 "Broadband segment is rapidly expanding and there is room for more: Jerome Booth")
New Call Telecom, a UK-based internet service provider (ISP), has acquired a controlling stake in India-based Nimbuzz that offers call and messaging services. Chairman Dr Jerome Booth and author of Emerging markets in an upside down world tells Puneet Wadhwa the telecommunications market in India is underserved in the broadband segment. He says the acquisition will build market presence and help bring broadband to the people, in line with the Centre's Digital India vision. Excerpts:
How much have you invested in India. How much more will you in six-12 months?
It’s difficult to answer. One, there are commercial pacts I have signed. This means I can't give numbers of how much I have invested. I announced a few weeks ago we will be putting in an initial $100 million. This acquisition has been valued at a level in the press. This does not mean we have put in that much but we are investing a significant sum.
Why India?
One argument for emerging markets is these give diversification. But I am buying controlling interests, so cannot spread too wide. I am investing more in India than in any other. One needs focused approach while investing in controlling interests.
If I were cryogenically (relating to the production of very low temperatures) frozen for thirty years, and had to invest all my assets in a country (and that could not be where I lived or had my liabilities), I will be looking at nations with strong institutions. I will also be looking at those with large growth potential, large hinterlands and where there is consumption-driven growth. India falls under these categories.
Others like Brazil may be on the list but they are suffering from much lower levels of growth. I don't expect much structural reform in the country and the growth could be three per cent during the next presidential period. But China has much more potential. However, there are risks that aren't in India. Others I will be looking to are Indonesia. I see it as a huge market like India.
India has a lot of things going for it. We have a new government at the Centre and a capable central bank with a credible leader. The government is pro-reform and pro-poor. People expect Prime Minister Narendra Modi around for a decade (in power). Now everyone, including those not pro-reform, are pushing in the same direction. That's a encouraging for us.
Why Nimbuzz? How does it fit into the India plan?
Nimbuzz has 200 million users in 210 countries and is a business that will play a key role in our strategy My Digital Life, about providing digital service in home, office and public space. The significant customer base in India of 40 million will enable us to build market presence in our strategy of helping bring broadband to the population of India, in line with the Centre's Digital India vision.
Are you looking beyond telecoms?
I am investing in telecoms as it is where we have a presence in the UK, where New Call is the sixth-largest internet service provider. We are investing as a phone company and not as an investor. Among all infrastructure and related sectors, telecoms is by far the fastest-growing.
But don't rules hobble investments?
The telecoms sector is regulated well. The rules are similar to the UK's. The regulatory structure has been designed to encourage competition for the benefit of the end-consumer. And there is a similar philosophy and approach here.
Which companies are you targeting here? Will you expand into e-commerce?
I can't mention names. We are invested in the public Wi-fi and fixed-line broadband spaces. We are trying to build more income streams round these. We are excited about e-commerce and the revenue streams starting in India.
The timing of your investment. Why now? Were you waiting for more clarity on policies?
We were not waiting for the new government, but it is a plus. The cry here in India is there is an urgent need for much more infrastructure, and also affordable housing. I am interested in TMT. The growth levels of Indian economy have been held back because of lack of confidence over government policy and high interest rates before Raghuram Rajan took over as the Reserve Bank of India (RBI) governor. All this, in turn, led to lack of domestic investment. I think there will be a lot more investment coming through and that's why we are positive.
Do you think the Indian telecom sector could see consolidation / mergers and acquisitions over the next few years? Why does India need New Call?
While there is great technical expertise in the sector, the one thing we bring as New Call Telecom is understanding of marketing and a better understanding of how to generate a range of different revenue streams as opposed to focusing on just one or two.
But the structure of the industry is also important. There are a number of smaller players constrained by lack of capital, and then you have the bigger players.
The interesting thing is that the bigger players have focussed on mobile phones and have sunk billions of dollars into mobile phones - both in licences and other investments. They need to recoup that investment and they're very focussed on that. Meanwhile, not many have paid attention to the broadband that India requires. The market, I believe, is very under-served in broadband. And this is a good, exciting opportunity to be in.
I see big operators continuing to focus on mobiles and don't see them just as competition but as partners. This is similar to what we have been doing in the UK. We are smaller than other players in the UK like Virgin, Sky, and British Telecom (BT). We have not just managed to compete with them in some business areas but actually helped them in many ways. And this is true for India as well where we can help with such things as wifi offload. There are a lot of calls being routed through wifi and we can help these bigger companies actually deliver better service to their customers. Broadband is a very rapidly expanding space - a positive sum game. There is room for more players here.
But excessive regulations in India could be an impediment for growth?
I don't think there are too many regulations in the telecom sector. We have another transaction here in India which is under regulatory review. This takes time. But the basic framework allows us to do what we want to and be competitive.
We have already seen a radical decision by the Supreme Court on coal block allocations. What if something similar is delivered on the 2G spectrum allocation case? Will you look at India in a different light then?
I don't want to comment on the detail, but the principle of having legislation that has a retroactive impact governments in any sector and in any country should think very carefully about. It has a very damaging impact on the image. If there are capital controls, long - term funds, pension funds are hesitant to invest in a country. So, very simple, clear and pro-active messages are important from the government and policy makers. The message from India is that it is open for business and one would be foolish to mess around with that. There have been historical cases in the telecom sector in India - tax related issues and regulation related issues. These are things of the past. The message now being conveyed by the government is that India wants to do business.
Is the government listening?
It is not my advice which matters most. I have faith and trust in this government, which needs to follow its own good sense, and that's happening. Development is not primarily a technical set of problem. The answers to economic questions are not unknown. Rather, there are many examples where ownership of an idea is the key to success. People are getting impatient for the government to deliver on reforms but they need to realise that for reforms to happen, one needs to get all stakeholders on board and then move forward. This will take time. I am hopeful that's exactly what's happening right now. The local (State) election results have boosted the government's credibility, and that also helps everybody support the government's pro-reform pro-poor agenda.
How much have you invested in India. How much more will you in six-12 months?
It’s difficult to answer. One, there are commercial pacts I have signed. This means I can't give numbers of how much I have invested. I announced a few weeks ago we will be putting in an initial $100 million. This acquisition has been valued at a level in the press. This does not mean we have put in that much but we are investing a significant sum.
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We plan other acquisitions. If things work out well, I could expand this investment position significantly. But I don't expect that to happen this year. I have a great interest in the sector - technology, media and telecommunications (TMT) more widely and India and Asia more generally. There is huge potential of doing more what we are doing. But first we have to show what we are doing is right.
Why India?
One argument for emerging markets is these give diversification. But I am buying controlling interests, so cannot spread too wide. I am investing more in India than in any other. One needs focused approach while investing in controlling interests.
If I were cryogenically (relating to the production of very low temperatures) frozen for thirty years, and had to invest all my assets in a country (and that could not be where I lived or had my liabilities), I will be looking at nations with strong institutions. I will also be looking at those with large growth potential, large hinterlands and where there is consumption-driven growth. India falls under these categories.
Others like Brazil may be on the list but they are suffering from much lower levels of growth. I don't expect much structural reform in the country and the growth could be three per cent during the next presidential period. But China has much more potential. However, there are risks that aren't in India. Others I will be looking to are Indonesia. I see it as a huge market like India.
India has a lot of things going for it. We have a new government at the Centre and a capable central bank with a credible leader. The government is pro-reform and pro-poor. People expect Prime Minister Narendra Modi around for a decade (in power). Now everyone, including those not pro-reform, are pushing in the same direction. That's a encouraging for us.
Why Nimbuzz? How does it fit into the India plan?
Nimbuzz has 200 million users in 210 countries and is a business that will play a key role in our strategy My Digital Life, about providing digital service in home, office and public space. The significant customer base in India of 40 million will enable us to build market presence in our strategy of helping bring broadband to the population of India, in line with the Centre's Digital India vision.
Are you looking beyond telecoms?
I am investing in telecoms as it is where we have a presence in the UK, where New Call is the sixth-largest internet service provider. We are investing as a phone company and not as an investor. Among all infrastructure and related sectors, telecoms is by far the fastest-growing.
But don't rules hobble investments?
The telecoms sector is regulated well. The rules are similar to the UK's. The regulatory structure has been designed to encourage competition for the benefit of the end-consumer. And there is a similar philosophy and approach here.
Which companies are you targeting here? Will you expand into e-commerce?
I can't mention names. We are invested in the public Wi-fi and fixed-line broadband spaces. We are trying to build more income streams round these. We are excited about e-commerce and the revenue streams starting in India.
The timing of your investment. Why now? Were you waiting for more clarity on policies?
We were not waiting for the new government, but it is a plus. The cry here in India is there is an urgent need for much more infrastructure, and also affordable housing. I am interested in TMT. The growth levels of Indian economy have been held back because of lack of confidence over government policy and high interest rates before Raghuram Rajan took over as the Reserve Bank of India (RBI) governor. All this, in turn, led to lack of domestic investment. I think there will be a lot more investment coming through and that's why we are positive.
Do you think the Indian telecom sector could see consolidation / mergers and acquisitions over the next few years? Why does India need New Call?
While there is great technical expertise in the sector, the one thing we bring as New Call Telecom is understanding of marketing and a better understanding of how to generate a range of different revenue streams as opposed to focusing on just one or two.
But the structure of the industry is also important. There are a number of smaller players constrained by lack of capital, and then you have the bigger players.
The interesting thing is that the bigger players have focussed on mobile phones and have sunk billions of dollars into mobile phones - both in licences and other investments. They need to recoup that investment and they're very focussed on that. Meanwhile, not many have paid attention to the broadband that India requires. The market, I believe, is very under-served in broadband. And this is a good, exciting opportunity to be in.
I see big operators continuing to focus on mobiles and don't see them just as competition but as partners. This is similar to what we have been doing in the UK. We are smaller than other players in the UK like Virgin, Sky, and British Telecom (BT). We have not just managed to compete with them in some business areas but actually helped them in many ways. And this is true for India as well where we can help with such things as wifi offload. There are a lot of calls being routed through wifi and we can help these bigger companies actually deliver better service to their customers. Broadband is a very rapidly expanding space - a positive sum game. There is room for more players here.
But excessive regulations in India could be an impediment for growth?
I don't think there are too many regulations in the telecom sector. We have another transaction here in India which is under regulatory review. This takes time. But the basic framework allows us to do what we want to and be competitive.
We have already seen a radical decision by the Supreme Court on coal block allocations. What if something similar is delivered on the 2G spectrum allocation case? Will you look at India in a different light then?
I don't want to comment on the detail, but the principle of having legislation that has a retroactive impact governments in any sector and in any country should think very carefully about. It has a very damaging impact on the image. If there are capital controls, long - term funds, pension funds are hesitant to invest in a country. So, very simple, clear and pro-active messages are important from the government and policy makers. The message from India is that it is open for business and one would be foolish to mess around with that. There have been historical cases in the telecom sector in India - tax related issues and regulation related issues. These are things of the past. The message now being conveyed by the government is that India wants to do business.
Is the government listening?
It is not my advice which matters most. I have faith and trust in this government, which needs to follow its own good sense, and that's happening. Development is not primarily a technical set of problem. The answers to economic questions are not unknown. Rather, there are many examples where ownership of an idea is the key to success. People are getting impatient for the government to deliver on reforms but they need to realise that for reforms to happen, one needs to get all stakeholders on board and then move forward. This will take time. I am hopeful that's exactly what's happening right now. The local (State) election results have boosted the government's credibility, and that also helps everybody support the government's pro-reform pro-poor agenda.