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Forces at work to delay 3G auction, Sunil Mittal alleges - Printable Version

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Forces at work to delay 3G auction, Sunil Mittal alleges - Sathish - 02-27-2009

The 3G auction that was to take place on January 16 has been delayed. Sunil Mittal, Chairman and MD, Bharti Enterprises, termed it as unfortunate. He alleges that there have been forces at work to delay the 3G auction process.

The Bharti-MTN deal had been a talk for quite some time but the deal eventually fell. Mittal said that pursuing the MTN deal was a rational decision.

A lot of SMEs and other companies have been capping their telecom expenditure but Mittal still sees a robust growth of 9-10 million subscribers every month. He informed CNBC-TV18 that the company was focused on increasing its revenue market share and on expanding international operations. He added that he would be looking at emerging markets for international acquisitions.

On Bharti AXA its insurance tie-up, Mittal said that it has managed to weather the storm and expects it to emerge stronger.

Reliance Communications recently entered the GSM space and they announced a subscriber base of five million. But this staggering figure does scare Mittal. He said that he welcomes R-Comm's entry as he want the GSM environment to grow. “We always want the GSM environment to expand and for many years there were people who said GSM is a lost case. People like us stuck our neck out saying, this is the world technology and everything else is really temporary.”

Mittal feels regulators need to put a reporting standard for reporting subscriber numbers.

Here is a verbatim transcript of the exclusive interview with Sunil Mittal on CNBC-TV18. Also watch the accompanying video.

Q: Let me first start by asking you, where does Bharti Airtel stand today? The last declared results showed very robust performance. But there were some points of stress including a decline in the ARPU, lower minutes of usage. We already pick up from the market that a lot of SMEs and other companies are capping telecom expenditure. What is your overall take on Bharti Airtel and its performance going forward?

A: We always rely on our past declared results for people to make their own assessment about the forecast. So, I would say using the same numbers that are publicly available, I would say that the industry continues to grow fairly strongly. In fact, the numbers of customers were already declared by COAI (Cellular Operators Association of India) last week. So that number is pretty robust.

So, I would say while there is a 15 million number that has been given for the last month. But take some of the early offers and freebies out of the system; you are still looking at a robust growth of 9-10 million customers a month. Many of them are coming from tier-II and rural areas.

Q: Reliance Communications – and since you mentioned the last declared numbers, 5 million on an average addition over months – isn’t that a big threat? Do these numbers come as a surprise to you or are you shocked? What is the company doing to prepare for this kind of onslaught?

A: Our focus for the last several years has been on revenue markets here and not on customer markets here because whenever you go into markets, you give special promotions. It is not only about Reliance, it is about Vodafone coming into new circles, Aircel, Idea. And you see a swell, including when we were launching circle after circle you see a swell of customers, and then it kind of stabilises.

But what is important is what is the revenue coming in from each customer? Where you have to focus is on where our revenue market share is? You have seen that certainly increasing quarter-after-quarter. Despite the fact that we have had a strong numbers growth, we haven’t had a skewed number growth compared to some of the skews that you see in the market. But the revenue has constantly gone up.

So, I would say the focus is on revenue earning customers, not just open SIM cards that are in the marketplace.

Q: So in other words, what you are saying is that there is time that will be taken to finally arrive at a real number of R Comm subscribers considering that it is a subsidiary driven scheme. But in terms of its overall impact on the market, don’t you think it is having an impact on expectations and a lot of the incremental additions at the lower level of the market are going to R Comm. And if it has managed to bag so many subscribers, I am sure they would at least be able to retain 70-80% of the subscribers going forward and convert them into revenue paying subscribers?

A: All I would say is good luck because we always want the GSM environment to expand and for many years there were people who said GSM is a lost case. People like us stuck our neck out saying, this is the world technology and everything else is really temporary. That is what you are seeing.

Therefore the large investments made by some of the competitors in wrong technologies costing them billions of dollars need to be dealt with now and we are very happy when the GSM ecosystem grows. I said the same when BSNL was growing in very large numbers that it is good news that the ecosystem is growing, because we believe that when the GSM ecosystem grows people have more handsets in their hands and at the end they will make the right choice to go to the right brand and service. We have seen in the past that all the GSM customers that were created ended up benefiting Airtel.

Q: While Bharti on its own has very strong cash flows, a lot of new operators have been licensed. Do you feel it is a sustainable model for the telecom industry, the way subscribers are being added on in India possibly driven by the need to grab as much spectrum as is available? Do you think that the model of the Indian mobile industry is good and sustainable over a longer period of time?

A: My view is very clear and I have said this before and I can say it again. This is a very tough market to operate in terms of economics in this industry. The business model is very tight. So you need to have very large scale to survive in this market.

When you have an average tariff at Rs 0.50-60-65, you have to get your money or returns out of the same paisas. Unless you have scale it gets very difficult. People like us and some other large operators have very large minutes’ usage every day. Our minutes are in excess of 1 billion and it is far in excess of 1 million minutes a day.

If we were at a lower minutes usage even companies like us will not have a rosy picture. Now imagine new operators who are coming in, they have to have the whole network, same expenses, brand building has to be done. There are very small minutes usages on the network. It is very hard to make a business case. But from our point of view, good luck, open markets are good, competition is great. We have never quibbled about more competition. All we have always said is the existing operators must be given their due weightage in the industry, in the environment by the government, by the regulator. Give us our legitimate due spectrum, do not tighten us. After that what do you want to do? We will play in the market.

In fact, lower tariffs mean some of them will not be even able to start their businesses. But companies like us who have very large volumes will still be fine.

Q: Has the government been fair to Bharti Airtel over the last two-three years?

A: You’ve been a long standing tracker of the telecom industry. I think you know the answer. We don’t believe we have been dealt a fair hand. Time and again, I think regulations have been made to populist noises and demands. It continues to happen.

Occasionally when you see some balancing coming into play, I am pleased that the regulator personally has gone on stage many times to say, the existing five-six operators who have built this industry need to always be saluted and counted in, in any decision making that happens.

So, I think there are senior voices. But occasionally the populist noise, and sometimes it comes from the media saying we want lower tariffs, MVNO will bring further lower tariffs. Those voices then get resonance in the form of policies sometimes that are not conducive to the industry.

Q: Over the past two years, would it be fair to say that Bharti Airtel and Mr. Sunil Mittal failed to manage the regulatory environment, the telecom policy environment in a proper manner? Do you personally sort of feel a deficit on that front?

A: We have been a recipient of policies. We have never managed policies. The good news here is that we have played with every hand that has been dealt to us. Most of the time the hand dealt to us has been tough, but we have played with it.

The good news is our concentration has been in the right quarters. Those right quarters are not in the public policy or in the telecom policy framework, they have been in the area of markets. Distribution, brand building, customer care, innovation, new products, we have relentlessly put our energies into those areas. So while some people have managed regulation to hit us, we have managed the markets to mitigate those hits.

Q: 3G, Mobile Virtual Networks, Mobile Number Portability, new norms on spectrum and several other things that have happened. For instance in 3G, do you feel it would be a fair assessment that private operators like you have been denied an opportunity of an early 3G auction while government-owned operators like BSNL today has announced expansion in eight cities. They have already done Chennai on Sunday. Your major competitor, Reliance Communications is already planning to do EVDO (Evolution-Data Optimized or Evolution-Data only) on its existing CDMA network, while we don’t have a clear timetable for a 3G auction. What is your view on this?

A: I think it is unfortunate. We were all set to be participating in 3G auctions a month to month and a half back. We were all prepared, all set. There have been forces at work that have been trying to create hurdles in the early auction of 3G. I think it is evident again who wants 3G and who don’t want 3G. Most of the existing players would like 3G to come through. An auction is an auction. Let the price be discovered in the market. I will also not quibble in terms of what the base price is. From my point of view, put a reasonable base price and then float the bidding, don’t make it too high.

Q: What is a reasonable base price?

A: I think the first recommendation which came in itself was a very good benchmark. You must reckon a Rs 2,000 crore odd that was there, should be fine for an all India 3G measure. After that if we feel that the bids that have come in are not satisfactory the government is within the right to cancel the tender. That right always belongs to the government. Imagine if you have a Rs 2,000 crore base price and if you get out of the process a very decent bidding amount, I think it will be seen as a successful tender. You have twice the amount and you see a marginal increase over that amount, it will be seen as a failed tender.

So from my point of view, the government must keep this lower, allow 3G networks to come in. They are very good for rural areas. You will never be able to reach copper or fibre in the rural areas. This is to my mind the only thing to create a broadband culture, framework, network in the country. The faster we do it, the better the economic benefits that would come out of that. It is my view that 3G would further kick the GDP growth rates by quarter or 0.5 percentage points, which is direly needed by India today.