Interview with Akhil Gupta : “The current industry tariffs are clearly unsustainable”

The telecom sector has shown exemplary resilience amidst the raging pandemic. The creation of a robust connectivity infrastructure will be crucial to the country’s digital transition. Akhil Gupta, vice-chairman, Bharti Enterprises, believes that restoring the financial health of the sector is extremely crucial for telcos to make meaningful investments in network buildout, which, in turn, will pave the way for commercial 5G launch. To this end, sustainable tariffs and a conducive policy environment will be critical for the industry’s future growth and prosperity. In an interview with tele.net, Gupta shares his views on the sector’s performance in 2020, the areas that need policy and regulatory attention, the evolving 5G ecosystem and the outlook for the sector…

How would you describe the past one year for the telecom industry? What were the most significant developments and the key lessons?

The year 2020 was an unprecedented one for all businesses. A strict lockdown was enforced globally, economic activity plummeted and businesses came to a grinding halt. In the midst of the crisis, telecom became a lifeline and a force multiplier that kept the wheels of the economy running and kept society connected. The role played by the sector in such turbulent times, in India as well as globally, is no mean feat and everyone in the ecosystem needs to be applauded for providing uninterrupted service. Data consumption saw a huge upsurge – a nearly 25 per cent jump owing to the “new norms” of work – while call volumes multiplied on telco networks. Videoconferencing applications such as Zoom, BlueJeans, Microsoft Teams and Google Meet were extensively used and became a part of everyone’s lives. In India, as in most of the world, deep penetration of 4G services averted what could have been a major disruption.

The competition in the telecom sector was largely stable and did not witness any major negative triggers. On a positive note, the sector, for the first time since the launch of Reliance Jio, saw a revenue growth of 20 per cent, mainly led by the December 2019 tariff hike announced by all operators.

The year also, unfortunately, saw a big blow being delivered to existing telecom operators by way of an adverse judgment by the Honourable Supreme Court in the adjusted gross revenue case, imposing a massive additional financial burden on an already distressed industry. The judgment, which confirmed the provisional demand raised by the Department of Telecommunications, without even reconciling with the operators, has led to fresh challenges for operators.

What are some of the key telecom and technology trends that will shape the post-Covid world?

The post-Covid world will open up multiple exciting opportunities, with all companies adapting to the new norms of working and adopting new digital business models including a faster shift to the cloud. New areas such as e-commerce, e-learning, e-medicine and fintech will play key roles, and we foresee greater demand for artificial intelligence and automation services. Going forward, high speed home broadband will emerge as the gateway to the virtual world, especially in the online education space, wherein digital learning will impact over 320 million students. The integration of technology, coupled with a robust telecom infrastructure backbone, will bring unprecedented benefits and open up new opportunities.

What are some of the policy and regulatory interventions that can be brought in to ease the stress in the sector?

The sector needs proactive policy and government intervention in areas such as spectrum pricing, levies and revenue sharing norms. Today, for any telecom operator, the bulk of its investment goes into acquiring spectrum. I believe affordable spectrum will enable telecom operators to further channelise investments in building future networks, which is crucial for India’s digital infrastructure. It is ironic that while the National Digital Communications Policy (NDCP) clearly states that the intention of the government is not to maximise revenue from the telecom sector but to enable deep broadband penetration, no attempt is being made to significantly reduce spectrum reserve prices. For instance, for 5G, the reserve price is at a whopping Rs 490 billion for 100 MHz, which is not feasible and can become an impediment in the roll-out of 5G services in India.

Another key concern for the industry is the ease of doing business for all infrastructure projects. There exist inordinate delays in getting approvals from municipalities, a lack of uniform charges, and challenges in obtaining clearance for right-of-way and multi-body approvals. All these issues and concerns need to be addressed for faster infrastructure roll-outs in order to fulfil the agenda of Digital India.

Given the fact that the industry is under acute financial stress, the following steps must immediately be taken by the government:

• Adjust unutilised GST input credits (amounting to about Rs 350 billion) against recurring licence fee payments or spectrum dues.
• Not levy GST on spectrum to be given in the coming auction and on any subsequent demand related to government dues of any nature – licence fee, spectrum charges, etc.
• Significant reduction in the GST rate for telecom services and other charges, such as licence fees.
• Abolish universal service obligations (USOs) in view of the large amount already accumulated in the USO Fund.
• Abolish recurring spectrum charges in view of a one-time consideration.

How do you see tariffs moving in the future?

Currently, data tariffs in India are the cheapest globally, with voice provided absolutely free. As you are aware, the telecom sector is a highly capital-intensive business with technological changes taking place very rapidly and in need of continuous investments in spectrum, equipment, etc. So, in order for the industry to keep building and growing telecom infrastructure, robust financial health is crucial. To this end, it is imperative that the tariffs in India are raised over a period of time to bring some rationality and sustainability. The current industry tariffs are clearly unsustainable.

What are some of the emerging trends in the telecom infrastructure space? What should be the key focus areas for towercos to achieve business growth?

With robust data growth, 4G roll-out by the telcos and the launch of 5G, technology will take centre stage in the next 12-18 months. This phase of evolution holds new and exciting prospects for towercos. Moreover, the government’s focus on providing broadband for all will be another key growth trigger for towercos. Additionally, in a post-Covid world, as the demand for better connectivity grows and the ongoing digital revolution gains further momentum, the role of passive infrastructure players will further intensify and open up new avenues of growth for telecom infrastructure companies.

One common thread across companies in this evolution is large-scale investment in optic fibre networks – intercity, intra-city, connecting towers, orconnecting buildings. IP-1s can play a pivotal role in connecting towers on optic fibre to the nearest transport network, and also in connecting buildings close to their towers through optic fibre, for sharing by all operators.

What is your opinion on the industry’s readiness to roll out 5G services?

Airtel has taken a lead to become the country’s first telco to successfully demonstrate and orchestrate live 5G service over a commercial network, in Hyderabad city. The other operators, I am sure, will follow soon, and thus I feel India is in a good position in terms of readiness to launch 5G. However, the economic feasibility of 5G in terms of spectrum price will be a major hurdle to cross.

What will be the key priorities and focus areas for Bharti Airtel in 2021?

The key priorities for Bharti Airtel will be to further build a robust digital ecosystem with the aim of solving real customer problems; to partner with best-in-class players for quality content; and to provide unmatched network quality and speed. For the current year, our focus will continue to be on acquiring high-value 4G customers; increasing our share of  customer wallets through a host of offerings (content, payments and an unmatched network); and providing a seamless experience. Airtel will aim to provide the best overall digital and network experience to all its customers – mobile, fixed broadband, direct-to-home and enterprise.

What is your outlook for the telecom industry, going forward? By when do you expect it to see a turnaround, and what are the potential growth drivers?

Going forward, with the pent-up demand for data and another round of industry-wide tariff hikes, I foresee the sector having a healthy revenue growth rate, with ARPUs at a minimum of Rs 200 as a first step. For the industry to remain healthy and be in a position to reinvest in future technologies, the ARPU would need to reach Rs 300 over time. Financial health, which can only be achieved through sustainable tariffs, is the only way to enable operators to invest large amounts of capital in the expansion of networks and the introduction of 5G services, which are essential for India to achieve the digitalisation envisaged under the NDCP.