Next target cash break-even by end of Q4 of 2014: Dmitry Shukov

Q&A with CEO, Sistema Shyam Teleservices

Sistema Shyam Teleservices, which bought 3.75 MHz of spectrum in the 800-MHz band in the March 2013 auction, now wants atleast 1.25 MHz more to offer services using long-term evolution (LTE) technology on the 800-MHz band.

Backed by Russian conglomerate Sistema, the CDMA operator wants the price of the 800-MHz band 65% lower than the 1,800-Mhz. Chief executive officer Dmitry Shukov speaks to Surajeet Das Gupta and Sounak Mitra on its spectrum requirement and expansion plans. Edited excerpts:

When every other operator is shifting from CDMA, you have decided to stay as the lone CDMA operator. You have also said you need more spectrum, against the recommendation of the Telecom regulatory Authority of India (Trai). The recent auction has proved spectrum will not come cheap. What is your strategy?

We have always said we will need spectrum for growth. The recent auction is impressive. But the auction was successful because of the right pricing of spectrum. The government should keep the prices reasonable and let the market decide.
We reiterate our earlier views.

The reserve price of the 800-MHz band should be 65% lower than the 1,800-MHz band. The government might also get more than one participant in the auction of the 800-MHz band if the price is realistic. The previous auction failed because of unrealistic reserve prices. There should be a level playing field and the same formula should be followed for valuation of the 800 MHz.

You want to provide LTE services on the 800 MHz. How feasible is that and how much spectrum do you need?

The ecosystem is not there for the 800 MHz. Also, there is not contiguous spectrum available in the 800 MHz. Without contiguous 5 MHz spectrum, providing LTE services is virtually impossible.

Then, why did not you take part in the auction of the 1,800-MHz and 900-MHz bands?

We did not bid for the 1,800-MHz and 900-MHz bands, as it does not fit our strategy. The transition to LTE from CDMA platform is smooth, as experienced globally.

So, what’s the next step?

Now, with spectrum-trading and -sharing policies, we can use all combinations to offer seamless services. We have already launched Revision B (Phase-II) that is much better than 3G services. We can give better data services, as we can keep data and voice separate. Data connectivity suffers because of prioritisation of voice.

We first need the next carrier of the 1.25-MHz spectrum to take our total spectrum holding to 5 MHz in all operating circles in the next auction of the 800-MHz band and then can look at harmonisation.

Once we acquire the next carrier, we will use it for data first to increase speed up to 15 Mbps in a month, up from 9.5 Mbps at present. We have everything ready with us. We just need to upgrade the software. Our next target is cash break-even by end of the fourth quarter of 2014.

So, LTE is not on cards in near future.

LTE might not be possible before harmonisation. So, we are waiting for clarity in regulations. Our operating expenses will be lower as the 800 MHz spectrum has better and stable in-building reach and it requires lower number of base stations.

You trimmed your operations last year to just nine circles. Is there a plan to expand pan-India again?

If the reserve price is realistic, we’ll go pan-India. India is a huge market and we’ll get customers.

With Reliance Jio entering and all other operators planning LTE services on the 1,800 Mhz band, how much scope do you have?

With internet reach at around 20%, there is huge scope in India for data services. We’ll continue to focus on data and invest in smartphones with big screens. We are already working with a lot of handset makers, including Micromax, to bring dual-SIM (GSM and CDMA) smartphones at around ~6,000 and ~8,000.

Prices are likely to drop further. And, your avreage revenue for each user (ARPU) is much lower than the sector average. How will you sustain?

The price battle is not sustainable for long and prices is unlikely to drop further. We expect these to go up, otherwise the telecom sector will suffer. About 35% of our revenue comes from data, which is far ahead of the sector average. Our ARPU is Rs 95 at the moment. Our price is stable and acceptable for majority of data users.

You will require funds for buying spectrum and expansion. Are you looking at loans?

We are yet to take a call on possibilities of new funding. India is the best place for investments in telecom, considering the untapped opportunities, but spectrum should be available to potential investors and regulations should be stable for long-term investments.

Will acquisition be the route to expand nation-wide? Are you looking for buy-outs?

Yes, we are open for acquisitions and open to talks. The market is bound to consolidate over the next two-three years and we will be a consolidator.

You are one of the companies to have 100% control in their Indian arms. Is that a conscious decision?

We are happy with our investors and 100% ownership is not a priority. We already have control in the Indian entity.