tatas, which will complete now. Applications have been filed to the DoT. All this spectrum takes care of the immediate needs for next few years. Only spectrum we need to have is in some circles to top up where we need a little bit more. That is small amount of money that will get spent.

Then, the question comes on 5G, and the 5G spectrum which will come up. Most likely scenario around India seems to be developing around 3.5 Ghz. My view is 3500 MHZ is one where India will enter but you need 100 Mhz for an operator and the current pricing is unacceptable.

The regulator said the price was fine …

Fine from what point of view? What has been fine so far? The fact is renewal spectrum was gun to the head and operators did not have a choice and those prices are taken as base for future auctions and what logic does that make?

DoT had approached the regulator but…

DoT can keep trying, they had two failed auctions and do they want to have five more failed auctions after them? Spectrum is required, spectrum will be bought, India will get into 5G but only thing that will stand in the way is right pricing for spectrum in India. Government can decide if they want to do in one go or 3 go’s.

Will you participate in 5G auctions at these prices?

We can but we will not at these prices because it makes no sense. Pricing has been recommended, but we are saying it is not appropriate. Eventually, we will get into 5G, India will get into 5G, will be in step with the world. My recommendation will be the government of India must recommend 5G coming to India early, rather than late. For that, 3 ingredients are required – infrastructure, equipment and their readiness is most important. Second is devices and in 12-18 months, we will see devices.

Verizon is putting a hotspot for the whole of Manhattan, Korea telecom, we have conversations with them and they are now having commercial use cases and my friend Massa San in Softbank are rolling out. Operators in Europe will also roll out, so why will India stay behind. Devices will come in 12-18 months, so you have to get ready. Then, there is spectrum which is most ready and available in India. Entire milimetre wave and 3500 MHZ is out there, so there is no hurdle to spectrum. The government needs to sit down with the industry, call players, have a discussion and give a commitment to roll out 5G in country.

Can you have 10 gigabit of speed on mobile phone and broadband? India does not have it. Regulator has said India needs more fibre, 5G can mitigate it. You can use for backhaul, home broadband, industrial application and yes, commercial retail cases is some years away but we need to work on it now.

We need to start on auctions now and in 18-24 months, you get to ready.

Isn’t the government reluctant to reduce price?

Government’s hands are tied by recommendations of TRAI. What can they do? They can send it back to TRAI, TRAI will again send back.

Is that a stalemate situation?

I don’t think so, we have been putting the cart before the horse. I don’t think we are late for 5G. It’s not that 5G has left the train. It’s just that chugging out of the station…. India wants 5G, India must get 5G. All the equipment being currently deployed by Airtel is 5G ready.

Legal tussles are only increasing in the industry…

Given the environment, I think there is no choice but to go through the legal route. Who will take a decision on not – if the government loses, they go to the court, and if we lose, we go to the court. Who is going to give up?

What about the various levies on the telecom sector?

I heard that regulator statement that he has made recommendations on lowering the levies on telecom companies. So, the regulator says, lower the fee, the govt says we need to encourage Digital India, and seeks more telecom networks, yet somehow, they are not able to…

Do you think you need more support from the government, as the pain is visible now? You are in losses, need more investments, tariffs are unsustainable?

Where can the govt help? The government can give more spectrum at reasonable prices. Govt can also ensure that levies in the segment are not punitive. Today we are sitting at 18% GST, 8% license fee, 5% SUC…Plus on top of that, there is customs duty, so it’s one of the heaviest taxed sector. And that is where we have said that you cannot have a situation where you want Digital India, the benefits of a digital deployment of infrastructure, and yet you tax it the most. So, this is one area where we need the support of the government, and where the government needs to walk the talk.

The new policy clearly says revenue maximization is not the motive, and we will lower the burden on the industry. All we are saying is – let’s not go into new dialogue, just do all that you have committed.

Senior analysts in industry say privately if it goes on like this, we will see more collapses in the telecom industry. Do you think that existence of some of the players is in question?

I don’t think so. I would say that three players will be there. We will thrive. Why are you asking whether we will survive?

Will Airtel be looking at any stake in the Vodafone optic fibre unit? There are lot of talks…

We always talk to each other. Our fibre company is being formed. I think the court separation is expected any time now. We had filed for a demerger of the fibre unit. It may have already happened. It was in the last stages. So, we will have a fibre company in place no later than end of March. Telesonic – in that we have invited Vodafone to come and join.

Is a fibre JV possible?

Yeah. We have made an invitation. We did that in towers. If you remember Indus Towers was created. And on the same lines, we have asked Vodafone to come and join the fibre company.

Would this be a subsidiary of Bharti Infratel-Indus merged company?

No no. Currently, Telesonic is a subsidiary of Airtel and if Vodafone wants to come, obviously a new structure will be created.

What is the response from their side?

Warm response. But till it happens…

Can you give some idea about Telesonic?

It has an existing fibre and all our fibre is being transferred to Telesonic.

Will it be 2 lakh kms of fibre?

Yes

Will it be a 3-party agreement like in towers?

It will be 2-party now. We are starting with our own fibre company and if Vodafone Idea brings its fibre assets, then they will get appropriate shares.

What is the potential of the fibre unit? 

There is a tower company, and there is a fibre company.

Will it be the largest fibre company, because Jio has 80,000 kms? 

They have a lot of fibre, we have a lot fibre. But when you combine fibre, it does two things – you get a lot of fibre though we have lot of overlaps. Both will gain about 25% capacity, and new routes which we don’t have. But importantly, the future build of all fibre starts getting common. So, you stop wasting money on two fibre on each track.

What about BSNL?

It’s always hard to do anything with BSNL.

What about Jio?

From my point of view, the more the merrier.

Have you approached them?

They have also decided to form a fibre company.

You don’t intend to talk to them, considering that in the tower company, there were Airtel, Vodafone and Idea?

From our point of view, one fibre company is going to be a perfect. There is also going to be BharatNet. There will be two fibre companies.

Will you talk to them?

First lets get the Voda thing going, then we will see after that.

Are you leasing some fibre from BharatNet?

We have already taken some from them, we will take more from them.

Board meeting is on the 28th. Fund raising is on?

Yes, it is on the agenda.

Some more details?

I can’t give you the colour.

Six months ago, Airtel was number one in profits, subscribers. And you were leading. Now that 1-2-3 is shifting, and Voda-Idea has more subscribers and it is making losses. Jio has been growing. You have lost the leadership.

I personally feel – I always give the example if Kotak bank. Can you tell me which number is it? Do you think it’s a good bank? I would personally rate it as the top private bank. So, is he at 1-2 or 3? Airtel has been number 1 for 22 years. So, have you give me something special?

We always write – the country’s number one telecom company? 

We will remain largest in the sense that you must understand. Like in UK there are three ops – almost equal in market share. Some may be up or down by half a percent. Some quarter some goes down, some up. Same is the case in Germany and France. So, unless you have a big market share gap. So right now, we are all in the thirties – 31%, 30.5%, and that’s where everybody is.

But it’s a matter of time? You are going down, they are going up.

We are not going down.

We mean in terms of subscriber market share?

Subscribers we can even reduce by 50 million more. That’s ok. We want revenue, and very high-end customers, well-paying customers. People who buy Netflix, or Amazon Prime. Our purpose is to have a better offering in the market place.

So, these two companies – Aircel and RCom – are on the block? Rcom, Jio is not happening right now. If Rcom spectrum is available, would you be keen to buy it?

Some spectrum we will bid here and there. We will bid for any spectrum that comes up. First of all, my fundamental thing is that the spectrum belongs to DoT and how will it be sold by anybody else. I can’t understand this. The licenses are gone. When the license finishes and no payments are being made to DoT, the license is over.

So, will you bid for the spectrum?

It will eventually go into government auctions. That’s my view. It cannot be sold by the RP. How can the RP sell a sovereign asset? I personally feel that all these auctions being planned by the RPs and all – they are barking up the wrong tree. In the end, it’s DoT’s spectrum, and the money still needs to be paid to the DoT. My view is, why is the DoT not expatriating, and taking the spectrum back, and pool it into the auction

But under spectrum trading, it can be given?

But you need to have the asset. The license has expired. The asset is gone. There is a rollout obligation, there is no network today. There is no network running today – Aircel, Rcom or Telenor. Tatas are running the network until the last day. So, you have to run the networks, pay license fees, pay spectrum charges. Is that happening in those cases? The answer is no. My view is that these auctions will be meaningless, and this will go back to DoT.

Your IPO plans on Africa?

It will happen sometime this year. Africa business is doing well and you have seen the previous quarters.

Any planned investments there?

That’s a continuous process. In fact, we are leading in the LTE space in Africa.

Overall investments in India and Africa?

We invested Rs 23-24,000 crore in India when we close this March. Investments carry on.

Will you make similar investments this year?

I think the large capex cycle is behind us. We have done three years of high capex investments and that’s why we have been able to hold on to the market share. My own view is that in the coming years, the capex intensity will go down, other than when you go in for 5G in the next few years.

Tariffs? What makes you confident that Jio will raise tariffs?

We are confident about ourselves. Our customers are ready to pay us a little more. We have raised it to Rs 35 and we have seen ARPUs go up. My view is that trend will continue and we should take the minimum ARPUs up.

What levels? You have hinted at Rs 75?

There is no timeline. You have to keep on experimenting, you have to keep on working on tariffs. My view is that going to Rs 2 per day and providing such large amounts of data, is imminently doable. So Rs 60 a month should not be a problem. Even Rs 3 per day should be attempted eventually.

Is that legally tenable? Minimum threshold?

You heard the regulator say we can fix tariffs.

What are the big challenges that you foresee?

A lot of investments, spectrum bought. We just need better mix of customers, better offerings, better innovative plans, bundling of content, more banking services.

When do you see monetisation of content?

They are not free, they are in different packages. Example, for Rs 399 you get Netlfix, Amazon Prime.

Will Airtel enter into content creation?

Not at all. We have no ambition, no expertise.

What do you expect the government to do?

The government needs to walk the talk. They have committed in the document that this industry is overburdened. There’s no debate on that. All they need to do is just implement what they are saying. Why are they not doing it? Government must be concerned about this sector. It’s an important sector. You don’t want to take it to a point of no return and then start to wake up. We are seeing that happening in the aviation industry. You don’t want a situation where you take it too far. You need to take action timely. This is a heavily taxed sector. The government acknowledges that. They acknowledge that something needs to be done about it. All we are saying is do it early.

Do you think defaults by telcos is a possibility?

I can’t speak for anyone else. We will not default under any circumstances.

The Bernstein report talks about huge losses for Jio if all accounting practices were same. Please it also says that you are following the right strategy by not subsidising handsets.

We are a company of alliances. We have done alliances with device players also. Where we have bundled some free data and airtime. There are lots of device companies who want to have their businesses continue. Karbonn, Lava and Micromax etc. they work with us. So, we are a company of partnerships.

Is this plan working? Are people buying handsets?

We are holding on to our market share, means we are. But that’s a section where subsidies are very strong, especially the feature phone segment where we are not participating. In the smartphone side, we are doing fine.

Jio is now the largest feature phone company…

Not many others are participating in that segment. But you are talking about a 4G feature phone.

Did you ever think the situation would be so bad?

It’s not so bad. Three players. 1.3 billion people. 12 GB. Realisations were going down but they are stable now. Last four quarters are absolutely stable. It’s not profitable and it’s not sustainable but the fact is, future looks very promising. We just have to hang in there, hold on to our market share, ensure that your customers are happy and things will turn around.

Have high ARPU customers shifted to Jio?

I can tell you that mid- and high-end customers have not gone from our side. ARPUs have come down but people who were paying 8 or 9 rupees are paying more.

Quality of service continues to be bad…

There are always pockets where you can do better but by and large, network scores are good. I am the big critic of my network but I can tell you service is reasonably good now.

4G and 5G will coexist. Unlike 3G which had short life. Investments are all in 4G.

What’s your take on the global situation and Huawei?

We are doing trials with Huawei as well. Huawei is a big player in telecom. They’ve gone through a rough patch in US. Europe has by and large said they will use Huawei. We will track the space closely, especially from GSMA.

We are not at that stage (from Indian government side) where we see alarm bells ringing.

Can you talk about the changing nature of telcos?

Over a period of time, from pure connectivity, we have become digital machines now. On the back of telecom, you are now providing financial inclusion, entertainment, vital government services. You have to keep on going up the value chain to ensure that you are not merely connectivity provider. That’s where everybody is going. Telcos will be the one stop provider for customers. You will see a plethora of services being bundled, some of their own, some through alliances. Let’s see where it (Jio’s plan e-commerce) goes. If it’s a successful model, then we are clearly part of it. Amazon of Flipkart, if that model is successful, they will need a telecom player and we are open to partnerships.

What could be initial revenue streams from 5G?

Too early to say. Home broadband is clearly there. Industrial applications will develop as India’s other infrastructure develops.―Newsfeed

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