Bharti Airtel?s CEO (India and South Asia) Sanjay Kapoor?s prophecy about the Indian telecom market seems to be coming true. Last year, when Bharti?s earnings started showing a decline for the first time in several years, Kapoor was quick to point out that by this time of the year the market would start looking up. The pressure on earnings started showing when there was immense tariff war among the country?s 12 operators. However, Kapoor had pointed out that such ?irrational pricing? could not go on for long. With the company recording growth in traffic for two consecutive quarters and no tariff decline taking place in the industry during the last quarter, the incumbents seem to be on a strong wicket. In an exclusive interview with FE?s Rishi Raj, Kapoor shares the future scenario. Excerpts:

What is your overview of the telecom industry today?

Fairly well and this applies especially to the incumbents. The industry is seeing the resurgence in minutes of usage, the customers are coming back to the incumbent operators, the price euphoria is dying down. The India growth story on telecom is intact. The overall tele-density is at around 56% but then in practical sense it would be lower because there are higher instances of people having multiple SIM connections. Rural tele-density is less than 25%, broadband penetration is less than 1%, so India continues to be an attractive market globally. Very soon, we would start offering 3G services which would open an entire new market to us.

It?s true that the minutes of usage has increased in your case for the last two consecutive quarters but financially the decline in net profit continues. How do you view Bharti?s financial performance amidst this positive scenario?

Operationally, we continue to script a brilliant story. The 32% decline in net profit reported this quarter on a year-on-year basis is largely because of Rs 420 crore forex and derivative losses and Rs 104 crore we provisioned for higher spectrum usage charge.

This shaved off around Rs 569 crore. Had these not been there the decline in net profit would have been marginal. Similarly, on a sequential basis, if Rs 300 crore forex losses and Rs 104 higher spectrum provisioning are taken out the net profit would have in fact increased by Rs 200 crore.

What would be the key concern then?

See, the irrationality in pricing is over and the propensity of operators to lower prices is over because operators are not in a position to take more damages. The high bids for 3G and BWA spectrum have further put a lid on offering price decline. However, irrationality cannot be explained so it is difficult to predict fully if anyone would still indulge in it. The bigger concern is that since the industry has invested huge amount in 3G and BWA there should not be any delay on the part of the government in allocating spectrum which delays roll out of services.

By when would Bharti start offering 3G services and how would it be initially?

If the government allocates spectrum as committed in September, we would begin the commercial launch by the end of the current calendar year. Initially, the focus would be to decongest the 2G network in some 12 cities by moving the high-paying customers to 3G and there?s a large number of people waiting for Internet connectivity who would be addressed.

What about consolidation in the market?

There?s no way 14 operators can survive profitably in the market. The ideal number is five or six but in that case also it would be difficult for all of them to be profitable. So, consolidation is bound to happen. Some operators not rolling out services and some not bidding for 3G are signs in that direction. In fact, consolidation in the minds of consumers has already started happening. When there were 5-6 players, the top two did not have 50% market share. Today the top two have more than 50% market share. With 3G set to take place, the position would further consolidate.