The telecom sector has evolved significantly over the past year, driven by the government’s efforts to ease the financial burden of telcos and promote the deployment of digital infrastructure. Akhil Gupta, vice-chairman, Bharti Enterprises, believes that reducing litigation in the industry, increasing ARPUs and setting a nominal reserve price for 5G spectrum auctions are further steps that are 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 2021, tariff and ARPU movements, the evolving 5G ecosystem and the outlook for the sector…
How would you describe the past year for the telecom industry as a whole? What were the key developments and lessons?
There were two major positive developments during 2021. One was the tariff hikes, which were being planned for a long time. This was a small beginning, but a relevant one. The second was the launch of the telecom package. Both these developments have been quite positive for the industry.
What are your predictions for tariff and ARPU movements in the future?
Tariffs going up is a welcome but very small step. We need to have an ARPU of around Rs 300 for this industry if we are looking at continuous investments, particularly in 5G and beyond because without that there is no decent return on capital employed or return on equity (RoE) for this industry. However, we have a long way to go as we are currently at an ARPU of only Rs 160-Rs 165. The next step needs to be an ARPU of Rs 200 to reach the final outcome of Rs 300 ARPU.
From a policy and regulatory standpoint, what are the steps/measures/interventions that you are still looking for?
On the regulatory side, the first need is to rationalise taxes and levies on this industry. There is an urgent need to reduce the goods and services tax (GST). GST cannot be at the highest rate for an industry like telecom. The recurring spectrum charges are not justified because if you have taken money upfront, paying ongoing rent is not warranted. This has been specified for future auctions, but needs to be applied for the previous auctions as well.
The second need is that we need to find ways for reducing and eliminating litigation in this industry. We need to have “Vivad se Vishwas” kind of schemes in this industry to settle past litigations and ensure minimal litigation going ahead. There is a need for concerted efforts by the industry as well as the government to increase clarity on all those issues that give rise to litigation. For instance, the definition of adjusted gross revenue (AGR) still needs more clarity. Similarly, there needs to be more benevolence when it comes to penalties, interest and so on.
The third step is to set a very nominal reserve price for 5G spectrum auctions because if there is ample demand, the price will automatically rise. We also need very strong provisions regarding roll-out obligations for expanding 5G coverage deep into the country with defined timelines. What we need is 5G, which will give benefits to the entire country and not just the major cities. This would be in line with the overarching policy declaration in the National Digital Communications Policy (NDCP) that revenue maximisation from telecom is not the objective. Availability of broadband across the country is.
What is your perspective on the importance of tariffs? There has been some hike in the prepaid segment already. How do you see the tariffs moving now?
Tariffs may or may not move up too much, but ARPUs need to move up. A lot more needs to be done and more quickly. If, for some reason, the industry is not able to come to a consensus due to competitive pressures, we need TRAI to intervene so that this industry is healthy.
What are the different elements that get you to a higher ARPU level?
For all packages that we have the amount charged needs to go up. This is the basic element. For that, it is necessary that the regulator or the Department of Telecommunications (DoT) do not hesitate to impose a floor from time to time to avoid a bloodbath. It is quite necessary and in the interest of the country.
What are the trends in the telecom infrastructure space? What are the key areas of focus for towercos?
DoT has done a fabulous job of persuading states to adopt the right-of-way (RoW) rules and guidelines, which had been framed in 2016. It has been a very tough ride with DoT and the Digital Infrastructure Providers Association walking hand in hand and going to every state to increase adoption. It is now almost done except for one or two states which are yet to adopt the RoW guidelines. Hopefully they too will adopt them very soon. By and large, the whole country seems to be aligned with the RoW rules.
Two things need to be done in the infrastructure space. First, the scope of infrastructure providers (IP-1s) needs to be expanded. The NDCP has stated that its role should be expanded so that there is enhanced sharing of infrastructure including some of the basic active components. We have proposed that IP-1s should not be permitted to provide services directly to customers as they might start competing without a licence. They should only offer services to telecom service providers.
Second, the government needs to come out with a policy on the street furniture required for 5G. All government-owned street furniture such as lamp posts and bus shelters should be permitted to be used for 5G densification as private infrastructure would not be enough.
What are your views on the financial health of towercos?
Towercos have decent financial health. Thus, they will be in a position to invest massive amounts of money in the expansion of not only macro towers but also small cells and modular lean towers that need to come up for 5G. This industry is decently funded.
Is the 5G ecosystem ready for its roll-out?
If we can have a good street furniture policy quickly, we are absolutely ready.
Do you have a view on the government buying equity in Vodafone Idea (Vi) and how the competitive landscape of the industry is going to be three years from now?
The biggest positive outcome from the telecom package is that telecom will continue to be a three-player industry. The package is absolutely the right thing from a structure point of view. With this package, Vi would survive and become a good, feasible third private operator besides Bharat Sanchar Nigam Limited, for whose revival steps are being taken. The government has already clarified that it has no intention of converting Vi into a PSU. Accordingly, I think the government will be “holding the equity for sale” and whenever it will get an opportunity, it will want to offload its stake in Vi.
What is your outlook for the sector for the next few years?
ARPU correction will have to happen, which is vital for the industry. Once that path is laid out either by the industry or by the government, the industry will have a pretty bright future. It augurs well for the government in terms of its revenue and will be necessary for achieving the fundamental aim of digitalising India.
What are the key priorities and focus areas for Airtel?
We are well funded and are raising more capital. We are very proactive and have been focusing on strengthening our balance sheet over the past two to three years. This has put us in a very decent position and our leverage is under control. We believe that in this industry you have no choice but to keep your balance sheet very strong. Our priority will be increasing 4G coverage in terms of both going deeper into the country and expanding capacity. Assuming that the government’s pricing on 5G spectrum is feasible, we would want to participate in 5G auctions if it makes good commercial sense. We are also focusing on expanding our enterprise business services and offerings, home broadband and wired broadband. We will also develop our digital assets and expand Airtel Payments Bank. The recent deal with Google is good from every angle as Google does bring a strategic angle to this partnership. I think this will be a good deal for both the companies as well as the Indian telecom industry.