With the Empowered Group of Ministers (EGoM) is yet to decide on the mode of the crucial telecom licence auctions, Sistema Shyam Teleservices waits with its fingers crossed to regain the 21 licences it lost due to a Supreme Court order. Vsevolod Rozanov, president and chief executive officer, tells Katya B Naidu that as a CDMA service entity, their problems are only graver. Edited excerpts:
The EGoM is yet to decide on reserve pricing for the coming 2G auctions. Do you have any other concerns?
We expect the reserve price to go down significantly. The bigger issue is the recommended factor of two for the CDMA spectrum compared to the 1800 MHz spectrum. It would account for a six-times increase in the reserve price. They say CDMA spectrum is supposed to be more efficient. Theoretically, there is some efficiency in the spectrum, which I do not deny. But, it is much more difficult to do business in CDMA because the ecosystem is less developed and the Arpu (average revenue per user) is much less than in GSM. If the reserve price and the factor of two remains the same, there is absolutely no business case for us to continue.
Is there a case for lowering the reserve price suggested by the Telecom Regula-tory Authority of India (Trai)?
We believe the reserve price should be at the same level as the 2008 spectrum allocations. The Supreme Court’s ruling said the proper price of the licence should be discovered. I don’t understand how one can discover a proper price for a product which does not have any competition. We hope the EGoM will look into the matter from all angles, not just from the exchequer perspective. Even from the exchequer perspective, if no one participates, nothing can be realised.
Did you expect the Trai recommendations to be so tough?
No. The Trai recommendations are especially tough on new operators. It was clear by the time of publishing these that some operators had announced their exits. Among those remaining are three new operators—Idea, Uninor and us. None of us can be suspected of not being serious. It is not just the reserve price but the fact that they did not offer two slots in GSM which is also an issue. Players like Idea and Uninor should be given a fair chance to continue because they are already there and invested huge money, have millions of subscribers.
This is beyond my understanding. Also, re-farming of spectrum is not an issue for us, but we also understand that this framework seems to be tough for other operators and there is mutual support in this.
How are your shareholders reacting to these developments? Sistema Shyam also has a shareholding by the (government of the) Russian Federation.
There is significant concern from the level of shareholders, especially from the Russian Property Management Fund. They are frequently checking on the progress of the situation and are worried about the safety of their investments. There are no two opinions on that. Our other shareholder, Sistema, has also evoked the bilateral treaty. There is a six-month cooling off period before reaching an amicable solution.
Was the Supreme Court decision to cancel licences a bolt from the blue?
We are not very happy about the SC decision. If the government was wrong in applying the policies, it’s over-reaction to punish investors who came in to play by the policies. Before that, there was no policy in place for many years. It is not clear to me what I should be doing differently even if I was back in the situation in 2007 or 2008. It is a severe punishment for people who come in good faith and brought huge investments to an industry, where the returns are very remote.
Even after the cancellation, you have been launching new rate plans and advertising. Did you not feel the need to go slow?
There is no reason for us to go slow. At the end of the day, we had already invested so much while waiting for the decision that there is no point in slowing because it is very difficult to start over.
Would you apply for a pan-India licence or opt for fewer circles in the auctions?
The plan is to make a business case on a circle-by-circle basis. It will be a careful evaluation of the current performance and prospects.