Return of Pricing Power Depends on Jio: Sunil Mittal


The return of pricing power to India’s stressed telecom industry will depend on Reliance Jio Infocomm, which will need to make the first move, Sunil Mittal, chairman, Bharti Enterprises, tells ET Now in Davos. Edited excerpts:

How do you assess this government’s performance? What will the key issues be in the 2019 election?

Unfortunately, the election discourse has become ugly. The shrillness, noise, language — it is getting a bit uncomfortable for people at large. But at election times, these things are expected. I hope once the election is done, things will settle down. I think the current government is reformist in its very nature. Ease of doing business issues have been sorted out. Could they have done more? I think we can always expect any government to do more.

How bad is telcos’ financial situation?

The condition of the telecom industry has been appalling and that is one of the reason why eight companies have gone out of business. $45-50 billion has been written off. Large corporations such as the Tatas, Telenor, Aircel and Reliance Communications have finally had to pack up and only three companies remain. The second- and third-largest operators, Vodafone India and Idea Cellular, had to merge just to survive. For us to say everything is hunky dory, will be wrong. Spectrum auctions went horribly wrong and were too expensive. Looking back, that money should have gone more into networks and creating a digital ecosystem rather than into the fiscal deficit filling of the government.

You are saying it is an industry-wide financial issue…

Absolutely. Everybody has debt. Airtel used to be comfortably less than debt:Ebitda (ratio) of 2; (now) we are at 4-plus.

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At what stage of an industry decline should the state intervene?

I have heard the finance minister talk about two industries — airlines and telecom — (saying) too much competition is also bad for the country. The question is, will they do something about it? I really don’t know. The government has limitations. We are hurting ourselves. We need to fix ourselves.

On one hand, you talk about acute financial stress. And then you have got a 22% rise in Jio’s profits. How do you reconcile these two numbers? Do you believe them?

You are not going to get me to say I do not believe in those numbers. The fact is, their accounting policies are very different from ours. But we all have to say they are doing well. They have created a reasonable pool of revenue. Expenses are still not fully backed into the equation as they still have some networks rolled out on the broadband side. Overall, even with their investment of $42-45 billion, what is the return coming for the industry? Not even a low single-digit return.

In hindsight, did big GSM players not wake up to the threat Jio was posing?

Never. In fact, if you recall, 2012 is when we launched 4G in Kolkata, clearly knowing what is coming. For the last three years, we have done a programme where we committed $10 billion in three years to roll out 4G networks. This March, we will complete the cycle and, in fact, it will be more than $10 billion.

How much of the Jio disruption is due to regulatory arbitrage?

Regulatory issues have been a problem for the industry. (But) I will not say regulatory issues have taken a large pool of our profitability, margins away.

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Does it hurt not being the number one operator in India anymore?

It does not hurt because for 20 years, I was number one. In a three-player market, if all three are sustainable, strong players, it’s okay. In the UK, Germany, Italy, there are equal operators.

Why has pricing power not returned despite India becoming a three-player market?

That depends on the new operator because he is subsidising a lot and it will be his call. Before Jio came in, pricing was Rs 300 a customer with a minuscule data consumption. Today, with 11-12x data, can we just get back to Rs 300?

It is eminently possible, but no one operator can do it. I think the government will be very happy if we can sort out our affairs ourselves.

Have you spoken to Mukesh Ambani and discussed why are we taking the industry down?

I meet him all the time. We have a very cordial relationship but he will have to run his industry and company. We have to run our company. We are, thankfully, financially very strong. We will raise more capital, sell towers, deleverage.





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