/“We are struggling with AGR payments and financial burden”

“We are struggling with AGR payments and financial burden”

Rajan-S-Mathews

Read this exclusive conversation of Rajan S Mathews, DG, COAI with Haider Ali Khan on COVID-19, lockdown, AGR, 5G and much more. Edited Excerpts:

Q – Could you please tell us about 25 years of mobile telephony in India with your experiences?

Most of my experiences were not in India, it was basically abroad. I was with AT&T wireless & then while working there I came to India for four years and help startup, What today is Vodafone Idea, It was then known as Birla AT&T. This was in 1995. I was here at the very inception of the mobility services in India. All right, and then I returned back to the US and continued to work in the telephony sector in the US and came back in 2010 to head up COAI. I’ve been in India since 2010 but most of my previous experiences been in the US.

I’ve been a CEO, COO, and CFO, in various telephony companies in the US and abroad as well as I’ve served in Afghanistan. I was responsible while at AT&T for telephony networks in Hong Kong, in Taiwan and oversaw those as well. So a fair bit of international experience outside of India as well.

Q – What are the changes did you notice in a decade or so in India compared to other nations where you have been or worked?

I think the one thing is that India has some very unique characteristics. I think there is no other country in the world where we have this type of scope and scale. No other country has 1.1 billion connections, and this type of population, no other country has this type of terrain issues. You have coastal to the desert, to mountain peaks and Himalayas to the open tropical jungles. The variety of landscapes that you have to cover is very seldom seen in other places. Now you have the challenge in India of affordability, we have people who can’t afford to pay a whole lot. So that is very innocent. If you look at the ARPU (average revenue per user) in India, it is about US$3, and when I was working in the US, the average ARPU was US$75. The types of things that you had to do in America, Hong Kong and competition-wise and network load wise is very different. The other thing that we saw was the different means by which the telephony networks were managed. In India, it’s under license.

Q – We can say that is a very critical market because when it comes to investment, it requires a lot of money but, when it comes to the cost to consumers, it has to be very minimal?

Yes, affordability is an issue. It’s a very high volume, low margin business. Affordability for the average Indian consumer is critical. There’s a big disparity between well to do and not so well to do. There’s a big disparity in the regions that have to be covered. Nowhere, else in the world other than perhaps in China, you will see this type of population density. Alright, our network designs have to take care of being able to provide this type of density carrier, capacity. The other thing that you find in the rest of the world is that right away is not as difficult as you would find it here in India. Getting permission for cell towers and getting permission for laying fiber & accessibility to fiber in America is not a big problem. In India, only 25% of our cellular towers are even connected with fiber, in the US just about every cell tower is connected by fiber.

Q – Did you notice any kind of change in the red-tape-ism when it comes to building infrastructure for the networks?

Yeah, I think in the US and most other countries, you’ll find that government is very supportive of the rollout of networks, right especially mobile network. In India, we run into a lot of opposition at the local level and municipalities, by the state government, even, resident welfare associations, objecting to cell towers in their locality, these types of challenges, which we usually don’t run into some other parts of the world because they see it as an essential service. Those are important differences. And also, you know, one of the good things in India, India is very forward-looking in the adoption of technology. We were in the lead on technology, but because of the way spectrum began to be priced in India, we have not been able to keep up with 5G. The rest of the world is progressing on 5G and unfortunately, because of the way spectrum is priced so high, in any case, we have not been able to keep up with the 5G developments as we’ve perhaps would like to have in India.

Q – I think the spectrum auction hasn’t been done yet of the 5G if I’m not wrong?

That is correct. So spectrum auction was proposed and the 5G spectrum in what we call the C band, which is 3.3 to 3.6 Gigahertz band that was initially priced by TRAI and was included in the original proposal for auction. But it looks like the government may not auction that band because the price was too high and the financial health of operators is not all that good, because of the AGR ruling.

Q – How do you find the role of the TRAI in all these situations like pricing? Is it providing a level playing field for all?

We find that the regulator in India obviously plays a role but, the context is very different because the regulator in India has to play by the licensing conditions. It cannot do things independently whereas, in America and in Britain and in other places, the licensing conditions under which operators operate are very different. It is extremely market-oriented. In Europe, America and England, you will find that the market drives a lot of the decision making and the regulator’s very seldom intervene in the market dynamics.

In India, on the other hand, we find the regulator being more active, in various decision points, although on tariff, they have kind of what they call a free hand. They allow market forces to drive tariffs, but still, there are all kinds of other regulatory issues. For example, TCCPR, which is the regulation on the unwanted commercial cause. For example, in India, the regulator has taken a very active role in terms of pushing that out. Lots of regulators in other parts of the world, always undertake what is known as a cost-benefit analysis whereas, in India, we’ve been encouraging the regulator to do a cost-benefit analysis before they start imposing any regulation. We don’t think that that has happened again. We, again encourage that to happen in India as a part of the regulatory environment, but the regulator has been, by and large active, by and large helpful, but there have been instances when we have felt that the regulator could have perhaps been more considerate of the financial health of the industry, in terms of some other regulations that were imposed, as well.

Q – While imposing restrictions, the regulator does not see the condition of company A and company B, is this correct?

They’re not required to look instead, but we are required to look at it in terms of the overall health of the sector. We know that because of the AGR the regulator should take those things into consideration, but for example, for the pricing of special the regulator has chosen to try spectrum at very high levels relative to even international standards. That makes it very expensive for operators and that increases the debt burden. In the case of 5G operators have not been very reluctant to buy spectrum, and that has prevented 5Gfrom being adopted earlier on in India.

So, there is a better example where I’m saying the regulator could have been more cognizant of the financial health of the industry and work to allow spectrum to be priced more reasonably.

Q – What exactly do you feel the operator has to go through the COVID-19 phase and lockdown?

This is one instance; we saw a lot of cooperation between the operators, the government, which is the DoT, MHA, and the regulator. Because of this national emergency, we were all in the same boat. We all work very, very closely. And as a result, our networks were able to operate at 99.99% uptime, and it was the one sector that did well in the COVID in terms of keeping people connected. Railways shut down, Postal Service shut down, banks were shutting down. The only sector that was working was the telecom sector.

Q – So, It must’ve put a lot of strain on the sector?

It did because remember, we are struggling with the AGR payments and financial burden and all of that but, inspite of that, the operators made sure that the networks were functioning well. And thank God there were no complaints. Yes, some people said, you know, we want more speeds, but if you look globally, in just about all countries of the world, because of COVID, speed started to reduce because more demand is being put on the network. So those feeds that come back because operators continue to make the investments and operators because they were tied in globally saw this coming. And as a result of that they were able to be prepared for the COVID pandemics. They made sure that they had backup, generator sets were in place, batteries were charged up, they had the right people working, had backup people, you know that the operation centers were working properly, all of the preparations to have redundancy and backups, and what we call in a business continuity practices. All of these business continuity programs were effectively put in place so that when the COVID and the lockdown came, the networks were able to cope with the additional load that was put on the networks.

Q – What is the current state of 5G in India as because of the spectrum issue it is getting delayed over the time?

The government has taken a very proactive stance, either in terms of getting the country prepare, as you recall, three, four years ago the government put in place a high-level 5G committee which was an interdepartmental committee. It consisted of the Department of Science and Technology, MeitY, and DoT. And these three departments were responsible for working on various aspects of getting the country ready for 5G. For example, it was working on licensing conditions, new licensing conditions, it was working on new regulations, it was looking on new spectrum bands and how to harmonize this with international spectrum bands. It was looking at applications that were to be developed for India that was unique for the purposes of India. It was looking at the standards. What international standards should we be interested in? How long should we market 5G in terms of getting the consumer-ready for this, how do we prepare testbed? How do we ensure that we can test the equipment coming in for security purposes? The government was doing a lot of proprietary work, while we were still negotiating and considering how 5G would be applied in India, unfortunately, the problem arose in terms of the pricing of spectrum, which in our opinion, was one of the dampeners for the adoption of 5G in India.

Q – Would this Indo-China, on and off conflict at the border going to impact the situation of 5G in India?

It depends upon what the government finally decides. We obviously are under license to the government. You know, we will continue to do business to serve the customer and to make sure that the networks perform well and then whatever the government tells us we should do, we will do, because obviously, we have to comply with the law of the country.

Q – Do you think that is possible to boycott all the Chinese products because of what is happening at the border? Are we prepared for that?

At the telephony network, if the government comes up and tells us, Look, don’t buy equipment from China in the future, that is okay but, the problem would come back if somebody says take out all your existing Chinese equipment. That would be problematic because obviously, our operators have invested millions and millions of dollars in existing networks, who is going to reimburse the network operators for that? I don’t think it would be feasible to say, let’s take out everything that is already in your network. What may be feasible is to say look, going forward, please look for Indian vendors other than Chinese brands. Respectively, I think that it is very much an opportunity to look at Indian brands and other country brands to make sure that if this becomes a concern for the government the operators have options available.

Q – Do you think the call ‘Vocal for Local’ by the Prime Minister stands ground in the telecom sector? How can you be purely local in terms of technology?

I think there is no country in the world that is 100% centralized. Even in China when we did a study about seven, eight years ago, on how China developed its ecosystem in the telephone networks. Even in China, only 45% of its needs are met from local sources, it still relies on about 55% from external sources, even China does not, cannot make 100% of everything it needs.

It has to import various components and pieces and things of the sort. For example, China relies on operating systems from abroad. It hasn’t developed its own network operating system, for example, chip made in other countries. You’ll notice that even significant parts like that China don’t manufacture internally, the point I’m making is that no country does everything 100%, we have to focus on, build those areas where we have substantial competency and strength. For example, we are very good at software. We’re very good in design. We can also do manufacturing, although the higher value today is in design and software. If you look at the telephony side we are moving towards what we call Software Defined networks. That means for every hundred rupees that are invested in some hardware some part of the network only 20% at low cost is the value that comes from manufacturing. The other 75% or so comes from the value of the software that is in the network.

If we are going to be self-reliant on the telephony side, then we have to look at the software side and see how we can continue to look at developing our own operation systems, our own applications, designing our own chipset, designing our network, you know, net equipment, all of these are our strengths. We should focus on those strengths to become Reliant, centralized in those areas. There may be other things today like chip fabrication. You just can’t compete. So what you’re saying is well, but I can do focus on designing the chip, outsourcing the equipment. I get the best of both worlds because the design part is the higher value addition. We should look very strategically in terms of saying when we want to be self-reliant, you can’t be self-reliant 100%. So we have to pick and choose those areas that we have a high probability of success and where we have local competency, local resources, local abilities, which we should enhance and utilize to become self-dominant in those areas.

Q – What is the current status of AGR dues?

I think the courts have taken a relatively hard stance. It’s only Airtel, Vodafone-Idea, BSNL and Tata are impacted. These are the four major ones that are still there. Others have gone bankrupt. I think the Supreme Court has taken a very hard line on these matters and we have to wait till the next hearing which is on July 20.

Q – Would it not impact the end customer?

Yes, because the more you extract from the industry, the more costs you impose on the industry and that cost has to be recouped from the customer. Prices will have to increase in order to meet these financial commitments.

Q -What are the challenges you see in the coming days?

The first thing is addressing the financial condition of the industry, the unsustainable debt, AGR payments and, the government takes 30% of every revenue rupee.  GST is becoming a problem for us because it is imposed on things that are never taxed elsewhere in the world like debt repayments. Alright, and when we take debt from the government like for repaying spectrum amount, pay 18% on top of what we protect 30% is jagged. It’s just a higher 18% GST on top of the 18% on the spectrum debt that we carried, it makes more expensive. The whole financial structure of the industry is not conducive to growth and investment. That is one problem that has to be fixed; the second problem is that the spectrum has to be priced properly because you can’t continue to extract this amount of money from the industry. The third thing is that right away it has to be improved because everybody knows that you can’t hang out the window to make a call anymore. You need a cell tower in your neighborhood, and you need fiber.

It has to be improved and enhanced at the local level, at a municipality level, at the Panchayat level at the state level. Government entities cannot continue to say, we are going to take money from you for all of this because every time you want to put up a cell tower somewhere, you have the municipalities and we want crores of rupees. You want to lay fiber, and for every kilometer fiber that you lay, we want crore of rupees, those types of outlays, the industry can’t find it viable. You have to improve it by reducing it.

We’ve talked to DoT, finance, revenue. We’ve even represented to the PMO office saying that the industry is in severe need of financial help to continue build networks because the demand on our network is already increasing.

Haider is an avid writer on technology who loves to try new innovations. He holds a degree in English Journalism from the prestigious Indian Institute of Mass Communication (IIMC), New Delhi. Besides that, he likes to travel and explore new places.

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