Davos 2017: Revenue Market Share At Lifetime High Despite Reliance Jio, Says Sunil Bharti Mittal
The role of the regulator in the Reliance Jio versus incumbents tussle has been infair, Mittal said.
The last few months have seen a bitter battle in the telecom industry with the entry of the Mukesh Ambani-backed Reliance Jio Infocomm Ltd. In December last year, Ambani announced the extension of Jio’s free services till March 31, after providing 90 days of promotional offers since the the launch last September.
Chairman of Bharti Enterprises, Sunil Bharti Mittal, says the entry of a new player was bound to cause some degree of disruption, especially given the scale of investment and size of Reliance Jio's parent. Accordingly, he had expected promotional offers to last 30-60 days, but not seven months. Mittal was speaking to BloombergQuint’s Menaka Doshi on the sidelines of the 47th World Economic Forum in Davos, Switzerland.
The merger of Vodafone India Ltd. and Idea Cellular Ltd., if it were to indeed materialise, would be a ‘perfect match, according to Mittal.
Here are edited excerpts from the interview.
How damaging has been the pricing disruption in the telecom sector?
No one anticipated that any new operator with that kind of investment and scale has to do something disruptive to get customers’ attention, to get customers to use the network. Let me tell you that in our industry it is very hard to come from behind and get customers’ attention. We have seen this in Sri Lanka we have seen this in Bangladesh. You can do what you want you have to be really disruptive. We expected it to be really cheap but not entirely free, we expected voice to be thrown in free, that was being talked about for a long time and you can sample it for 30-60 days but to make it several months free, we feel that clearly they have not got the attention they wanted, they could not stabilise the network probably. And it takes time. It’s not that they can’t do it; no one can do it when they launch their network. It takes time to stabilise. They (Reliance Jio) wanted to be near perfect therefore they said why take the flak by charging and make it free. We have protested against it, nothing much has happened so far. Let’s see where it goes, but we will deal with it. The revenue table of this industry will take a hit.
Isn’t it already taking a hit?
It will. Because in the end free is free. While the overall data utilisation, voice has gone up, revenues go down.
Where does this end because there is now talk that Reliance Jio might extend their free period. You’ve complained to the authorities and you’ve said nothing much has been done. How much more do you see Reliance Jio hurting your bottomline?
The good news is that we are holding up. Amongst the players in the market other than Jio. Our revenue market share is at a lifetime high, 33.2 percent. We are gaining market share from the table which is dropping, we are gaining. The small players, also known as the value players are giving up. They are not investing, their networks are in bad shape. Videocon is out; it’s sold its spectrum; Augere is gone; MTS is gone. You remember 2008 was disruptive, Docomo is struggling Aircel, Reliance Communications is struggling. We don’t know where Telenor is going to end up. You are looking at that 15-20 percent pool that is getting very disrupted. So there is some gains coming through as well. We will know the numbers when they come out, but we believe that we may be doing better in terms of overall sales compared to Vodafone and Idea. So the overall sense is while things are in a bit of disruption, Airtel with its superior network, and having launched 4G services two years ahead of time, lot of spectrum pool, great management, good brand is holding up better. But are we going to start looking at growth? That’s gone.
Will you be holding onto market share? And if Reliance Jio increases their free period will you feel compelled to have to extend some of the free services you have been prompted to offer?
My view is that if you are going to take everybody to the bottom people will respond. Vodafone has done it after we did it; Idea has done it. Everybody is trying to protect their customer base. In the end it is nobody’s case that Jio will not be one of the operators. Equally it’s nobody’s case that it will be the only operator. My view is that this will settle down. Let’s see how long this whole pressure on the industry lasts. It’s also good for us because it has taken away a lot of the operating costs. This is the time to be much more efficient.
So if they extend their free period it will be obvious for me to assume that you will extend your freebies?
You have to respond to the market’s needs in order to hold your ground, which hurts your revenue growth and margins.
So you will continue to do it? At no point are you going to stop and say ‘I’ll give you market share for profitability’.
Yes, but you must recognise that this is only in the 4G space. There is no change in the entire 2G and 3G space. So it includes only those who are buying 4G phones, and the competition is therefore only in a limited space.
But at the end of the day that money is going out of your pocket?
There is a large section to which these rates don’t apply. There is a lot of 2G and 3G business going on.
How long will your margins hold up?
Margins will not hold up if you are bound to give low rates. You will see as markets start to use more data, which they are, customers using more videos, more internet. You will get some volume back there.
Are you confident of continuing to increasing your market share? Is that your experience in the quarter that finished as well? You are seeking 33.2 percent?
I don’t know the derived number as TRAI Is yet to publish it but we believe we have done better than them.
Do you feel that the regulatory response to Jio’s free services has been fair to the industry?
Obviously today if we are approaching TDSAT against inaction then we are saying what is happening is not right and that’s a statement we made already through our public action by going to TDSAT.
You are hoping for quick justice because TDSAT could take weeks or months?
TDSAT has generally been more efficient and prompt. Still, people have to file submissions, affidavits have to be given, counter arguments are made. It takes time.
What does it say about us that 15 years after the last bruising battle in telecom, we are complaining about the same thing – regulatory capture, lack of level-playing field, favouritism of some sorts, regulations that can’t keep up with how the market is evolving?
All I can say is that regulators should be cautious of supporting new players and ensure that the industry at large doesn’t suffer. This wouldn’t have happened in the U.S. or U.K. , a pricing like this would have never happened. Within days, there would have been regulatory action stopping something like this.
It’s a double whammy for you because not only have they not taken action against this extended free period but in fact they have recommended penalty on three incumbent players for not proving interconnect services as per the licence agreement.
On that again they have been pretty unfair. You ask for interconnect; suddenly one day you announce that you are going to start your commercial services and then you ask for interconnect and within a period of four months you have more interconnect than Idea or Vodafone had in 22 years. So it’s very unfair on this industry. We have 90 days’ period request for me to give you POIs, we do it in 9 days, sometimes 9 hours and yet we face a penalty. I think it is unfair.
You are a die-hard India optimist. I have never seen or heard you say anything ever that sounds pessimistic. But we now seem to be back to the late 90s. This must be a huge sense of déjà vu for you.
But I will tell you that if you look at different organs of the government, if you look at the highest levels of the government, I don’t think there is any indication – and I say this will all seriousness – of any slant or tilt on any side I’m very convinced about that. I sleep well knowing that this government will not play favourites. But there are some different players or actors in the whole space which do get influenced. In this case, the TRAI has recommended a penalty, and the Department of Telecom (DoT) has put up a committee. They are seeking opinions; discussions are on. What we understand is that DoT Is questioning the penalty and the matter will go back to the TRAI. They will have to respond to it.
I think you have professed earlier that you expect this market to consist of about five pan India players? We are almost at that number?
Yes. Finally! I have been saying it for too long and I have been wrong. One effect of Reliance Jio is that the small guys are going. They have no business case.
Need For Consolidation
It looks like some of the existing players are also looking to hold hands. There has been this constant rumour about Idea and Vodafone.
It’s a perfect match. The strengths and weaknesses match very well. Rural-urban, spectrum portfolio. It’s such a good match.
So you are saying that it would make good business sense for them to merge?
From an outsider’s point of view, I do support it. I always support consolidation in the industry. The best example is the U.S. with only three operators. Whenever you see two or three operators in a large market, they have been able to be profitable, they have been able to make large investments, and they have been able to give a lot of revenue to the government. It has been a perfect combination.
India has had twelve operators. Earlier the government said we are crying wolf and that spectrum is not an issue. Now you hear them saying spectrum was an issue - we have given a lot of spectrum, we will give more spectrum. And spectrum issues are thankfully behind us. But the fact is when you create 12 operators and say we are going to break a cartel, we are going to break the back of the existing guys, that is the wrong argument. That destroyed the industry. For a period of time, you have had billions of dollars written off by foreign investors. It’s not good for India.
Dialling Telenor?
Are you in the market for something? Because there is this rumour that you are looking at Telenor.
Telenor is a not a merger of big companies. We have done Videocon, we have done Augere, we have done Aircel. So we are always in the market. Everybody talks to me. All of them fight in the market but they are personally very close friends of mine, the whole telecom industry. So I talk to them, I advise them. And despite being a competitor, they come to me on what they should do – close down, shut down, sell customer, sell spectrum.
So what have you advised Telenor?
I think it is time to go.
So would that mean you might be one of the people that they might sell their business to?
I am friends of Telenor, globally. In India we have competed head on, we have actually created a lot of difficulties in six or seven circles in a value play. But I think it’s in India’s interest to give good exit opportunities to companies like Telenor. So I would say we are looking at everything. I think they are talking to many people, not just us. I don’t know what the outcome will be.
Okay. But in national interest you might look to buy Telenor?
It is not only national interest. We also have to see if it suits us in terms of pricing, value etc. I am a veteran in this industry. It’s been 22-23 years. I feel that this industry should not be scaring investors away. It should not leave a bad taste in their mouth. People are going to write off a lot of money. Can we give them solutions which are easy?
I am just confirming you are in conversation with Telenor, there is a deal to be had. It’s up to them what they are going to do with you.
Yes. So there is a deal potentially to be had, there will be some deal in terms of Telenor and I don’t know if it will be us.
The Demonetisation Hurdle
Have you seen any impact of the demonetisation on your business in the last 2-3 months? A large portion of your revenue comes from prepaid right? Could you quantify it for us?
Roughly 8-10 percent (or revenue was impacted by this). I don’t know what the number for the quarter will look like, there was an impact of people not having enough money to top-up. And by the way, there was a free service on the other side, so it became even more difficult.
Africa Business: Down But Not Out
Africa did not turn out to be the way you quite expected it. You have sold a few of those businesses. Are you planning to sell more?
Yes. Two countries’ businesses have been sold. A few countries have to be rationalised. That could mean sale, that could mean merger. Few countries need to be fixed.
So effectively may I conclude that Africa was not as successful an experiment as you thought it would be?
Yes, we can conclude that.
At some point in time in the near future you might exit the continent altogether?
No. Because we have got $3.4 billion as sales, around $800 million in EBITDA, we have taken a billion out of sale in two countries, two billion out of towers, three billion has already come back. Some more rationalisation may be possible but we are not quitting the place.
Bharti Infratel Stake Sale?
You are looking to sell some stake in Bharti Infratel?
We have received offers, we don’t know whether we want to sell. We want to sell minority stake, we want to sell control. There is a committee which has been formed, they have received offers I believe. It’s a committee of directors, I am not a part of that. I want to be neutral on this one. On some days I feel we should divest and on some days I think we should hold. The committee will go through the entire proposition of what is good and make a recommendation and then some of us will sit down and decide on the issue soon. I would say one month.
Are you doing this to delever a little bit?
Yeah, if we sell, we would delever and get some space on our main business.
You must have some sort of goal points in mind saying this is the monetary cushion I need to fight Reliance Jio, if Jio is going to be free for the next 3-6 months?
In the end, we are well-funded. We spend Rs 10,000-12,000 crore of capex, that is what we need. Last year it was a big year; we spent Rs 15,000 crore. Because there was a lot of 4G, 3G coverage. This year probably it will be Rs 11,000-12,000 crore. It’s all done. Rs. 11,000-12,000 crore is what we’ll spend, we are $5 billion in EBITDA, we pay for our capex, taxes, interest etc. From that point of view, at 2.6 times of EBITDA multiple of debt, we really don’t need to do anything. So strategically we have to see should we hold towers for some more time, we are going to roll out a lot more network, should we keep in our charge, or doesn’t matter. In Africa we sold towers. We can also use control in India. It is not core to this industry, but it is strategic to this industry... there is a difference between core and strategic. If you want a couple of billion dollars, you can sell 10 or 15 percent of the company. There are many ways to do it. There is no burning pressure.
So if you don’t like offers you may not chose anything at this point in time?
Yes.
Competition In Payments Bank?
You have come in with a aggressive interest rate on your payments bank. Paytm is going to be the next payments bank to launch and Vijay Shekhar Sharma said he is not going to fight the interest rate battle. He is going to look at the services battle. How do you see this space evolving?
Vijay is doing a great job. He’s a pioneering person in this area. My view is he doesn’t need to fight on the interest rate. He’s in the urban area. We are in the rural areas. It matters in the rural areas when you are talking about Rs 500, Rs 1000, Rs 2000, it matters to them - the interest rate. And we are going rural to suburban to urban. We are not going heavy urban to rural. Our whole work is in the financial inclusion area, his (Paytm) work is in the payment area. So there will be a difference, but he will be good. There will be two or three successful banks. We hope Airtel will be one of those.