Interview with Akhil Gupta : “It has been a roller-coaster ride for the industry”

Bharti Enterprises’ vice-chairman and Bharti Infratel’s chairman Akhil Gupta believes that restoring the financial health of the sector is extremely crucial for a sustainable future. In an interview with tele.net, Gupta talks about the progress of the sector over the years, the need for tariff rationalisation, the opportunities for towercos and the outlook for the sector. Excerpts…

 

How would you describe the past 20 years for the telecom industry?

It has been a roller coaster ride. From being the poster boy of Indian reforms, the sector has gone into deep stress owing to various reasons such as spectrum pricing and intense competition. It is unfortunate that the  industry that did so much for the country in terms of enhancing telecom penetration is in such poor health today.

What were some of the big milestones, both good and bad, along the way?

This sector has grown from a tiny industry into something so big. So, the milestones achieved have been all good, although on the financial front, much needs to be done. The entry of Jio further deteriorated the position, but even before that, unsustainable competition existed among operators. At the time, a lot of people blamed it on the presence of 12 players in the market, but the fact remains that even when those 12 players got reduced to four, there was no rationality in tariffs. This was due to mixed reasons – partly because of the government, partly because of some private operators and, generally, because of hyper-marketing, which, I think, needs to come down in the industry.

What were some of the steps that were not beneficial to the industry?

There were two big reforms that happened in the industry: the first, in 1994, was the entry of private players into the sector and the second, in 1999, was the decision to change the model to revenue sharing and calling party pays.

Things started to go bad when spectrum started becoming scarce and the intent was of revenue maximisation rather than growth of the sector. So, the biggest flaw, I feel, was the introduction of the one-time fee as well as revenue sharing. That was pretty unfair.

How do you see things going from here?

I think we have all suffered. Fortunately, we had the tenacity to hang on. Today, it has come to the point where players say that if you don’t make money, hang up your boots. You have seen Vodafone Idea, comments from Nick Read and Kumar Mangalam Birla. Sanity is now prevailing, and investors and players are realising that businesses have got to be financially self-sustainable. So, I do see small beginnings in tariff rationalisation but, to my mind, it is far from enough.

At Airtel, we had an ARPU of Rs 128, which has gone up a little post the tariff hike. But if we want to continue making big capex investments, ARPUs need to grow in three stages. In the first stage, we should be able to reach an ARPU of around Rs 200, which will help the industry break even. Then, at an ARPU of Rs 250, we would start getting some returns though not ideal returns; for that we would need to touch Rs 300. This, of course, will not happen overnight. But we have to reach there over the next few years if we want to keep making the investments that this industry requires.

Can this Rs 300 ARPU happen with the current number of players? 

Four is a decent number of players in the market for this to happen.

How do you see the competitive landscape panning out over the next few years?

My reading is that players have moved away from the days when they would want 40-50 per cent market share. Today, the industry mood is more sombre and players are looking for a decent, but profitable, market share. If you keep moving towards a higher market share on the back of terrible profitability and losses, it is not worth it. So, I do expect the scenario to be saner and more responsible.

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

The government must look at its own proclamation in the National Digital Communications Policy (NDCP) that it aims to digitalise the country and enhance broadband penetration, and not focus on revenue maximisation. I think it is important to “walk that talk” because so far, everything has been about revenue maximisation, and that has got to end. Further, more capital inflow should be encouraged for the creation of assets rather than for the payment of spectrum. Moreover, if telecom is an essential industry and the pathway to India’s digitalisation dream, why tax it like tobacco and alcohol? For an industry that is the lifeline of the country, the taxes need to be rationalised.

The time has, perhaps, also come when the regulator must think of a tariff floor to bring some level of discipline. Beyond that, it could be complete forbearance and, of course, the regulator can step in if there is any malpractice. But some kind of floor price is necessary. Some regulatory intervention is needed to make sure the industry remains sustainable.

What about 5G spectrum? Are telcos likely to go for it?

Since we will be one of the contenders, it will not be right for me to make any specific comment.  But in my opinion, the spectrum is just too expensive, and the use cases are far and few. I feel the industry needs some more time in terms of both the financial status and the proven use cases.

What are some of the decisions of the past 15 years that the government could undo?

Some of the things that are done cannot be undone but they can be prevented in the future. The biggest of these is predatory pricing. To my mind, it is the duty of the government to not only protect the interests of consumers, but also to ensure that the industry is financially healthy, as telecom is a vital industry. If the industry is not financially healthy, ultimately the consumer also suffers due to bad quality, inadequate coverage, etc. So far, the tilt has been towards only the consumer and the treasury; it is time that it balances between the consumer and the industry.

What are the emerging trends in the telecom infrastructure space and what are the revenue growth models that towercos are looking at?

For towercos, it has been a very successful business model, not only in India but all over the world. What started in India is today practised all over the world; so, India has been a pioneer in this. As for the future of towercos, fiberising towers should be the first priority. Other than that, the NDCP states that IP-1s must be allowed to do more sharing, including sharing of active infrastructure, and that is the future of this industry. I feel the biggest problem with the telecom sector is that it is a capex-heavy/asset-heavy industry. It has got to become asset light. We were able to do a big chunk of this by transferring towers into independent entities. The time has come when fibre as well as some of the other elements such as antenns, microwaves, etc. should also be shared.

My personal preference in terms of the ideal industry model would be to see towercos evolve into netcos, which would create the best possible network, take as much spectrum as they need and provide seamless connectivity to operators, which would then take it to the end customer.

What will be the key priorities and focus areas for Bharti Airtel in 2020?

The biggest priority will be to put more money into improving the quality and coverage of our services. Secondly, we will focus on ensuring that the industry is financially healthy. People have invested a lot of money in us, and we owe it to them and to all our stakeholders, including the government. That is a conscious responsibility call that every operator will have to take. It is not just a matter of making profit; it is a matter of fulfilling our responsibility to society. A financially bankrupt company hurts society. Think about all the companies that have folded up in the past few years, the jobs that have been lost, the non-performing assets that have been created, and the revenues that the government has lost. So much of the capital that this country needs has got wasted. I firmly believe one needs to be financially healthy to fulfil one’s social responsibility. And an operator like Airtel will want to follow that.

What is your take on the upcoming years in the sector?

They have to be good. We need to learn the lesson that we cannot be irrational in pricing. I feel that in the next few years, this realisation will not only dawn on us but will be in full blossom.

Last year, you had said that the worst is over for the telecom sector. Do you endorse that still?

Well, I think with the adjusted gross revenue (AGR) judgment, you cannot truly say that. In the past few years, some positive developments have taken place, particularly in terms of consolidation. So, to some extent, I endorse it. But obviously, I could not anticipate the severity of the AGR judgment.