File photo of Sunil Bharti Mittal, chairman of Bharti Airtel Ltd. (Photographer: Jason Alden/Bloomberg)

Davos 2019: Sunil Mittal Says The Telecom ‘Haemorrhage’ Stops This Year

India’s ailing telecom industry may not recover this year but it will “perhaps” stop bleeding, billionaire tycoon Sunil Bharti Mittal said.

“I would say given the lay of the land, 2019 should be a year of stopping the dreadful decline. Will it be a year of recovery? Possibly not,” the chairman of Bharti Airtel Ltd. told BloombergQuint on the sidelines of the World Economic Forum in Davos in Switzerland. “This is a year where you have to invest more, get out more into the market for 4G, compete in the new marketplace, hold on to the market share, hold on to your better customer.”

This will be the year of perhaps haemorrhaging stopping.
Sunil Bharti Mittal, Chairman, Bharti Airtel Ltd.

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Mittal said the only reason he's slightly unsure of a recovery is because Mukesh Ambani’s Reliance Jio Infocomm Ltd. is dictating the market prices. “Eventually, one player is playing a low-tariff, high subsidy game. It has to be his call.”

For the Indian telecom industry, 2018 was a year of continued pain. Ever since Ambani waded into the sector with his upstart Jio, average telecom revenues and profitability have been on the downslide, spurring consolidation.

The industry, which now comprises three large players with similar customer bases, has to now work towards getting the average revenue per user up, Mittal said. He said that Airtel has now stopped fighting the tariff war and has also increased the bottom slab of tariff. “There’s got to be a minimum ARPU coming in. Even for Reliance Jio, their minimum pack is Rs 50, there's nothing below that. So you’ll have to keep taking the lower table up.”

He said the people who are “gouging” a lot of data will have to start paying up more eventually. “They were comfortably giving Rs 500-800 earlier. You'll have to do the right segmentation, give them Netflix, give them Amazon [Prime], give them Zee and other content like Wynk music and get the ARPUs up. And you will see within 2019 the trend of ARPUs going up,” he said, adding how much ARPUs go up will depend on the market forces.

What you need to focus in 2019 is to hold your market share—both revenue and customer market shares—if that’s in place and cost structure well taken care of, I think you will be okay.
Sunil Bharti Mittal, Chairman, Bharti Airtel Ltd.

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Equity Infusion And Debt

Mittal said that Bharti Airtel will consider raising capital as part of its attempt at paring debt and a committee has been put in place to consider the options. “And you will probably hear something from the board and committee in the coming weeks. We will recapitalise the company.”

When asked if the capital raising involved diluting his stake, Mittal hinted at a capital infusion. “I’ll put more money, what’s the problem?” he quipped.

He said that Airtel’s net debt-to-Ebitda ratio of 4 is normal for the telecom industry but he would be more comfortable bringing it down. The company has already moved $5 billion debt in Africa while another $6 billion in India is indebted to the Department of Telecom which is payable over 16 years. The balance $4-5 billion market debt will be paid through recapitalisation and selling assets like towers.

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‘Last Man Standing’

The billionaire chairman, whose company last year lost the top spot in the telecom market to Vodafone-Idea Ltd., said that he will not focus on the rankings but instead work towards offering quality services.

“I don’t think it matters whether you are number one or two. I think what matters is you need to be a viable, solid player,” Mittal said. “I’ve always given an example of Kotak Mahindra Bank. I don't know what number it's at. But it's considered as a premier foremost bank. Great bank, great customer services, that should be our role model within the three players regardless of the number of customers you have.”

All I have consistently said is that when the chips will fall we will be the last man standing. You need to have the right profile of customers, provide great innovative services, terrific network and the rest will follow.
Sunil Bharti Mittal, Chairman, Bharti Airtel Ltd.

Changing Telecom Landscape

Ambani has been modelling Reliance Jio on the likes of Jeff Bezos' Amazon Inc. and Walmart Inc. by sprawling his empire into content and e-commerce.

Mittal said he will not take that approach. “We don't want to make investments in areas we don't understand.”

Instead, he said Bharti Airtel will focus on securing partnership with content providers and e-commerce companies. “We are partnering with Amazon, Netflix, Hulu, Zee and Eros. So we are becoming the partner of choice as a telecom carrier from where all the content providers will play out. That's our strategy,” he said. “And then similarly in e-commerce if that plays out. There are enough e-commerce companies that will seek us out.”

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Watch the interview here:

Here are the edited excerpts of the interview:

What do you make of the telecom landscape right now?

It has been a tough 10 years. In 2008, ten new licenses been given, more people investing and rolling out networks. Then comes one new operator—Jio—and you see most of them disappearing. $45-50 billion written off, lots of jobs lost. But if you put all those dark clouds behind there are three players left now in a nation of the size of India. Three more of less equally of the same size. There will be some readjustment.

Jio wants more market share, is driving a lot of subsidies in the market place, going to areas with 4G networks where others have not gone. So it is a competitive environment out there, which is great for customer, but not so great for the industry. But one has to be hopeful that given the market structure has corrected sooner or later things will start getting better.

Will 2019 will be when things finally get better? Or will this pain go one for two-three years?

It is very hard to predict what others would do. I would say given the lay of the land, 2019 should be a year of stopping the dreadful decline. Will it be a year of recovery? Possibly not. That could be 2020. This is a year where you have to invest more, get out more into the market for 4G, compete in the new marketplace, hold on to the market share, hold on to your better customer. This will be the year of perhaps hemorrhaging stopping.

Eventually, one player is playing a low-tariff, high subsidy game. It has to be his call.

So who will bite the bullet and say this tariff game needs to stop?

We have already started to do that. We were number one for 20 years. I don’t think it matters whether you are number one or two. I think what matters is you need to be a viable, solid player in the market. I always given an example of Kotak Bank. I don’t know what number it is at. But it is considered as a premier foremost bank. Great bank, great customer services, that should be our role model within the three players regardless of whether you have 10 million customers. You need to have the right profile of customers, provide great innovative services, terrific network and the rest will follow.

How do you feel about not being the market leader anymore after being on top for almost 20 years?

People who were leaders yesterday are not guaranteed to be leaders of today. And today’s leaders can’t be leaders of tomorrow. This shift happens. All I have consistently said is that when the chips will fall we will be the last man standing. And to that extent I am proud of what we have developed. It is a home grown company, we’ve spent over $45-50 billion dollars, one of the finest brands with a great management. We will be the last man standing because the company is still in a great shape. Africa has stabilised, parts of India have stabilised. Some more turbulence will happen in the fixed broadband side. But keep in mind that we have stood absolutely firm through seven-eight quarters of absolute mobile broadband mayhem.

You mentioned fixed broadband, but that’s a smaller market? Do you see tariffs coming down there as well?

Fixed broadband is a smaller market but we are planning to grow there. We have been reducing our tariffs from Rs 1100 to now around Rs 700. So it will settle at around Rs 500 depending on where Jio comes in with pricing. Yes, there will be readjustment there but it is a small part of the business.

So what will it take to get ARPUs back up?

We have to get more customers. We fight for customers every month. We haven’t played the tariff war for a long time. In fact, we have taken the bottom up to minimum Rs 35. And if the market responds well we will probably take it to Rs 60 or Rs 80. There’s got to be a minimum ARPU coming in. Even for Reliance Jio, their minimum pack is Rs 50, there’s nothing below that. So you’ll have to keep taking the lower table up. And those people who are gouging a lot of data will have to start giving more than Rs 399. They were comfortably giving Rs 500-800.

You’ll have to do the right segmentation, give them Netflix, give them Amazon, give them Zee and other content, in music Wynk, and get the ARPUs up. And you will see within 2019 the trend of ARPUs going up. How much it will go up will depend on what the market allows. Already with Rs 35 minimum, we will shed a large amount of customers that were double-simming, or who were giving almost nothing by being on the network, they will weed out over the next few months. And you will see the ARPU table going up.

And does that lead to better profitability?

I don’t know. That depends on the marketplace. What you need to focus in 2019 is to hold your market share—both revenue and customer market shares—if that is in place and cost structure well taken of, I think you will be okay.

How do you plan to pare the company’s debt?

In Africa we have already moved $5 billion debt. Around $6 billion is DoT debt which is covenant free and that’s a 16 year payment schedule unless the government extends it. That’s sorted out. The market debt, which is balance $4-5 billion, which is bonds and banks, our stated position is that we will sell some assets like towers to get it down. The company has also set up a committee to look at some capital raising. And you will probably hear something from the board and committee in the coming weeks. We will recapitalise the company. I’ll put more money, what’s the problem?

Investors would be interested in knowing how you will bring the net debt-to-Ebitda level, at four currently, lower.

Net debt-to-ebitda ratio for four is normal in the industry. We will like to bring it down, we’ll be more comfortable bringing it down. All the tower stake sale and capital raising will be diverted to lowering debt.

What next for the telecom industry?

This is an industry where mobile phones will be at the core of what anyone does whether the government or the citizens. In that we will play a measured role. we won’t develop our own content but we are partnering with Amazon, Netflix, Hulu, Zee and Eros. So we are becoming the partner of choice as a telecom carrier from where all the content providers will play out. That’s our strategy. We don’t want to make investments in areas we do not understand. And then similarly in e-commerce if that plays out. There are enough e-commerce companies that will seek us out.