3G revenues dont justify their higher price

Written by Nikita Upadhyay | Nikita Upadhyay | Shobhana Subramanian | Updated: Jun 1 2012, 08:30am hrs
N Srinath, managing director, Tata Teleservices Limited (TTL), believes that the government needs to put out clear guidelines and price spectrum reasonably for telcos to grow their businesses. He feels the reserve price for the auction of 2G spectrum is somewhat high and adds that the refarming of spectrum should be done in a manner such that there is equitable distribution among players. In a conversation with Nikita Upadhyay and Shobhana Subramanian, Srinath says TTLs strategy is to wean away high value customers from rivals and focus on data revenues.

You feel there is no level playing field...

All we are saying is to allow us to compete on an equal footing. Our investments do not come back in a timeframe of 1-2 years, but over 5-7 years. If we have to keep investors and shareholders interested in the business and feeling comfortable, we need stability in policy. Weve never had a level playing-field and different operators have had different sets of advantages and disadvantages. As an operator, we never got a fair deal, although we were willing to pay the same fee and same revenue share as others; in 2003, for instance, we paid the same entry fee as GSM operators in 2001. The entire 800 MHz band has 20Mhz of spectrum of which 17-18 MHz is used as guard bands. Why am I at 5 MHz and the others at 6.2MHz Weve been asking for an alternate band for 800 MHz since 1997, but were in 2012 and nothing has been put out. So how are we to expand the business The position has become increasingly difficult; at different times when the allocation criteria was put out by DoT, in the 5 lakh plus subscribers category, GSM operators got 8 Mhz of spectrum while CDMA got 5 Mhz. Why are we getting less spectrum for the same number of subscribers when we are competing in an equivalent market

What has been the DoTs response to your grievances

The position consistently has been that CDMA is a more efficient spectrum and, therefore, you should get less. But thats not a fair argument to make. We should be encouraged to grow the industry. Starting from 2003, when our migration to UASL was opposed, we have consistently got less spectrum every step of the way; what is my opportunity for growth We got our GSM licenses in 2008, but all operators who came in before us are sitting on 8-12 MHz. We dont have start-up spectrum in Delhi. As long as operators continue to have access to differential spectrum and GSM players all have 900Mhz allocation, we wont have a level playing field. If you truly want 6-7 operators in the market, and fair competition that will drive down prices, you need to level the field. Its all about who has how much spectrum. CDMA operators dont have enough spectrum in the band, there is no other band available, we have less spectrum than our counterparts in GSM and, in some cities, we have no access to 900 MHz. So whats the competition we are talking about

Are you happy with the way government policy is being framed

Trai has taken some steps in the right direction and spectrum re-farming is important. We do have concerns on the reserve price. Benchmarking it to 3G discovered price does not make sense. If you want a reserve price that is closer to the market, take the 3G reserve price. If you got 5 times the price because it was the worth the value, then you might get 5 times the value if thats what the market value truly is. If you are serious about wanting to drive services with a larger societal objective, you need to make sure that the operator can make adequate returns. The position right now is imbalanced. Excess spectrum should be paid for, beyond 6.2 MHz, new operators should get start-up spectrum and we must end the uncertainty around technology neutrality. Dual operators must not be expected or asked to pay additional amounts. The spectrum that we received in 2008 is not for 20 years but 10 years, despite paying the same price, and we have not even received the spectrum we were entitled to.

What are your views on spectrum pricing

Spectrum has now become liberalised and so has more value. In Trais mind the spectrum is now unencumbered in terms of what applications or services it can be used for. Even the UASL licences in themselves are pretty broad in terms of what you can do with them. But the risks are high; each of us would have paid R16,000 crore for a 3G pan-India licence for 5 MHz, but the returns so far have been a fraction of this. Its not because 3G services will not take off in this country but because any new technology has a gestation period before it takes off and becomes mass market. We paid for the technology in 2010 and now we are in 2012 but weve not hit critical mass. So, to assume that we will have 4G equivalent revenue from day one, in a 20-year licence period, is not tenable. We have lost 25% of the period before we can make money.

How do you read the drop in 3G tariffs by major telcos

What we are seeing now is 3G coming down to 2G levels; the difference between 2G and 3G is disappearing to the point where the industry is now starting to say that if my consumer is not seeing the justification for the premium for 3G, I have no choice but to get my 3G price closer to my 2G service. But, if I am not going to see incremental revenue, whats the difference between 2G revenue and 3G revenue If Im theoretically paying more value for spectrum for 3G services and the revenues are coming in at the level of 2G services, what am I paying the premium for Also, how much of this revenue is incremental and how much is substitution To my mind, the incremental revenues dont justify my paying a substantially higher price for 3G than what it truly could be worth.

So youre looking for easier terms...

The risk of business is being pushed disproportionately on to the operator. If I could start with a certain service, and there was a way to make me pay more for it as I used 3G and 4G, I am fine with that. To say that I have to take the risk upfront, make an estimate in 2012, of how my business will look like on 4G in 2013 and 2014, and to pay a high reserve price, is to say that operators should take the risk. The bedrock spectrum for 2G today is 1,800 MHz, but if 4G services are also to be offered on 1,800 MHz, where would the chunk of our voice subscribers go To say that I need to pay a higher premium for spectrum because potentially I am going to run a later generation technology, the business model is iffy.

How do you see TTLs performance going ahead

We are number 4-5 in terms of revenue market share. We believe industry growth will come not from traditional voice and SMS, as they are not fast-growing. We need to reach out to high value customers, which we dont have, and are strengthening our retail presence. Also, our 3,000-odd stores earlier had a mandate of service but now were focussing on sales. We have a good presence in the data market, but we need to sustain this in the light of 3G and 4G coming in.The other growth area is the enterprise space in the SMB segment and machine-to-machine communication. We feel our actions have paid off in terms of revenue and profitability. We saw gross revenue growth of 7% in the December 2011 quarter compared to industry growth of 5.2%. Our revenue market share and wireless subscriber market share stood at 8.6% and 8.9%, respectively. Our Virtual Location Register subscriber base has increased by 1.3 million in the March quarter, an improvement of 3% plus. On parameters like RPM, ARPU and MOU, we would be in line with the competition. We are focused on quality of subscribers and our data revenue is growing at 10-11%.