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Sistema worried about its $3 b investment in India

Nov 19, 2012

That the recent auction of 2G spectrum was a damp squib is a no-brainer. However, its larger impact on telecom players, especially foreign, should be worrying for India. Russian diversified group Sistema, which holds 56 per cent stake in its maiden India investment, Sistema Shyam Teleservices Ltd (SSTL), says that protecting its $3 billion investment in India is top priority for now, far from looking at returns or further investments. SSTL, which provides telecom and broadband services under the MTS brand, incurred a net loss of Rs 1,837 crore and generated revenues of Rs 695 crore in the first half of calendar 2012 and did not participate in the recent round of 2G spectrum auction. In a conversation with Shayan Ghosh and S V Krishnamachari of Deccan Herald, President and Chief Executive Officer of SSTL, Vsevolod Rozanov spoke about the challenges and possible solutions for the telecom sector. Excerpts:

What do you think of the CDMA scenario in India? Is it losing the battle to GSM?

Frankly speaking, I don’t think there is a battle any longer.CDMA providers are now mostly focusing on dongles because in the dongle business, customers prefer CDMA. We can clearly see how providers are successful with CDMA in dongles and how more acquisitions are happening in this space. Not only older operators, but also new ones are able to get market share.

As for the voice, definitely there is not much traction there. I think its a clear miss by the devices’ manufacturers. Basically, it is much more difficult to source CDMA device. Selling such devices are much more difficult compared to a GSM one for a retailer as in GSM, one separately has a sim card and a phone. However, it is bundled in CDMA phones and thus requires more investment for a customer. Many people ask me why didn’t we go into GSM and I say that there is no chance of any fresher to succeed in GSM business, because it is so late now.

You have not participated in the recent CDMA spectrum auctions. What are the reasons behind it?

The answer is very clear. The pricing now is 12 times more than what we had paid in 2008. There is no business case to pay such a price now for something that is not much in demand. We do hope that the issue is resolved amicably and we will be thinking about CDMA business as there is no other business at this stage that we can do.

Do you think the government got it wrong in this round of 2G spectrum auction?


If you price spectrum high, you should not expect penetration. If revenue generation (as the sole objective) prevails, most of the operators will die. It is ridiculous pricing and ridiculous release of spectrum. As a result, here is very little innovation happening at the customer interface side. All operators are thinking of cutting costs, instead of improving services.  
 
What about your curative petition filed in the Supreme Court with regard to the cancellation of licences issued in 2008?

We hope that we will be able to prove our case to the Supreme Court and the government would look into it so that the CDMA industry can develop going ahead.

How do you think the situation should be handled in the wake of the 2G spectrum auction debacle?

The intentions (of the government) are in line with the industry’s expectations. We are definitely moving in the right direction, but taking a painful path.  

You had said that your investments in voice segment will be on hold till the auction. Now that the first round of auction is over, what is the way forward?


Well, there is no outcome of the curative petition in the Supreme Court till now; we are waiting for it.

How does the parent company (Sistema) view India operations? What kind of returns was it was looking for?

Surprisingly, it is still optimistic. At this stage or even earlier, we were not really looking at returns. But concerns are now emerging about protecting our investment of about $3 billion. In our view, returns are possible only if there is consolidation of operators. There should be only five players in India, maximum six. When that happens, operators will be at least cash positive, if not profitable.  

How do you see the business environment in India in the wake of the poor response to the 2G spectrum auction?


Investment climate in the telecom industry is very poor. There is a big sense of disappointment. Just 2-3 years ago, telecom was a beloved baby. But all that has changed now; there is no feel-good factor anymore. The government has to realise that telecom is a huge investment business and create enabling conditions. Unfortunately, enablers are missing.

Are you looking at expanding your business in India?

It is completely on halt.  Actually, only 10 per cent of my time is dedicated to business,f if not less. The rest is spent in writing letters to the government or preparing for arguments.  I hope our case is resolved amicably.


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