It’s been a tough ride for Russian conglomerate Sistema in Indian telecom sector since it entered in 2008. Its Indian entity Sistema Shyam TeleServices, which markets CDMA mobile services under the brand name of MTS in India, had to scale down operations after its pan-India operating permits were quashed by a Supreme Court order for alleged irregularities in spectrum allocation in 2008.
But, Sistema decided to stay back in India and opted to operate in select nine circles. In March 2013, the company bought fresh 3.75 MHz of spectrum in each of eight circles — Delhi, Kolkata, Gujarat, Karnataka, Tamil Nadu, Kerala, Uttar Pradesh (West) and West Bengal for Rs 3,639 crore (it already had spectrum for Rajasthan circle).
As part of its fresh start in the world’s second largest population, Sistema brought Dmitry Shukov as the new chief executive officer for Sistema Shyam TeleServices. In an exclusive interview with Surajeet Das Gupta and Sounak Mitra, Shukov said the company aims to break-even by fourth quarter of the next fiscal year. Edited excerpts:
It was a tough ride for Sistema in India. And you came at a time when the company had to start afresh replicating a trimmed down model. How different is the strategy now, considering the fact that the market has become more competitive?
A: We decide to continue as we think that this market is very important for us and the decision was crucial. We also gave time to neutralise our business, kept our people and team intact. We were undecided about what should be the next course of action for about a year. But, now, we clearly know that we will continue and we have very serious and ambitious plans in India.
However, I think that Indian market is bound to go through consolidation. Nationwide or in any particular territory, existence of 10 or more operators is not feasible. This is a tough market, and efficient use of spectrum is very important. The market will eventually consolidate to a maximum three to five operators pan India.
So, what would be you focus now?
Voice market is flat and we have decided to focus on data. Also, CDMA gives better seamless data connectivity than that of GSM networks. And, we will continue to focus on data.
But, how will you compete with the incumbent 3G services and also Long term Evolution (LTE) services which is already launched by Bharti AIrtel and Mukesh Ambani’s Reliance Jiyo is planning to roll out early next year?
Now, we are planning to launch Revision B (Phase-II). This will offer much faster data connectivity. After this we will provide very competitive service that would give 10MB per second speed. Revision B (Phase-II) is actually classified as 3G (CDMA).
Spectrum in the low band is always better and we have spectrum in the 800Mhz band. Our Revision B (Phase-II) is far superior, especially the in-building experience. This is more cost-efficient as well. Where we need one BTS, other spectrum bands will require three.
Do you have enough spectrum for Revision B (Phase-II)?
We are waiting for the third carrier (block 3 of 1.25 Mhz of spectrum). We have already written to the Department of Telecommunications (DoT) and also sent a follow up letter on August 21.
We will need atleast 5Mhz of contiguous spectrum to unlock the value of LTE. But, we can start with just three carriers. (Revision B -- Phase-II). The effect would be quite the same like LTE.
We know other players are launching LTE. And will launch voice over LTE. Our future expansion will depend on spectrum prices. We will expand in other circles. But, that will depend on spectrum pricing and guidelines on spectrum sharing. The government has already started discussions on spectrum sharing. A lot of clarity is needed in policies. That will make decision making easier.
We will require more spectrum for LTE. Now, our target is to get more spectrum. But, it all depends on spectrum prices, which is a long-term plan.
When do you plan to roll out Revision B (Phase-II)?
Launch of Revision B (Phase-II) will not be tough. We just need to upgrade the software. We intend to start rolling out Revision B (Phase-II) before Diwali.
We are the first operator in the world to launch Revision B (Phase-II) in Jaipur. The experience is very positive. Typically the Revision B (Phase-II) user is a very heavy data user.
About 65% of your revenue still comes from voice services only. Is this roll-out targeted to change the ratio?
Revision B (phase-II) will be a game changer for us. It will be priced higher than what we have now. But, this will make customer acquisitions easier. And, with Revision B (Phase-II) our data revenue will grow substantially. In India, we can’t ignore the voice business. But, with this launch by Diwali, data revenue will increase substantially.
How much time will it take to give the Indian business a proper shape, considering the fact that you had to start afresh once more. And, don’t you plan to become a pan-India player again?
Now, our strategic target is to break-even. We have revised our plans and tightened our budgets to reach this target. The market situation is also not good especially with severe depreciation of rupee against dollar.
We have also reduced our marketing budgets substantially from what we have spent the year before the immediate past year. Now, as we are present in just nine circles, we are coming out with more localised advertising and focussing on localised content.
At the moment, we will focus on these nine circles. Our future expansion will depend on Government policies and spectrum prices.
Will acquisition be the route to expand presence nation-wide? Are you looking for buy-outs?
Yes, we are open to acquisitions. But, that call will only be taken when the mergers and acquisitions rule is finalised. There is no clarity on spectrum usage. The current clause of spectrum usage is detrimental to M&A.
We will continue with the CDMA services. We may also look for GSM in future. But, that may happen through acquisitions, depending on how the Government finalises the M&A guidelines.
The Government has allowed 100% FDI in telecom. How helpful would it be for you?
The Government's decision to allow 100% FDI is very positive. It makes funding easier from our parent company. We are looking into possibilities (of increasing its stake in the Indian venture). However, the timing has not been decided.
We already have control in the Indian entity. In future, we would infuse equity in the venture rather than availing debt. Right now we are adequately funded and there is no immediate need. Till the quarter ended June 2013, our total debt from banks and financial institutions stood at Rs 4,187 crore. Our earlier debt is being written off before the fresh start.
As a CDMA player, you had to options for handsets to your customers as CDMA handsets were not easily available in the open market at the time when you entered in India. But, these are now easily available in open market. Do you still sell handsets or is it not viable anymore?
We are planning to improve our smartphone business and we will launch 5-6 handsets by Diwali. We have tied up with all Chinese and Indian manufacturers, including Micromax. These will be launched under the MTag brand.
We will focus on 5.5-inch phablets. And all of these will have two SIM slots -- one CDMA and one GSM. While the CDMA slot will be locked with MTS, any GSM can be used in these handsets.
We will target mid-and-mass-market segment with these. But, we will not subsidise handsets. But, we may look for other options for consumers and will be priced attractively. These will be slicker and will be loaded with a lot of regional, localised Apps.