Advisor to Prime Minister Dr Sam Pitroda feels Indian telecom companies are obsessed with valuations and market capitalisation.
Advisor to Prime Minister Dr Sam Pitroda feels that Indian telecom companies will go through a phase of consolidation now, post the excitement of the first telecom revolution. But, Pitroda, a technology expert who was credited with bringing about the IT revolution in India, says the arrival of broadband will trigger the next revolution in this space.
He tells CNBC-TV18 that the telecom sector will undergo a consolidation phase, wherein telcos let go of their hunt for subscribers and instead focus on transformation. “Everybody is looking at marketcap, everybody is looking at balance sheet, everybody is looking at ARPUs. But now that you are going to the next phase, there will be some transformation,” he said.
Reports suggests that strong signs of consolidation are already underway in the Indian telecom sector even as three service providers shut shop in the backdrop of the court rulings in multi-billion dollar 2G spectrum scam. In February this year, the country's apex court cancelled 122 mobile permits while passing a judgement on the ongoing investigations in the 2G scam.
However, Pitroda doesn’t feel that the telecom sector is facing some great danger. Instead, he says that telcos now have the chance to play in a role in the transformation of education, health, governance, delivery of public services and much more. “People are still focused on increasing number of subscribers, because that is how they have got their valuations up, but that story is over,” he said.
Pitroda says the next transformational phase for telecom companies, the next big leap, will come within the next three years.
Below is an edited transcript of his interview with Shereen Bhan.
Q: The government’s defense is that perception is far worse than reality as far as the India story is concerned, but people are not buying that argument anymore. The recent power cut incident tarnished India's image and reputation, in the sense it was the worst power outage the world has ever seen. As a member of the Prime Minister’s global advisory council, what is the sense about India at this point in time?
A: First of all let’s understand that India is a country of 1.2 billion. There is always something interesting, exciting, controversial and progressive goes on. The group of people as part of the Prime Minister’s global advisory council normally meets once a year. We also meet in small committees to take on specific subjects and topics to discuss.
This time the discussion really centered around four main areas. One is economic engagement, which includes business, trade, investment etc. We also discussed about philanthropy, knowledge sharing, education, science and technology, and about community engagement.
Q: But if you were to talk about India's economic engagement for instance, right after the budget practically everybody raised concerns about tax matters. We now know that the PM set up the Parthasarathi Committee to look at controversial tax related issues like GAAR and perhaps we will see Finance Minister P Chidambaram arrive at some sort of solution to deal with the Vodafone matter. How big is the tax concern now and have some of those apprehensions being allayed on the back of the steps that have been taken?
A: See we always look at short-term as well as long term. Short-term issues sometimes overshadow long-term perceptions and long-term realities. At the end of the day, India is still growing over 6% when everybody else is having all kind of concerns. Of course we are not happy that we have gone down to 6%, we would rather be at 8-10%, but those are the realities of life. So you can't really get totally hung-up on negative news all the time.
Q: As part of the global advisory council, is there a deep sense of pessimism with regards to the Indian story or is there more disappointment than hope and optimism?
A: I think as part of the global advisory council, people felt that we could do more. Lot of this publicity is unnecessary. All of these global advisors well accomplished individuals in their own right; Lord Bhikhu Parekh, Lord Bilimoria and we have similar stalwarts in every major region and we said these people should also communicate Indian stories.
Q: The talk has to be backed up with action and that seems to be the problem. When the Prime Minister took over the finance ministry, expectations were high, but at the end of the one month period not much has been delivered.
A: You cannot deliver in one month.
Q: Sure, I understand that, but I am just saying that it cannot be mere talk anymore.
A: I agree, but let me give you an example from my perspective. We have built the most powerful knowledge network in the last two years that anybody in the history of any country has built. It is a network to connect about 1,200 nodes with 40 gigabyte bandwidth. This connects all our universities, all our R&D laboratories and this allows us to collaborate in a very different way not within India but also with Europe, Asia, US and all.
Three weeks ago, I addressed 10,000 teachers at 170 locations in India sitting in Chicago. That is a very powerful tool. Nobody knows, nobody wants to talk about it, I don’t know why. This is a great story, you all have never covered it. This is a story which defines India of tomorrow.
Q: Are you disappointed with the way the Indian telecom story has panned out, are you worried? If you talk to the telecom companies’ CEOs, they will tell you that they are worried about the future of the Indian telecom business because of the cost escalation and so on and so forth. Do you buy that argument, do you think it is overstated?
A: Let me tell you I look at it very differently because I am not in the business of making money in telecom. First phase of telecom revolution has ended. We have 900 million phones, we are a nation of a collected billion. That whole ramping up and all the excitement is beginning to end. When that happens, there is always consolidation, confusion and some concerns.
Leaving aside corruption issues and all that, we are going through a very interesting phase in telecom because the second part of telecom revolution is about to begin. This is broadband, which is a network connecting 250,000 panchayats to optical fiber, which is about transforming education, health, governance, delivery of public services and much more. This phase is going to be much bigger than the first phase. People are still focused on increasing number of subscribers, because that is how they have got their valuations up, but that story is over.
Q: You are saying that it is a mindset issue as well as far as telecom entrepreneurs are concerned?
Q: So you don’t buy this argument that the Indian telecom sector is in danger, is in a precarious situation?
A: No, it is not in danger but it is in the phase where we would have to restructure.
Q: Restructure in what manner?
A: Consolidation. Lot of these people who just focused on increasing number of subscribers at any cost may not survive. There are lots of people who have very poor quality of service. You cannot expect each company to constantly keep on growing every time. It never happens.
Q: But these are companies that are listed in the stock market, these are companies where shareholders will ask questions every quarter if they don’t deliver?
A: You look at global companies today and ask yourself a question, where were these companies 25 years ago, 50 years ago. Some of them never existed and some of the big global companies 25 years ago died today.
Q: Are you saying that the Indian telecom industry is also perhaps being very tactical in its whole approach at this point in time?
A: That is true, because everybody is busy about today’s challenge. Everybody is looking at marketcap, everybody is looking at balance sheet, everybody is looking at ARPUs. But now that you are going to the next phase, there will be some transformation.
Q: Speaking of transformation, one of the arguments that we constantly hear is that the auction price escalation is going to force tariffs higher, consumers are going to suffer and at the end of the day, this Indian telecom ecosystem that we were trying to construct is going to suffer.
A: Well, first of all, maybe some of these people paid too much for the spectrum earlier in the last auction, we don’t know that. No one would have ever thought 20 years ago that India would have 900 million phones. So when you have that kind of ramp up, there is bound to be some amount of casualty and confusion, we cannot avoid that.
But we are a nation of a connected billion. We have low ARPU, which will have to be increased, customers will have to pay little more, service will have to be improved, all of these things will have to be done.
Q: But the government first had decided to give out spectrum for free, but hey have now decided to maximise revenues from the auction. Do you believe in either of these extremes or do you believe that we need to find a middle path?
A: We have to find a middle path. These two extremes don’t make sense. You cannot give spectrum free today nor can you charge so much that the operators themselves cannot survive in the long run.
Q: Do you believe they are charging too much, the kind of numbers that the government is talking about? Do you believe they are charging too much?
A: I do not know that. That decision will have to be made by various operators themselves those who are bidding depending on their business model, how they plan to use it and in what area. I think we give too much importance to personal issues of one group or another group of individuals in the larger scheme of nation building. I always say that companies are building companies. We are building a nation. There is a big difference between building a nation and building a company, so I don’t get too worried about it. There will be some fallouts, some people will get acquired, and that is okay. But we are already at a position here where everybody is connected and we have to take the next jump.
To take the next jump, the government is spending a lot of money, almost USD 3 billion, in building knowledge network. The government will be spending about Rs 30,000-40,000 crore in connecting panchayats to kickstart the next phase, but nobody is talking about that.
Q: When do you see the transformation phase, the next leap that you spoke about for Indian telecom? In the next three years?
A: Next three years it has to happen, it will happen.
Q: And you believe that we will see consolidation, perhaps even forced consolidation?
Q: I want to now talk to you about another area that you have been working closely with and that is the railways. I had a very detailed conversation with E Sreedharan, a man who’s looked at this space very closely, and he said that country must cry at the situation of the Indian railway.
A: I agree 100% with Mr. Sreedharan. He is absolutely right; he has much more knowledge of railways than I have.
Q: But what becomes of all these committees who present their recommendations, present their reports, because they gather dust at the end of it?
A: I agree with you, we should all scream. I think it is a crime not to implement those reports. I am very clear that modernisation of railways is so very necessary at this point in time, that without modernisation we cannot assure safety.
Q: In your conversations with the Prime Minister, in your conversations with other senior members of this government, what is holding us back? We know, we have the answers, we have had the answers for years in front of us, it’s a question of implementing and execution, yet nobody wants to make that move?
A: I think Prime Minister knows the challenge, he has the report. Dinesh Trivedi and I personally spent an hour with Prime Minister on this at one time, but we are caught in coalition politics.
Q: Is the Indian railway network in danger of a complete collapse at this point in time unless there is urgent intervention?
A: I won’t say complete collapse; complete collapse would mean no railways working at all. Railways have 1.3 million people, some who are very qualified and dedicated. They will make it work in some fashion.
But it is really putting patch on top of a patch on top of a patch. You can’t go on putting these patches all along, you got to really bring about generational change. Railways will survive, maybe there will be another accident, maybe there will be five more accidents but that’s not the way to look at railways. Here is an opportunity to take railways to the next level, because we have the technology, we have capabilities and we can mobilise investments.
Q: But do you see that happening?
A: Unless and until there is right kind of leadership in railways. Our systems are such that ministers apparently call the shot. If the minister is not really capable, if the minister is really not concerned, if minister has a different plan. If the minister doesn’t buy idea A or idea B because it’s difficult to push, I don’t know why the railway board can’t push.
Q: I want to talk to you about what has made headlines, not just in India but across the world. We had the world’s largest blackout, over 600 million people affected by the power outage that we saw. The Northern grid collapsed twice in over 24 hours, but all we have seen from the government as a response is the setting up of a committee which will look into this matter.
A: The point is it collapsed, so you have to setup a committee to look into it, there is no other alternative. You can’t say okay it collapsed and we won’t look into it, so then there will be criticism. You setup a committee, there is criticism. So the way you present is all government did is setup a committee to look into it. Ofcourse that’s what government should do, what else you could it do.
They couldn’t fix it overnight, I am sure they must have tried it. I am sure they wanted to fix this in 10 minutes, but it couldn’t be done for whatever reason. I don’t know the details, but the fact still remains that there was a blackout which was perhaps the biggest blackout in the history. I have read recently in some small group of scientists that it could be solar flare. I have been sort of trying to understand as a layman what it means and could it happen again and everybody is looking at this not just India because it could happen in US, it could happen in Europe anywhere.
Q: The image of India has taken a severe beating over the last twelve months. What are the foreign investors you speak with telling you? Would they rather go elsewhere or does the market size continue to trump all other challenges?
A: I think everyone looks at India in terms of opportunity because of its 1.2 billion population, with over 550 million below age of 25. Everyone wants India to grow at 10%, and as a result a lot of people are disappointed that the growth rate came down. People see policy paralysis, people see lack of clarity, people are concerned about lack of consistency and all of these signals are not good for investors.
If there was a very strong message from the government, industry, which is in tune with the growth, I think this thing can be turned around. Lot of it is perception, lot of it is concern because the growth rate is down. If we had same thing and growth rate of 11%, nobody will complain.
Q: As a man who has been bullish about the India story, as a man who has been part of the emerging India story, do you sit here as a disappointed man?
A: Not at all. I sit here as a man very excited about future of India. I sit here with a great vision for India. I have seen India from inside out and outside in, and I see great future mainly because of the young talent, because of democracy and because of the fact that technology today is a very critical tool for us to build new India.
Government must change, it cannot go on the way you it has. I have been telling the government that we need electronic filing. The Ministry of Information and Technology does not use computers - that is shame, but that is the reality. Nobody wants to use electronic file, electronic office; everybody still wants to use same old nadawali file. If you cannot get rid of nadawali file, you are not going to change.
Q: How does the nadawali file align to the vision that you have for India, because despite your best efforts the nadawali file continues to exist today?
A: Exactly, so some day it has to die. Earlier it dies, better off we are all.
Q: When do you see it die?
A: I would like it to die in next twelve months.
Q: You would like to see it die in next twelve months, but when do you realistically see it die?
A: I am trying very hard to say we got to implement electronic file. We also need to computerize our courts, our police, our prisons. We have all the tools. But we don’t have the mindset.
My real effort is to democratize information. I want to democratize information and when that happens, automatically there will be transparency.
Q: But that is the problem because you want to democratize information and those in power don’t want information to be democratized. That is not going to be a battle that they are going to give up on?
A: Yes, but that is not the battle I am going to give up also. Don’t get me wrong, they have their job to do, I have my job to do. I am going to fight because I believe India, and young India specially, needs to focus on tools of tomorrow. Young India can only survive by democratizing information.
Look what all of you do. When we started in Rajiv Gandhi’s time, we had one TV channel. I remember proposing a morning show for the first time ever on Doordarshan. But they said I don’t understand Indian reality, because why would anybody want a show in the morning when people want to eat breakfast and go to work in the morning. Today we are in much better position than we were in 1980s.
Q: May you fight that battle, may you continue to fight that battle and may you emerge victorious.
A: It is not about victory, it is about doing your thing.
Q: But it is about change and it is about changing India, so victory for you will mean change for India.
A: My entire life is dedicated to change. Change in technology, change in telecom, change in attitude, change in the sort of processes. It is not easy to talk about change in the Indian society, but you have to keep doing it. Sometimes it is a lonely battle.