The process of consolidation in the Indian telecom sector has begun and in the next 24 months there will be only four private operators — Bharti Airtel, Vodafone India, Idea Cellular and Reliance Jio Infocomm — and one state-owned operator, BSNL/MTNL, Bharti Group chairman and managing director Sunil Mittal said on Tuesday.
In an interview with FE, Mittal, who has just taken over as the chairman of the International Chamber of Commerce, complimented the current government’s approval of policies like spectrum sharing and trading which has led to this process of consolidation.
“Aircel and MTS are gone, with the merger with Reliance Communications. Videocon has gone as it has sold its spectrum to us. We needed an orderly market structure. Twelve operators per circle was never planned. It is not there anywhere in the world. It resulted in fragmented and expensive spectrum. Consolidation is finally happening. We should now see four big private operators and one state-owned, BSNL/MTNL, which will be an orderly market. We are going to be there in 24 months,” Mittal said.
Mittal said that most of the policy and regulatory issues have been resolved in the sector and only ones relating to net neutrality, differential pricing and internet telephony are now being debated by the Telecom Regulatory Authority of India. “Hopefully, these will be properly settled,” he said.
Mittal said that spectrum availability has been resolved but the cost of spectrum is too high. But then the government can’t do anything about it. “Pricing is way off, but what can the government do about it? Its hands are tied. Let’s see where (spectrum prices) it goes,” he said. He stated that the operators bid very high for spectrum in the past which has pushed up cost. “But what could we (operators) do? We had live customers and needed spectrum to support them. It is oxygen for us,” he added.
Mittal, however, added that there’s a misconception in the government that telecom companies are making huge money so do not need any form of support. “They, unfortunately look at the Ebitda. An Ebitda of R5,000 crore dazzles them, whereas they should be looking at return on capital (ROC), which for Bharti is in single digits. Globally, ROC for telecom companies is in the range of 20-22%. In its heydays, Bharti had an ROC of 32%. We are not going to be there again but an ROC of 15-16% should be there if we are to invest in networks. The government should look at what money goes into generating an Ebitda of Rs 5,000 crore and what the return on capital is,” he said, stressing that the government must ensure that the industry keeps on investing by encouraging the banks to fund the sector. “The cost of doing business in India in telecom is same as elsewhere. The equipment costs the same but the tariffs in India are very low, but somehow things get managed because we have scale,” Mittal said while highlighting that the government should view things in the right perspective.
He said that in voice today the average realisation is 37 paise per minute and “if it goes up to 40 paise, we will be fine but it is very difficult to do it”. He said that within the next 36 months the share of data as a percentage of mobile revenue would reach 50% from the current 23-24% but the realisation will drop from the current 25 paise per MB.
“But the scale would rise, which would be helpful.”
He said that the telecom sector will face another round of disruption with the coming of Reliance Jio Infocomm.
On the regulatory challenge before the telecom sector, Mittal highlighted the current debate over net neutrality. He said that the principle of net neutrality is fine and every company adheres by it but we need a clear definition of it and when and how certain emergency services should be prioritised.
According to Mittal, the Trai has mixed up differential pricing with net neutrality which is unfortunate.
“Trai must be sympathetic to the marketing needs of the operators. The differential pricing regulation is like asking companies to make the same kind of soap and shampoos. Differential pricing is different from discriminatory pricing. We are against discriminatory pricing but differential pricing leads to creativity,” he said hoping the debate on the subject settles positively.
* Availability has been resolved but pricing continues to be high
* But government’s hands with regard to pricing are tied
* In 24 months we would see four big private operators and one state-owned operator
* 12 operators a circle led to frag-mented and expensive spectrum
On data versus voice
* Share of data as a percentage of mobile revenue would rise to 50% within 36 months
* Currently, it is 23-24%
* However, data realisation will drop from the current 25 paise/MB
On net neutrality
* Trai has mixed up net neutrality and differential pricing
* Discriminatory pricing is bad, not differential
* Differential pricing is creative and Trai should be sympathetic to innovation
(Travel for this report was sponsored by ICC)