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‘Next 2-3 years will be tough for the telecom industry’

Bapun Raz

Staff member
3 Nov 2010
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Many operators paid too much for 3G spectrum: Khullar

Rahul Khullar took over as Chairman of the Telecom Regulatory Authority of India at a time when the telecom sector hit its nadir. Operators are bleeding, policy making has been tough and consumers are unhappy with the quality of services. Business Line met Khullar recently to know how he sees the developments in the sector.

You have been in TRAI for over 11 weeks. What’s your assessment of the sector?

I think there are certain difficulties in the sector today. Many of those pertain primarily to legacy issues. Decisions were taken in the past pertaining to acquisition of assets, choice of technology, or decisions regarding price paid for spectrum and estimation of 3G demand. The industry took a decision on these and now it has to live with the consequences of these decisions.

In your analysis will the sector revive or is this the end of the telecom story?

The analysis that I have seen clearly suggests that the sector is going through a difficult phase and this will continue for the next couple of years. The measure of that is the EBITDA margins are under pressure for all operators. The implication is that as margins get squeezed the investor is concerned about where the cash flow is going to come from. That I think is the difficulty.

On the other side, I don’t think this is a permanent state of affairs. Our analysis shows that after 2-3 years finances will turn around.

The point is that in a sector like this you should not be looking for instant returns. An industry is always in it for the long haul otherwise why would you take a 20-year licence? It’s not like a restaurant where you are looking for footfalls and viability over a six-month period.

What will revive the sector?

One of the key factors that we tend to discount is that when there is general inflation and people are cutting back on things, why shouldn’t they cut back on telecom consumption? Growth has decelerated overall and telecom cannot be immune. Even if prices were to stay intact the pure income effect would cause people to talk a little less. The reason for optimism, however, is that the economy will revive and then the demand for telecom services will also revive.

Data is also going to play a major role in this revival. Today data is not as big a share as it should be. But you have seen prices being slashed 50-70 per cent to induce usage. Once you get used to it then you come to a stage where you can’t live without it. The same thing happened in voice; when it was Rs 14 a minute users were careful in making calls; now, no one thinks before making a call. Therefore both income and price matters.

The short point is that the operators are currently in difficulty but they will get out of it. They will go through 2-3 years of difficult times but they shall overcome.

With the operators in financial difficulty is there a possibility of the upcoming spectrum auction failing?

I don’t think one can draw that conclusion. Any auction can fail but I don’t think it is going to fail for this reason. The problem is that many operators paid “too much” for 3G spectrum and now they are in trouble. This is no different from BT’s story. BT hugely overbid for spectrum 7-8 years ago; got into trouble and then had to sell their assets to get out of trouble. We should look around and see what has happened elsewhere.

Why do we think Indian firms are unique? People in the industry do not want to accept that there could be a problem of bidding too much for spectrum.

What can the operators do differently?

So far all operators have been too busy in dividing the market share of subscribers. But have they thought about getting more money out of these subscribers by offering value added services? It is time for them to refocus. Do you think BT or Verizon would have survived if they looked only at market share? Why aren’t Indian players offering value added services? Why not set up wi-fi systems and free up spectrum that’s available?

The industry feels that the TRAI is not doing enough for them

TRAI’s mandate is to protect the interest of both service providers and consumers. I am responsible for both. You draw your own conclusions from that as to where I am heading.

TRAI had issued VAS norms a year ago which have not been implemented. What are you doing about it?

We have issued telecom service providers notice to comply or we will be forced to take action. Once a regulation is issued they have to abide. One year later, I will be asking them if they are in compliance and, if not, why. Forbearance cannot mean I look the other way when a regulation is being breached.

What will you do to deal with pesky SMSs?

We have looked at it and we are planning to issue something by the end of the month.

How will you improve the mechanism of redressal of consumer complaints?

We have launched a new portal which is consumer friendly. It is in two languages. I don’t have the ability to deal with crores of complaints so I will monitor it through this portal. When a complaint comes, it goes to the operator. If he doesn’t solve it, it goes to the appellate body. If it doesn’t get resolved even there then we start breathing down the operator’s neck.

So we come in after the complaint has gone through two levels. But first consumers must login, lodge a complaint, or an appeal. We are also planning to add complaints related to pesky SMSs. I have been in the job for only 11 weeks, give me time and we will get there.

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