New Delhi: The problem with the telecom sector in India is that the older operators have got spectrum at dirt-cheap prices while others had to pay a lot for it, said Arvind Bali, chief executive of Videocon Telecommunications Ltd. Things will change in 2014 when the regulatory environment becomes clearer, Bali said in an interview, adding that the changes will provide a level-playing field for all companies.
Videocon Telecommunications, which initially got mobile phone licences in 2008 and then lost them to a Supreme Court verdict in 2012, won spectrum in seven circles in a November 2012 auction. Edited excerpts:
It has been a roller coaster ride for the past five years for Videocon.
Videocon’s foray into telecom came at a time when the group had a large cash surplus and we were looking for new businesses. We selected three that were very futuristic at the time—DTH (direct-to-home), mobile services and handsets.
There was a lot of excitement about the mobile business when we got the licences in all 22 circles on 10 January 2008. We met the regulatory obligations and started rolling out. Then in 2011, the investigations started and while we knew we had nothing to fear, it led to bankers reassessing their support. We had to put everything on hold.
Unlike in manufacturing, in telecom once you start a service and acquire customers, you have to continue servicing them. Once we were cleared by the investigators, we restarted services in October 2011 with a renewed zeal. On 2 February 2012, the Supreme Court cancelled all our licences along with 100 others. No one expected such a thing to happen. They would not listen to anyone. After losing almost Rs.10,000 crore in this business, we won spectrum in the auction and we have started again in a new avatar in January 2013.
The biggest challenge, when we restarted, was rebuilding confidence of customers and convincing them that whatever happened in the last three-four years had nothing to do with us. Now we are seeing the highest gross new subscriber addition in the three circles where we have started services.
Can an operator with seven circles compete against older operators with pan-India networks?
We studied customer behaviour and saw that 95% use an average of three base station locations a month. Around 95% of our consumption is at two-three fixed locations.
We have a national long distance licence, so I can provide STD calls. The customer is not concerned with the network that connects the call. I may have to pay for termination, but it is not something that is detrimental to my growth. With services in Haryana and Punjab, only around 2-3% of my customers need to call outside my network. I have roaming tie-ups and it is a little cost.
The problem with the sector is that some operators got the spectrum dirt cheap and some had to pay a lot for it and so on. By 2014, I think it will be all on par and then it will come down to operational strength—brand equity, quality of service etc. That is the day we are waiting for.
Was there any particular reason behind choosing these particular circles?
There are a number of reasons behind the decision and a lot of research went into it. One is experience—we learnt that it is not technically possible to do a pan-India roll-out in one go. No one has that kind of resources and support systems in place and also be able to provide a quality network. The incumbents started with a few hundred towers. We have to start with a few thousand and even that’s not enough.
If you roll out in a phased manner, then buying all the spectrum at one time makes no sense. There will be more auctions and other opportunities to acquire spectrum. So we decided to buy only as much spectrum as we need.
Then comes the decision of which circles to buy. We went by corridors and decided to start with the upper India Hindi belt first. Next phase, we have to decide between the south corridor, west or east. We have another 12-18 months. Videocon has to be a pan-India operator, and we will be in a proper phased manner. We have to be smart about everything that we do.
What is your launch strategy?
The first priority are circles where we were active earlier—where we already had retail, distribution and customer base. Our focus is on Punjab and Haryana where we expect to be Ebitda positive in another 12 months. In Madhya Pradesh and Chhattisgarh and Gujarat, we want to increase our footprint and we should be Ebitda positive in two-three years. In both UP (Uttar Pradesh) circles (East and West) and Bihar, depending on the financial tie-ups, we should be operational by the year end. These circles are waiting for a go-ahead from our bankers, which should happen in the next three-four months.
What sets Videocon apart from the rest?
We are taking a slightly different path. We are focused on two-three segments of the market that work for us best, rather than a general mass market strategy.
There are three important things—Videocon is a well known brand with a long history and the largest marketshare (in appliances etc). This was made possible because we give the best value for money for the same product. Same thing we will do in telecom. We will have the best product, 15-20% cheaper than the market. We are a very cost-conscious organization.
In a minute factory, we will produce minutes at the lowest cost, using group synergies among other things. We are new so we have the latest technology and low-cost solutions along with group synergies like brand, office space, retail and distribution infrastructure give us a big advantage that we can pass on to the customers.
Our revenue per minute is 15-20% cheaper than all the other operators. Our packages are designed in such a way, we benchmark ourselves with incumbents allowing our customers to get 15-25% cheaper cost because my cost of production is less.
Other advantages include strong relationships with retailers, another is employees. We are going to set up 500 Videocon retail stores across the circles called Videocon Connect, where the customer will get all necessary Videocon services—DTH, handsets, etc. We have started adding stores already but you will see a big jump in two months time.
Is that enough?
We suffered a lot due to the government policies but we got liberalized spectrum in January 2013. We can use it for anything we want. Earlier the 1800Mhz spectrum was only for basic 2G services.
All our new roll-outs will be on FD-LTE (Frequency Division-Long Term Evolution) on 1800Mhz. This is the best in the world and 40-45% of LTE deployments globally are on this band. The only drawback is voice on LTE is still 12-18 months away.
Today, all high-end smartphones are ready for 1800Mhz LTE. We are going for micro-band LTE. This will be a unique experience for our customers. We will have voice on 2G till the time we have voice on LTE. I am targeting that in a year’s time we will have a few places with this services and it will pick up. This is such a high-end service of 40mbps that it will be for high-end customers initially.
One major advantage over the other 3G (2.1Ghz) and 4G (2.3Ghz) networks is that on 1800Mhz, the LTE network footprint stays the same as the basic 2G network. I will be the most cost effective there. My cost of setting up a high-speed wireless data network is much lower.
Apart from Uninor, no other operator is allowed to do this since their spectrum is not liberalized.