A former top accountant and senior independent director on the board of Barclays, Sir Michael Rake is the Chairman of BT Group plc (formerly British Telecom). He is also Chairman of easyJet plc, as well as Chairman of the private equity oversight group, the Guidelines Monitoring Committee.

From May 2002 to September 2007, Sir Michael was Chairman of KPMG International.

The 64-year-old has been heading BT since 2007 and under him the telecom company has seen significant growth, especially in the broadband segment. In India, BT primarily offers long-distance telephony services to corporate customers. It also has a minority stake in IT services firm Tech Mahindra.

Business Line met Sir Michael and talked about a whole range of things, from the Euro Zone crisis to the latest FDI policy announcements in India and the debate over Government control of the Internet. Excerpts:

What is your assessment of the investment environment in India, especially after the latest rounds of reforms announced by the Government?

Since I was last here in India four years ago, there have been enormous developments in the global economy, mostly bad. India has continued to be what people expected it to be, with a young, fast-growing middle class — many things have gone positively and that has attracted inward investments.

However, recently, investments have fallen but that’s because of the global environment. Businesses are hoarding cash in US, they are worried about the banking systems and there is a lack of confidence in general.

All countries need to understand that businesses want certainty and continuity of policy — a kind of political neutrality. So the current moves by the Finance Minister in India are quite rightly saying ‘India wants you’, so I think that’s important.

If the FDI cap in telecom is raised from 74 per cent to 100 per cent, will BT look at increasing its stake in the Indian venture?

If the law were to change, we will see if we wanted to do that or not. Would we rather have 90 per cent than 74 per cent? Probably, yes. Is it a problem now with 74 per cent? The answer is No.

We would understand if the Government wanted to have a golden share, because it is critical infrastructure. So, as far as BT is concerned, at this point in time, it is not a huge issue. In India, we have a 74 per cent share and we are happy with that.

Do you think 100 per cent FDI could attract other foreign investors into Indian telecom?

Other investors in the telecom retail space will look at the bigger issues, such as the level of competition. It is already an overcrowded market, so it will be difficult. So the issue is more about viability of coming at this stage and the price you would have to pay. But if they do invest, most companies would like to have a majority stake.

What will BT’s roadmap in India be? Will you consider moving to the retail services space?

No. As far as retail services are concerned, we will stick to our home market of UK. The scale, size of investments and the politics of going retail ….in India we will stick to what we are good at, which is managing global networks for big companies.

We will provide more and more tech support services from here, not just to our customers here but for our global operations, from own employee staff rather than outsourcing here. So, we will have more people working for BT as the organisation here matures.

We are 1,100 people now in India which we will grow to a couple of thousand over the next 12-18 months.

Since US and European markets continue to be gloomy, does that make your Indian operations more important?

The advantages of India are still the same i.e. large growing democracy. I think the difference would be that four years ago we saw India as an outsourcing destination, and now we see India as a place where we want to do things on our own to support our global network.

It is now more than just an offshore pot where you get fantastic graduates who can speak English at lower cost. I think there’s been growth in the value chain in many areas.

Companies including BT and AT&T have raised concerns about the control of cable landing stations in India. Does the UK offer open access to cable landing stations?

In the UK, we have equal access; Ofcom (UK regulator) is on our back to ensure that we offer fair access. The biggest place for this bottleneck is the US, of course.

BT has been successful in rolling out broadband services in the UK. What can operators in India learn from your experience?

Firstly, some of the things we have done — to force competition through functional separation of network to ensure everyone had equal access on the same terms and conditions — have been hugely successful to make broadband available to 98 per cent of UK at much lower price. We are rolling out fibre to the equivalent of Singapore every three months.

India and the UK have similar conditions. There are areas you cannot justify investments, so the Government had to come up with funding of £100 million. That’s exactly what India is also working on, but you have a huge rural population. We are looking at technology like satellite, white spaces, for remote areas.

In the meantime, the political element is important. In the UK, broadband has moved from being a luxury to necessity to a utility and that’s putting enormous pressure politically.

Did you weigh wireless technologies too?

One of the biggest things for BT has been the use of wireless fidelity (Wi-Fi). We have 4 million Wi-Fi hotspots and that’s getting huge usage, because 3G is not cutting right.

There’s a huge global debate going on Internet governance. What’s your take on this issue?

The Internet needs to be completely open. You should allow innovation and knowledge to spread. However, that doesn’t suit everybody in power.

Certain governments find that difficult to live with, and therefore seek to control or influence the Internet. But it’s an uphill task. We also need to recognise that it’s true that determined individuals can manipulate the Internet and create false misleading behaviour. The other area is right of privacy. There are no easy answers here.

How badly is the Euro Zone crisis impacting businesses such as BT?

Good businesses will survive. The bigger problem is not businesses, but the need to have labour flexibility at a time of maximum insecurity. But the crisis has clearly proved that the world is still highly connected.

Euro Zone is symptomatic of the West having promised too much, borrowed too much and delivered too much too inefficiently, which means there has to be correction around fiscal deficit.

But right now it’s a huge weight on the global economy and it is going to require strong political leadership to go through this period.

Related Topics