'Jio-triggered shake-up to make telecom industry an oligopoly'

"Game-changing, redefining and transformational". That was the view of Former Airtel CEO Sanjay Kapoor when he was asked about the launch announcement of Reliance Jio.In an interview with CNBC-TV18, Kapoor said that Jio's launch of voice calls on the LTE network heralds a major change in the telecom industry and its entry will lead to a shake-up where only a few players dominate the market (in economic terms, an oligopoly).Former Telecom Secretary R Chandasekhar weighed in on the contentious issue of interconnect ports, and said that till there Jio launches commercially, it is difficult to judge to what extent it is legally binding for existing incumbents to provide interconnect.

Also, if there are no revenues during the testing phase it is tough to determine revenue sharing with existing players that are already commercially operational, he said.Below is the verbatim transcript of Sanjay Kapoor and R Chandrasekhar’s interview to Sonia Shenoy and Anuj Singhal on CNBC-TV18.Sonia: It seems like the time has come for all the incumbents to reassess their strategy on the whole and for incumbents like Idea Cellular, they are already reeling under so much debt that one wonders whether this spells a death knell for some of these companies? How have you read into the announcements that came through today and who do you think will get hit the hardest?Kapoor: That is quite a Trojan Horse question. It covers virtually everything that got announced today. First and foremost, I don’t think any one of us was expecting an incremental announcement by Jio. We all knew it will be a game changing, redefining and also transformational in nature and that is exactly what happened. A few things that have happened today, first and foremost, at least from an announcement positioning perspective, it seems as if voice will become free for life for everybody whereas I don’t believe there are any freebies, there is somebody who pays for it and in this case the customer is paying for it. He is not paying for voice but he is paying for data because you are now being charged everything on an Internet Protocol (IP) network for data and therefore voice is also an application which will be build like data. This also means that it is a sun-setting calling-party-pays regime because in calling-party-pays regime, when it was not on data, only one leg paid; the calling party paid. However, the receiving party didn’t pay. In data, both receiving party and calling party will pay because data gets consumed both ways. Second, this is also the beginning of bucketised plans in India like rest of the world especially developed part of the world where you pay one bundled price and that one bundled price gives you all the offerings that the operator wants to bundle which is voice, which is messaging, which is any other application and data and that is what we are moving towards.Now, what this brings is the granularity factor. You remember when we had a one minute call in this country, there was a round off advantage that all operators had because nobody made exactly a one minute call and therefore a granularity set in and with one second granularity in pulse, that came to an end. However, in a bucketised plan everybody doesn’t consume the full stuff. So, there is some bit of granularity that is back into the play that had got extinct or removed from the industry a little while back. Finally, the biggest thing that is happened in the industry today is a choice that all operators, including incumbents have to make on technology. The new challenges in the market has come with an IP based technology and therefore has got a clean slate on using one technology and no other competition. The incumbent operators have built networks over time and there are Time-division multiplexing (TDM) networks and there are IP networks. So, there is 2G, there is 3G, there is 4G and they now have to make a choice to say how do they tackle the new IP situation, do they kill 2G, do they kill 3G, do they keep 3G and 4G and kill 2G. So, there are many of these strategic choices that are there in front of them and unless and until they take those choices to build all IP networks in future will not be possible. Many of them have been making very dismal investments after buying very expensive spectrum in India and now there will be a call on the table to say we need to now cover up because we need to make fully IP based networks with fiberised backbones and that is another change. Anuj: The other point here is, as you said, some of the companies will need to now sit on table and see what they have to do. The other big point is do you see a fairly rapid move in terms of consolidation and just two or three big players emerging and rest all merging or having some kind of tie-up. Do you see that happening in the near future itself? Kapoor: Sometime back the structure of the industry with sell out of spectrum, etc and closure of some of the operators has clearly moved from being a perfect competition to oligopoly; I think that has already happened that this will be an industry where three to five players will be there, couple of players will make money and rest of them will really struggle hard to make money. I think that is a given in this industry now. I don’t see more than three to five players surviving in this industry even in a large country like India. The good news is that nowhere in the world one plate takes it all phenomena works. So, there definitely will be room for three or four operators in the market with two people making money and rest of them always trying hard to get some money out of the business. So, I think that structure transformation has already happened.Sonia: I wanted to ask you about the comment that Mukesh Ambani made where he urged incumbent telecos to play fair. Now this brings us back to that interconnect debate. September 5 is in all probabilities not the commercial launch of Reliance Jio, so, in a sense incumbents do not really need to provide the interconnect services to Reliance Jio and that is the grouse that Mukhesh Ambani has that they are not providing interconnect services so calls are dropping regularly. How do you think that Department of Telecom (DoT) will respond to this? Chandrasekhar: I think this has to be seen within the ambit of the regulatory environment and the regulatory provisions and the licensing provisions because till such time as there is a commercial launch, it would be regarded as a trial and the obligation on the part of the existing players to actually provide that interconnect and if so on what terms are questions which will have to be viewed from a legal prism rather than from a perspective of what is good for them to do or what is good for this player or that player. I think that is really the question whether at the stage of trial, the obligation to provide interconnect and if so on what terms, to what extent that is legally binding, that is the real question. Sonia: Reliance Jio has in a sense been evading the payment of revenue share to the government by terming this entire launch as beta testing. Do you think that is something that the DoT will take up as well? Chandrasekhar: To put it in a proper perspective, I would not term it as avoiding paying revenue share. The question is whether you are getting revenue or not. If you get the revenue, you have to pay a share; if you don’t get the revenue then your share in an arithmetic sense is zero. So, the real question is whether any of the consumers, even in the trial phase are being charged anything and if so then that would amount to revenue. However, if they are not being charged then really speaking there is no revenue and therefore no revenue share obligation flows from that operation. The second thing is that, to the best of my knowledge, at the stage of a pilot or a testing when there is no revenue then some of these conditions may or may not be applicable, probably not applicable. So, that is I think how it needs to be viewed. So, if somebody is not making revenue then the question is whether when the interconnect is provided, what would be the terms on which the revenue share would happen between such a player who is offering free services on a pilot basis and the existing players who are using their existing commercial networks because they would certainly expect and probably justifiably so that they would get whatever would be the normal share that they would get when they offer such interconnect facility.(Disclosure: RIL owns Network18 which publishes moneycontrol.com)