Norwegian telecom company Telenor will have to write off USD 682 million on losses incurred due to the uncertain business environment in India's telecom sector. The company has also made it clear that if the recommendation from TRAI in its current form, was approved by the department of telecommunications (DoT), it will be almost impossible to participate in the auction.
In an interview with CNBC-TV18's Siddharth Zarabi, Uninor managing director, Sigve Brekke explains what is so worrisome about the business environment in India's telecom sector.
Below is an edited transcript of the interview. Also watch the accompanying video
Q: What is so troubling about the telecom sector in the country?
A: For two years now, we have been fighting everyday in the market, against competitors, for customers and it has been a tough ride and a lot of hard work.
But today it seems the environment is very difficult to continue with. If I factor in the the current recommendations of TRAI into my business plan for the future, it is unviable to continue operations in the country.
Q: What is wrong with the TRAI recommendations?
A: First of all, the recommendations are based on a future value of data spectrum. So, TRAI is trying to find a way to first put all regulatory issues that currently are being debated into a package.
Secondly, it trying to find out the future data play in this industry and based on that, derive everything back till today. That's why the reserve price for the 5 and 1800 megahertz spectrum is the discovery price for 3G.
All that is fine, but to take a future position into current situation is to take from the masses and give to the classes.
Q: Considering the fact that decision on this will be made within the next 7-10 days, the DoT said that by May 10 everything will be in place. Will Telenor’s board take a a decision soon after that?
A: We need to take it one day at a time. If the government is not coming out with its policy within the one-month framework as the Supreme Court has asked them to do, then we are talking about uncertainty in the coming three weeks.
Only after the one-month deadline set by the Supreme Court is over, we will make our decision.
Q: What is the reserve price for the auction that the TRAI has set for 5 megahertz in the 1800 band by your estimates?
A: The reserve price for the spectrum should be the same reserve price for the 3G as we went into the 3G auction week.
Q: The TRAI decides to make it 3G discovery price?
Q: Is that sensible?
A: No, it’s not sensible. Basing a spectrum value, for future data on a spectrum value for today voice does not work.
Q: For a company like yours who did not participate in the 3G auction, for a completely different band how sensible or logical is it to decide the reserve price, which is based on 3G discovery price, should be the price for all future auctions for spectrum?
A: No. it is not sensible. We cannot go in the past and find solutions today but you cannot go 20 years in the future either to find solutions today. The current objective for the government should continue to ensure tariffs are low enough for people to afford. Competition is big enough to increase penetration and that is the current demand.
When Kapil Sibal entered the 4G trial for one of the operator he said, “the reason why 3G has not been accessible so far is that we went way too high on the 3G spectrum”. The operators paid too much for the spectrum and they are not able to deliver those services.
Q: What is he going to do now?
A: There are three problems with the auction. One, 5 megahertz auction is not an auction but a price balloon. No where in the world an auction of 5 MHz has happened. What the government is trying to set an extremely high price that can be used for future auction. It doesn’t work for us.
Secondly, they came back with the old idea of rollout obligation that every operator needs to have in every village down to the level of 2,000 people. It basically don’t work.
Third,the reserve price.
Q: We call the rollout obligations, the rolling obligations in Indian telecom; they keep going back and forth?
A: Yes. If, I listen to what the government and the politicians are saying on telecom policy objectives, I agree to all of them. There are policies on increased penetration, reasonable voice tariff level and on the future. I agree to everything, but what TRAI has recommended is not aligned to those policies and it’s not aligned to what the Supreme Court said either.
Q: Why the TRAI did it?
A: You need to ask the TRAI about it.
Q: Is it fair for the regulator to create a situation where nine operators who had been additionally introduced face judicial action and then come up with a regulatory proposal which says that there will only be one slot available in the entire market?
A: This is not what the Supreme Court said. The Supreme Court asked the government and the regulator to issue fresh licences. Actually, the current proposed regulation is not dealing with what the Supreme Court said at all and that is worrying me. It is not aligned with the Supreme Court order.
Q: We also saw a unique situation where many old and new operators came out with a joint statement on their views on the TRAI recommendations? Are all the five operators worried about being priced out of the auction?
A: Absolutely. The whole Indian telecom industry is aligned on that front. Global GSMA, which is the flora for all the global GSM operators, is also agreeing on this issue. All of us have a business plan based on continuous growth and relatively low penetration figure in India compared with other countries and that is why all of us are in this market.
At the same time, we need to make a rational justification from our investment. If you take the prices and the auction, that is now being proposed, none of us are able to fulfil those targets.
Q: Does none of us mean larger companies as well, for the entire ecosystem rather?
A: We will leave the market if these recommendations become policies. Big guys are not leaving but they also need to make money in long term. I want to change peoples’ perception that telecom business is a rich cash cow in India. Actually, its not. The margins In India are poor when compared to other markets. After many years of operations, most of the players have not even achieved a breakeven. Indian customers today pay the lowest tariff. If the TRAI puts burden on operators that the only way to deliver is to put that burden on customers and that is not the objective.
Q: Do you feel that India treated you unfairly? You came in with high expectations, had a clean record and have become the most established and aggressive operator in the market?
A: I wouldn’t say that. The reason we came in this market two years ago was to increase competition and customer base. And that is exactly what we have done. We have fulfilled all the government obligations and that’s why we say that we have a long-term view. What we have seen is more or less what you can expect from this type of business. However, the current recommendation says that this is just not possible for us to build a business.
Q: You have made an investment of Rs 14,000 crore through equity and debt in Indian operations. You have also announced that the entire thing will be written off. Does it signify a larger picture of you taking a massive loss and possibly deciding to call it quits fully and finally?
A: Yes, It is correct that Telenor Group has announced that they are writing off the rest of their book value of the Indian assets. That’s a prudent accounting practice. It has nothing to do with quitting. When it comes to the real decision, I have to say, if these recommendations stand as they are we are forced to leave. There is no other ways of dealing with this.
Q: What kind of auction architecture would you feel is desirable?
A: It is difficult to answer because all different parameters are interlinked. We need to see the package in totality.
Q: What should be the guiding principle of the Government of India?
A: The following should be the guiding principles. Firstly, deal with the Supreme Court order. Secondly, see that the competition is not reduced. Thirdly, have a spectrum policy which deals both with voice and future data demand. Lastly, look after the interest of Indian consumers.
Q: Does Telenor Group investment written off impact your current joint venture. You also initiated a process to find a new partner and you also approached FIPB. Does the current situation alter your plans as far as that entire process is concerned?
A: No. All these are separation process with our current partner. The process of finding a new partner is an on going process. We don’t spend much time on these issues. We need to solve bigger issue like regulatory framework and if that allows us to continue, then we will get these issues in place as well.
Q: Are the efforts to restructure the corporate entity and Indian joint venture is on hold?
A: Yes. It’s not something that we are pushing right now because without a regulatory framework and future these issues become secondary.
Q: What would be the consequences of a pull out from India, both for Telenor Group from a financial perspective and how may jobs will be at stake? How will it pan out if at all that situation were to arise?
A: We have not decided to quit and have not made any exit plan. Now, we really need to focus on being vocal, having meetings, talking to media, being united as an industry and trying to give a specific input to the government in these coming three weeks.
Q: Will the five operators do more in the coming days to try and convince the government of their stance on the price of spectrum?
A: Yes. You will see us united as an industry in coming days to talk on specific issues.
Q: For time being, is it fair to say that the industry, at least five-six operators have papered over their business differences or the completion to fight as one joint entity because clearly if the industry or a part of this industry loses this battle the road ahead will be very difficult?
A: Regardless of the name or the market position, these recommendations are bad for every one. It is bad for the Indian consumers as well, and that is the fight we are fighting. Business fights are normal but right now we are united in bringing forward our views and arguments to the government.
Q: If a scenario arises, where large number of your customers find their networks switched off on some day. Porting request takes a lot of time and the entire porting business is not happening for the customer. Does that pose a danger to any customers who may be left out of their networks in the future?
A: Today, the porting mechanism in the whole industry is 100% in accordance with the TRAI regulations. We all are following the regulations which are set by the TRAI on this issue and the TRAI is supposed to take customers interest into consideration. However, there are relatively few numbers on this, much less than many people expected before the regulations were announced.
Q: Are you noticing an increase in porting request post TRAI recommendations?
A: No. We saw some increase after February 2, when the Supreme Court order came out, but that lasted only for a week or two and then it went back to normal. The marketwas functioning normally before the whole thing started with the Supreme Court order.
Q: Will you be comfortable with the situation where 15-20 Mhz is put up for auction which is directly linked to the 3G reserve price and not to the 3G discovery price and is conducted on an immediate basis. Would that somehow ensure that you would be possibly able to make a viable business case of staying on in India?
A: It is impossible to answer your question. The rollout obligations itself if they stand, is killing any other things on either the reserve price or the amount of spectrum. One need to look at this in combination.
Q: You means, its not only spectrum but rollout obligations which had been put on hold for many years and that would also be a huge complication going forward?
A: Correct. This is a complicated issue and we urge to the government to look at all these issues. It’s about price, spectrum allocation, floating, roll out obligation and future mechanism, like 900 spectrum fee refarming. This is a package which needs to be looked at.
Q: On a scale of 1-10, where 10 is an impossible situation, how confident are you about the Government of India being able to sort this out?
A: I am very confident that the Government of India will implement regulation which is in accordance with the policies that the GoI has announced.
Referring to national telecom plan, speeches and all the policies that I have been informed in the last one year. If those policies are seen in this recommendation then I am confident, but currently there is a big difference between those policies and what is actually being proposed.
Q: Have you received any reply from the government to the pre-arbitration notice that has been invoked?
A: No, we haven’t.
Q: Are they slipping any deadline or is there time left?
A: There is a six month consultation period that is more than enough time to have those dialogues. I haven’t expected any feedback so far.
Q: Clearly, therefore, no consultations or dialogues have happened?