" We will go for acquisitions if they're financially good"

A TELECOM CZAR BREAKS HIS SILENCE

Sunil Bharti Mittal

Sunil Bharti Mittal's schedule has been hectic during the last few months. Last fortnight, the 46-year-old chairman of the Rs 4,000 crore Bharti group inked a $ 250 million deal with IBM to outsource the group's entire IT infrastructure to Big Blue.

That comes close on the heels of a $400 million deal with Ericsson to outsource and manage the group's mobile infrastructure. Amidst all this, Mittal has been on the prowl for more telecom companies after his abortive bid to buy Escotel (Idea Cellular bought Escotel).

He is now in talks again (talks had earlier broken down) with the Shyam group to buy its Rajasthan circle. What is more, the Bharti group is dialling into uncharted terrain "� aviation infrastructure. It is partnering Singapore's Changi Airport to bid for the Delhi and Mumbai airports.

In a rare hour-long meeting at Razia, the room where he meets visitors at the Bharti group's office in New Delhi, he spoke to ICE World on his future telecom strategy, even as he checked the latest Indo-Pak cricket match scores.
Excerpts:

Competition is hotting up in the telecom industry. Reliance has taken a leadership position in terms of subcribers. Hutchison-Essar is closing in on many markets "� it is far ahead in Kolkata and Mumbai, for example. What is your strategy?

Competition is much less now; there is more stability, there are no major shocks in the marketplace and everyone is realising that there is growth for the top four players. Bharti's main task is to get into a leadership position in the circles where we have lost out in the last two years "� such as Maharashtra, Gujarat, Kerala and Tamil Nadu.

Otherwise we are getting a 22-25 per cent market share. We are today by far the number one. If you look at our revenues, they are approximately 30 -40 per cent higher than those of Hutchison and 50 per cent higher than those of Reliance.

But Hutchison is either catching up with you in the metros or leads there. How do you tackle this challenge?

In Delhi the gap (with Hutchison) was over 3 lakh. Now the gap is under 2 lakh but it is the biggest gap anywhere in the country. We also took a corporate decision to clean up a lot of our numbers in Delhi.

In Chennai, we are much ahead. In Mumbai, we are catching up "� in fact, every month we are doing better than BPL. Also, in Mumbai Hutchison has a 9-year lead over us and that you cannot wish away overnight.

Our idea is to get to the number two position in Mumbai by this year, without any acquisition. If we do an acquisition, it will be faster. In Kolkata we have been number two for the last two years. Our strategy is to be number one or two. Wherever we are number three or below we need to pull up.

How do you plan to do this?

We have rolled out networks in more cities in Kerala, Tamil Nadu, Maharashtra, Gujarat and Andhra Pradesh. In each of these markets there is a weak player and hopefully we will be able to buy some of them.

What will determine your acquisition strategy?

All acquisitions are value based "� if they are financially good we will go for them. For instance, if Rajasthan happens (the takeover of the Shyam group's licence) it will happen in the next two weeks or so.

Are you looking at acquisitions in the metros?

There is no "only metro" player available. For instance, BPL is a metro player but it also has three circles. If we buy anything, we will buy the whole piece, not a particular city or circle. When companies are getting out of businesses, they want to get out of all the places.

As you see it, what would be the acquisition price of even the smallest "piece" which may be on offer?

It is fair to assume that the smallest piece would cost upwards of Rs 1,000 crore, the exception being if you are only doing a deal on Rajasthan.

What kind of subscriber growth targets you are aiming at?

We don't give any projections, but analysts are talking about 100 million customers by March 2006. And we are looking at a 25 per cent market share.

You had earlier told ICE World that four telecom companies or groups would survive "� Reliance, the Bharti group, BSNL and a combination of the others (which would include the Tatas, Hutchison and Idea Cellular), with each having a 25 per cent market share. But the scenario seems to be different now "� Hutchison is here to stay as a separate entity. How do you see the market now?

For some time I think we will have 5 players, though I still believe that eventually there will be four. As far we are concerned, we still want a 25 per cent market share. We believe that the top two will (together) have over 50 per cent of the market and we will be one of them.

My confidence is based on the fact that 85 per cent of the new (subscriber) additions are going to the top three.

How much money will you have to invest to reach the magic growth numbers?

Typically our company spends Rs 2,500-3,000 crore every year and this will continue. Most of it will come from internal accruals, some from debt. If the government allows 74 per cent foreign equity in the telecom industry, we will do an ADR.

I believe we are an international company and this needs to be seen more closely by the international community. Only nine companies in the world have more than 25 million customers. Bharti will join that group.

Your subscriber base is growing rapidly. So will your next strategy be to increase ARPUs (average revenue per user)?

We are not overly bothered about ARPUs. We believe that every customer adds to our bottomline. If customers are coming at Rs 300 a month, they are most welcome because they add to our bottomline. We make money at Rs 300, on a marginal costing basis.

But in the fixed line business we expect a minimum ARPU of Rs 1000 a month. There we have to worry about ARPUs because there is a cost of connection to customer premises. In mobile telephony, most of the cost is available as a common pool and people can use that resource.

You did a major deal with Ericsson "� you have outsourced the management of the network to it.

We realised that there is an inherent contradiction between buyers and sellers. The equipment makers always want us to buy more equipment. We want to buy less equipment. They know the technology, they are the best people to run the networks. So by outsourcing the network we have taken away an area of conflict.

They plan the network's growth and they deploy it. We pay according to the traffic for the equipment. So theoretically if they can run a network with one base station I am happy. We pay for the output of the equipment. So is if a base station is put up and it is not utilised, they don't get paid.

Do you save on costs and will cash flows improve?

We have got a lower price because we signed a three-year contract. Of course the cash flows improve because we don't make an upfront investment. We have decided now that all network providers have to come under the same format.

Will you extend the same outsourcing formula to fixed line telephony?

The growth in fixed line (subscribers) is much more modest than is the case with mobile phone (subscribers). But currently there are no such plans. I have had calls from top operators asking us for more details and I think this will change the telecom industry. IBM moved from being a hardware company to a global services company. This move will be the first step of the telecom industry in the same direction.

The whole process has simplified the jargon. So if anyone in our company says that we want to grow from 6 million to 12 million, all we do is to say okay, there are so many customers, these are the expected minutes of use, convert then into lakhs and then into dollars. It is a flat 5-minute job. So the whole costing procedure has been demystified.

The number of your fixed line has grown slowly. Is this the result of a conscious decision or is it a business you will eventually exit?

Our policy in fixed line is to seek very high ARPUs and concentrate on small and medium enterprises, companies and high-income residences. Our strategy has been to have an additional 20,000-25,000 fixed lines a month.

With unified licenses being offered, we will start rolling out networks in some more circles. Our ambition is to grow from 600,000 fixed line subscribers to a million by the end of this year.

That is not ambitious at all.

Yes, but it is giving us Rs 1,000 crore in revenues. So it is a sizeable business. There are not to many business operations in India which generate this kind of revenue. The whole of Oberoi Hotels will be Rs 600-700 crore.

In comparison to mobile services, fixed line services looks small. But the revenues of the fixed line division will make it among the top 10 service companies in the country already.

Do you derive any other benefits from running the fixed line business?

They are my customers for broadband services, they use my ILD (international long distance) and NLD (national long distance) pipe and, more importantly, use my all-India network. The fixed line phone has become a rich man's phone "� that is the amazing story. The mobile phone is a poor man's phone "� which it was never intended to be.

The convergence of data, voice and video is clearly the main focus area for the next few years. The Tatas are investing in DTH, while Reliance Infocomm will use broadband. What is your gameplan in this area?

We have no interest in broadcasting. Setting up a platform is not our core business. And I don't know why a telecom company should look into this at all. We are in the broadband arena "� we have DSL subscribers.

I would like to see one telecom company in the world that has successfully got into broadcasting. Vivendi was the only company that went into both and it is facing problems. Cable operators are not happy if you enter their turf. So it is best to do what we know best.

The growth of broadband services in India has been appallingly slow. What do you think is the key to subscribers switching to broadband services more quickly?

Unbundling of the last mile is the key. BSNL's network must be made available at a price to anyone who wants to offer broadband services.

Did it make sense for you to jump into the ILD business?

The Rs 100 crore investment in ILD is small and has certainly paid for itself. Also, our strategy of having our own ILD rather than depend on Videsh Sanchar Nigam Ltd was sound.

You have also spent substantial amounts on your undersea cable project even though excess capacity exists all over the world. Was this wise?

Without the undersea cable, our entire ILD and bandwidth plans would have run into serious trouble. VSNL went to the Tatas, Flag to Reliance. So we are today very pleased that we have insurance through our own cable. More importantly, it provides us with a lot of bandwidth.

Isn't this form of insurance costly?

Look at Reliance, it spent over $ 200 million to buy Flag "� and they don't control the Indian landing station. You need to have your own infrastructure when you are a large player. Our investment in the SeMeWe 4 cable project to Europe will make us totally independent.

But does it makes sense to duplicate infrastructure and raise costs?

We also share some infrastructure. The question is right: why should one create duplicate infrastructure? But you can only share in India if you have everything of your own "� otherwise nobody bothers about you.

Where is the global system for mobile (GSM) versus code division multiple access (CDMA) battle going?

General packet radio switching (GPRS) is getting interesting. The problem earlier was that there was not much content. GPRS will account for 5 per cent of post-paid customers. I went to Cannes "� GSM is the buzzword. CDMA was not even mentioned at Cannes.

You are now venturing beyond the telecom industry into aviation infrastructure. Why have you done this?

We have a strong winning combination (with Singapore' Changi airport). Their product is world class and they are near us. It will possibly be a $1 billion project. We have to find our "� we need $ 100-200 million.

We like infrastructure, we have developed telecom infrastructure, airport infrastructure has huge issues of regulation like in telecom and we understand that. I think it has a big customer interface, like in telecom.