Interview with Akhil Gupta: “Predatory pricing has hurt sector revenues”

The year 2016 brought in both challenges and opportunities for Bharti Airtel. Like other incumbents, it had to deal with the increased competition in the sector resulting from the entry of Reliance Jio Infocomm Limited (RJIL) and its free welcome offerings. This, along with the increased spectrum-related costs, negatively affected Airtel’s financial performance during the year. The company attempted to fend off competition by launching a slew of new offers to bring new customers into its fold. Further, to leverage the growing opportunities in the digital payments space, it went live with its payments bank services. In an interview with tele.net, Akhil Gupta, vice-chairman, Bharti Enterprises and chairman, Bharti Infratel, talks about the sector’s performance over the past year, the key challenges it faces, the company’s strategy going forward, and his outlook for the sector. Excerpts…

Where do you see the telecom sector today and where do you see it going?

Fundamentally, the telecom sector in India has always been very good. India is a large country where there is very little fixed line penetration but there is great potential for mobile services. Data growth in India is clearly going up. World over, data is growing at a rapid pace, and so is the case in India. The country has a young population; therefore, adaption and adoption of data services are quick in India. From that point of view, the potential for mobile services is significant.

However, the recent instance of predatory pricing has put the existence of many companies in jeopardy and hurt sector revenues. This could be very disturbing for the sector. We must not jeopardise a sector that has so much potential and provides a lot of revenue to the government. It not only affects government revenues, but also impacts the ability of the companies to raise funds. The Indian telecom industry will require significant investments going forward. My estimate is that it will need $8 billion-$10 billion per year for the next five years. For enabling that, one needs a healthy environment. Currently, not only would the small players have no place to go, but there would be serious concerns for larger players too. The plus point is that this situation will speed up consolidation in the sector. But it is about time that the government, instead of rejoicing the fact that customers are getting free services, should see the larger repercussions and take steps to curb pre­datory pricing practices. For instance, in Sri Lanka, the regulators have actually prescribed a floor price. A floor price is essential to ensure that a new en­trant cannot come in and ruin the entire market. However, I would like to rei­te­rate that in terms of potential, telecom is a phenomenal market.

The last quarter was the first one which did not witness revenue growth for the industry as a whole. Do you think that this trend will remain for the next quarter or two?

If predatory pricing is allowed to continue, it is bound to happen. While we are not losing our customers, the traffic is getting shifted to some extent to RJIL. Naturally, the paying traffic is being shifted to non-paying traffic and so the revenues of existing telecom companies are bound to come down. The government is overlooking the fact that for every rupee we lose in revenue, the government loses more than 30 per cent if you take service tax and licence fee into account. It is a huge loss to the government too because there is no corresponding revenue coming from the other side. I hope somebody takes note of that.

What is going to be the impact of the possible merger between Vodafone and Idea?

We always maintained that this industry will need consolidation. With RJIL coming in and predatory pricing being followed, the smaller operators are trying to consolidate. But my fear is that at this rate, there will be nothing left to consolidate. I think the Idea and Vodafone merger is a good idea. It does reduce one competitor and will enable better utilisation of resources. While Airtel might become the number two player, from an industry point of view, Bharti believes that it is a very good move. It will create value for not only the two parties but for the market as well. We welcome it. It also gives us extra inspiration to regain the number one slot. From that angle, losing it once will have a huge inspirational impact on our people.

What has been the 4G experience? How is it likely to pan out?

The 4G segment, like the earlier experience with 2G and 3G, has to quite a large extent seen a supply-led demand. Wher­ever we have taken our network and rolled out 4G, demand has been growing at a rapid pace. Data consumption on 4G is two to three times the average because of the higher speed it delivers. It has been a good experience. Till now, the penetration of 4G-enabled handsets was low. But it is growing quickly. We are looking forward to 4G feature phones coming up at a low cost, which is expected to further increase penetration. It is just a matter of time be­fore 4G becomes a national phenomenon. When I mentioned earlier that we would need $8 billion-$10 billion of investment every year in spectrum and networks, a large part of that has to go to 4G. Ideally, operators should be investing at a faster speed in 4G networks. My personal view is that in the next two to three years, we should have 4G in every part of the country. Overall, there is a need to increase the network roll-out on 4G. As to handsets, the way the industry is going, the share of 4G-enabled handsets should grow in the overall smartphone shipments soon.

What are your views on spectrum sharing?

Even after taking into account the entire spectrum that was bought in the auction, the current quantum of spectrum will not be enough for any one player. Assuming that there are three big operators left, I do not think there will be enough spectrum available for sharing in a meaningful manner since all of them will be all-India operators and will have to roll out networks.

What are the unresolved regulatory issues?

There will always be some unresolved regulatory issues. Currently, the issue that needs prime focus is predatory pricing. The regulator should not allow any new player to indulge in predatory practices that can upset the entire market. I feel that regulations should not only protect the interests of customers, but also those of the industry. Customers cannot benefit if the industry is financially unhealthy. The sou­nd financial health of the industry is also imperative to ensure that the benefits of telecom services reach the deepest pockets of the country. This is also important to realise the dream of a Digital India.

Do you expect RJIL’s free services to stop after March 31, 2017?

I think it would be really unfortunate if RJIL’s free services are allowed to continue. They should not have been allowed to continue even earlier and it is regrettable that no action was taken in this regard.

What are your views on the quality of service issue? When do you see the situation improving, growing forward?

There is no doubt that the call drop and quality of service issues did exist in the past and, to some extent, they will always exist in radio networks. However, I think the situation is improving rapidly. Telecom operators have made huge in-vest­ments in setting up new towers. How­­ever, we still face huge problems at the local bodies’ level. The message that the installation of additional towers is necessary for good service quality has not sunk in everywhere. This is a little unfortunate because on the one hand, there are complaints about service quality and on the other, some local bodies and state governments are still treating tower installations like a “cash cow”.

I must say that the Department of Tele­communications is doing a commendable job in facilitating tower deployments. For instance, the department has recently come up with model guidelines for right of way. However, there has to be a national consensus on some of the issues impeding the growth of the sector.

Another reason behind the improvement in service quality is the fact that more and more traffic is migrating to 3G, especially voice traffic. This is easing the pressure on the networks because 3G offers much higher capacity for the same amount of spectrum as compared to other networks. I feel the call drops and other service quality issues will soon be a matter of the past.

What is your outlook for the growth of the infrastructure sector?

It is a myth that if the number of players is less, it is bad for the tower industry. On the contrary, it is important for the tower industry to have two to three strong operators that have the passion and the resour­ces to invest in rapid roll-outs. There is no point having several operators in the industry, with the majority of them having no resources to invest in network roll-outs. Hence, from this perspective, if Vodafone and Idea Cellular merge, it will lead to faster network roll-outs. I feel that there is still a lot of growth potential for the industry and every one of us has to speed up and go to every nook and corner of the country.

How do you see the future growth of the telecom industry?

The future growth of the telecom industry will be driven by data services because voice services will be bundled with data packages. Currently, the average data consumption for the industry per user per month is 1 GB, except for Jio, for which it was around 30 GB in the past and has now come down to 14-15 GB. In line with global trends, the average data consumption per user per month is expected to soon increase to 2.5-3 GB. The faster 4G roll-outs take place, the faster will be the data uptake.

What is your outlook for the uptake of broadband-over-fibre services?

There are some fundamental limitations associated with fibre to the home (FTTH) because the associated capex per customer is very high. This puts a limitation in terms of where all these services can be rolled out as operators need a minimum ARPU to justify this level of capex. FTTH has been happening in areas where more vertical buildings have been coming up because once the fibre is taken to the building,  the entire building can be wired up quickly and in a cost-effective manner. But overall, the focus on mobile infrastructure development has been so much that FTTH has taken a little bit of a backseat. However, as we move forward, FTTH will gather pace.

Mobile payments have emerged as a big opportunity. Is Bharti Airtel likely to evolve as a financial services company one day?

In some ways, yes, because the group is already doing well in the insurance space through Bharti AXA Life. We have rolled out our payments bank services. A key aspect in financial services is lending, but payments banks are currently not allowed to lend. Payments banks have a different connotation for us. On the one hand, we have the advantage of the massive reach we have in the country and on the other, there is a massive potential offered by the unbanked population, particularly in suburban and rural areas. There is a fundamental need to be banked and traditional banks cannot cater to this need because of the cost involved.

For Airtel, it is a territory that naturally belongs to us as we have the requir­ed reach that can match the massive need. However, while there are no plans for lending as of today, we could partner with others to lend to our customers as per their need.

Are there any lessons that can be learnt from the African market?

Africa is a shining example. Safaricom is one of our competitors and is doing a great job. M-pesa is certainly a strong initiative; it clearly shows the power of getting the unbanked people onto an operator’s system. We too intend to leverage this massive opportunity. There are millions of people who come to cities for work and have to send money back home. However, their homes are in the hinterlands where there are no banking facilities. We intend to provide these facilities.

How has the role of telecom operators changed in the past few years?

People say that their role has changed; earlier, they were voice providers, and now data. To me, it is just a natural evolution of an industry. A telecom operator’s job is to roll out the right network and carry all the services to its customers. Things will not remain as we are seeing them today. There will be a hundred other things added to­mo­rrow. One may say that the job of a telecom operator has changed and it now also provides traffic information, by way of Google Maps. This is an evolution, which is a part of data services.

An operator partners with several other entities that provide the best software and the best applications. Its job is to provide those applications to customers in the most seamless manner. So, at times, it is fashionable to say that the role of telecom operators has changed dramatically. But, I would say that our role remains fundamentally to bring the best services to enrich the lives of our customers and that is what we are doing.

What is your outlook for the next 12 months?

The developments of the next 12 months depend on the government. If predatory pricing remains, that will be a concern. But we at Bharti are absolutely prepared, no matter how much time it takes.

I am concerned that it sends out wrong signals to the international community and foreign investors, and affects foreign investments. Further, I do not know what will happen to the banks that have lent to various players in this industry. I hope that in the next 12 months, we will not have to see as much pain as we have seen in the past six months.