As the founder of Airtel, tariff battles and regulatory wars are not new to Sunil Mittal. Over the past two decades, Mittal has fought many such battle and has emerged as the largest mobile operator in the country. But the latest threat from Mukesh Ambani’s Reliance Jio is causing concerns for the industry.
In addition, the industry is burdened with highly priced spectrum. Amid these challenges, the sector is set for a major consolidation.
Mittal spoke to select media on the sidelines of the Mobile World Congress at Barcelona on how he views the various issues facing the telecom sector. Excerpts.
In India, we went from 2 to 4 operators to all the way to 12 operators. To my mind, if you look back, $25 billion has been written off and that’s not a small amount of money. You could have build bridges and roads and what not, but we let it go in smoke. Going to 12 operators was a wrong decision. This policy prescription has gone wrong, but the good news is government is realising it. Let’s see how the consolidation plays out, my own view is you could be down to three private players.
What should policy makers do?
Encourage consolidation. Clearances for mergers should come up expeditiously. The second part is spectrum pricing, which in India has really gone out of control. Whatever has been paid in the last three or four auctions is not sustainable to give the low value proposition to the customer. And finally, telecom has to be a means to an end, it can’t be an end in itself. If you want to pick up a lot of money upfront, you are compromising the investments for rollout and infrastructure.
Do you see a spectrum auction happening this year?
There is no need of spectrum right now. My prediction is that there can’t be an auction in 2017-18. There was a time when we were clamouring for more spectrum. That’s not the case now.
RJio is putting a lot of pressure on other operators. When do you see this situation easing?
I think this situation will ease when RJio gets some scale. The good news is that they have eventually announced plans to charge from April. But to our mind, the pricing is still unsustainable to give 1 GB a day. Eventually, this industry needs to have a return on capital deployed, or else the investments in future networks will slowdown.
How long do you think will it take for the industry to stabilise?
I will say watch out for March 2018. I think by then you will see a new order emerging.
Idea has already posted its first-ever net loss. Is Airtel staring at a first-ever net loss in fourth quarter?
First of all, you have to decipher the industry’s financials. There are large amounts of spectrum purchases, which have been paid or will be paid over a period of time, which have associated interest on it and then there is a 5 per cent depreciation charges on it.
Last year, we had put in 85,000 sites, and this year also we will put in 85,000 towers. That means a lot of depreciation gets accumulated. I wouldn’t worry too much about Idea, because they still had a positive free cash flow. I don’t think we (Airtel) will go into losses, but who knows. Never say never. We have tanked up a lot of spectrum, we have to pay interest on that but we still have close to $5 billion in EBITDA and generate a $1 billion in free cash flow. While the return on capital has become dismal single digit, Airtel’s balance sheet remains very healthy and strong.
Is there an option to exit Africa due to pressure in India?
India is not a load on Africa. Africa has currently about $3.4 billion in revenues and over $800 million in EBITDA. It spends about $600 million in capex, so in some sense it generates that operating free cash flow. Overall Africa is taking care of itself.
Are you looking at consolidating international operations?
We will be looking at few countries where should acquire, merge to change the market dynamics. I would say whereever we are not in the top two, we would look at stepping up.
How is the capex going to be affected with the market conditions in India?
You will have to accelerate capex. We did 85,000 base stations last year and another 85,000 is being done this year (2017), which is the largest rollout anywhere in the world. 4G deployments will accelerate.
On the content front, are you planning to acquire content?
No, our philosophy remains different. We will like to collaborate with content providers, that’s our stated position from day one. We would like to be neutral in content.
Where does India stand on 5G deployment?
Lots of things are getting ready and 5G is going to come on industry much faster. We will see commercial rollouts in 2019, while 2020 will see a lot of action. In India, 5G application is more on Internet of Things. India is slightly behind the world.
After Telenor deal, how do you plan to bring down your debt?
We are not overly focused on that. Whenever, we can sell some tower stake we will sell it. This is a company with solid cash flow. They are no banks chasing us.
Any progress on stake sale in Bharti Infra?
As you know we have set up a committee. When the next board meeting happens for the results, for this quarter January-March, probably we might take some decisions by the time. We haven’t taken a decision, whether it’s minority or majority. We have had interest from several players, KKR has been in the lead.
Have interconnection issues been resolved?
It has claimed down, and I have always said interconnect cannot be used an anti-competition tool.
Do you see sharing of infra on optical fibre?
This should move into lines of tower company, there should be a fibre company. Why can’t we all put a fibre company and everybody can take capacity. Look at the submarine cable, every cable is a consortium cable.