'We will be a rural company in 3-5 years'

Reliance Communications has launched free talktime schemes for its GSM push. It should translate into some paid-minute losses for you…
There are always new operators offering heavily subsidised minutes. It does not worry us at all because the Indian customer has become quite price-agnostic. Maybe in the past price has played a role. I travel every month to small villages and towns. Customers in even the smallest villages —- with a population of say 2,000 —- do not raise the price issue because mobile services are affordable. Each Indian —- 1.2 billion of them —- can afford our service. That’s a great thing about Indian telecom. Price no longer plays a role.

Even in a slowdown?
Yes, because services have matched customer expectations. The customer is today  more worried about many other things where inflation is biting him. In telecom,  prices have not gone up in the last couple of years, it has gone down. What worries the customer, for example, in urban areas are things like home and auto loans, not telecom. Telecom uses only a very small portion of a person’s disposable income. Today’s customer is looking for better quality and better portfolio of services. That’s what we are focusing on.

Yet you have countered with some low-priced lifetime package plans of your own…
From time to time we make efforts to lower the entry barrier. Yes, we have brought down the lifetime validity tariff to Rs 99. I think that is a positive thing, but we haven’t really made any tariff changes.

What’s the declining Arpus story all about?
Actually, we are digging deeper and deeper into the lower income strata. So Arpu (average revenue per user) has to decline as disposable income dwindles. But we have adopted a business model that is different from the western telecom firms; it is not linked to Arpu but to per-unit, per-minute realisation, per-minute cost and hence per-minute margin. We have broken down the business to the smallest fraction —- a minute. If we make a reasonable margin per minute, we will definitely make a reasonable margin on 1.5 billion minutes also. Thus our efficiency parameters are linked to a minute, not Arpus, because we know Indian Arpus will fall. They can’t match those of a European or American operator of $70-80 a month. We are nearly one-tenth of that.

Most of your recent gains have been rural. How long will the rural story run?
The rural story has just started! The average rural penetration is 10%. In some markets, it could be just 5%. I believe in next two three years the rural teledensity will cross 30%, or what the national teledensity is today. And by then national teledensity will touch 50%. The rural markets have a long way to go. Our initial results — because we are the deepest player in rural areas with a 4 lakh subscribers — are gratifying. Rural areas are doing well in terms of income because of agriculture doing well, because of government schemes like NREGS doing very well. These are having a trickle-down effect. The rural folk is not bound by EMI problems of their urban kin, they have a lot of cash. They do a lot of cash crops like oilseeds, tobacco and fruits. Their income is increasing. I think this will definitely help rural companies like us, like the two-wheeler makers and FMCG.

You call yourself a rural company?
We already are. We will be more a rural company than an urban one in the next three to five years. Of our total monthly additions, 60% is rural. Our vision is to be the most admired brand in India and within that, be the most admired rural brand. Today we have a network of 1 million retailers. We plan to double this by 2010. A majority of it will be in rural markets.

What has been the response in hinterland?
Rural markets everywhere are doing very well. In circles like Bihar, Orissa, North East, which are considered weaker than South India, we are doing extremely well. Our rural market share is growing, our rural revenues are growing. In Bihar, we have 6 million customers, and a market share of more than 40%. And this is largely contributed by rural markets. Ditto West Bengal and Jammu and Kashmir.

How does the delay in 3G auctions impact Airtel?
It is the government’s decision and we respect that. As soon as it cleared, we will be ready to participate.

Will 3G be a volume game?
It sure will be a volume business because voice efficiency will be higher — about 40% higher than 2G. Data speeds will be better. And we will be able to provide lot of entertainment content through 3G.

Will your enterprise business be hinging on 3G?
The enterprise business will surely get a boost through 3G.

In terms of market maturity, specifically, in metros —- do you see a stage where we go back to square one where incoming becomes paid, just like in the developed markets? Anything foreseeable in the next couple of years?
(Laughs)…No, no, it will never happen. Incoming will never be paid. In metros there is still a long way to go. There is a 60-70% penetration in metros now. You have to remove the inactive customer base from the reporting. Today many companies report inactive customers. We do not. If you remove that there is still 30-40% to go in many cities.

What happens after the 30% is covered?
Actually, you should look at penetrated markets like the UK, Scandinavia, Singapore and Hong Kong. There the revenues are still growing as companies are using more services, new data packages, new entertainment services, m-commerce … so many new things they are using…

Any change in customer preference between prepaid and postpaid in recent times?
Actually now we are garnering less than 1% from postpaid service these days. More than 99% of new customers are going for prepaid. It’s the mindset of the customer and we respect that. It’s convenient for the customer, convenient for the company. We have an electronic system called Easycharge to recharge online. You’ll be surprised to know in places like Bihar, Orissa and West Bengal, Easycharge is used 90% of the time. Paper coupons are being used less and less.

Going forward, what is the strategy on fixed lines?
Our fixed line is actually broadband services, it’s doing well. The focus is more on data and less on voice. In future, we will focus much more on data, speed and content services. The voice element will gradually decline. I think this is a very, very attractive business. We have a cherry-picking strategy where we are focusing on the top 25 cities out of the 95 that we are in. There are a few towns where our coverage is very strong —- about 60-80%, but there are many towns where it is not. In the next year or so, we would like to address that. In non-coverage areas we will use high-speed packet access or HSPA, which is 3G for wireless broadband.

How do you plan to tackle number portability?
We have always supported the government’s drive on this. We have suggested that it should be all-India, and not just be in fixed circles or regions. Also, it should be on both fixed-line and mobile so that everyone has a choice. The government has agreed on the mobile side and perhaps by the end of this calendar year portability will be implemented. We believe we will have net positive additions from portability because lot of high-value customers from other operators, especially CDMA operators, are looking to shift.

There is great irritation among users in cities like Mumbai due to congestion and call drops. How do you solve this without additional spectrum?
Our network utilisation in Mumbai is reasonably OK, at about 70%. We are investing in capacity and quality. You will see further improvements.

But you recently earned the dubious distinction of owning the most congested network…
No, no … those reports are post the fire incident that happened in one of our location in Mumbai (Peninsula Chambers, Worli) disrupting networks and interconnectivity. That is still under recovery but that congestion may be close to zero. Now we are doing redundancy on interconnect also. Spectrum congestion is an issue in the central business districts. We are now bringing in high efficiency tools and technology through our partners Nokia and Ericsson to tackle this.

What are these technologies?
These are some technologies they have brought to use the same spectrum for a higher output.

Does someone else in the world use such technologies?
No, our usage of spectrum is the best in the world. Our average in India is around 8 megahertz per circle whereas it is 16-17 Mhz abroad. Yes, still in the central business districts there are problems because call traffic is concentrated.

What has been the response in Sri Lanka?
Very positive. Customers have loved our packages, the simplicity of packages, our brand. We launched two campaigns there, one by (Sri Lankan cricketer Kumar) Sangakkara and the other by Shah Rukh Khan. It’s been very positive.

Shah Rukh works there?
Yes, Shah Rukh works. There have been long queues in front of our showrooms in the last two weeks, which is very gratifying. This means that customers really know Airtel there. Customers would like to utilise Airtel. It is the first time we have transplanted a unique business model in a country close to India.

By transplanting, you mean the whole outsourcing model..
Yes the same, but not 100% —- about 90% same, with some minor tweaking depending on Sri Lanka’s nature of business. Otherwise the majority of the business model is the same.

When do you see consolidation happening in Indian telecom?
Legal consolidation…

What’s that?
The actual takeover of another company will happen in two three years. But market consolidation is already happening. The top few companies are getting more share of market, customers, revenues and profits.

Can you elaborate?
Because a few companies are doing a better job and they have a critical mass in terms of customers —- like we have about 90 million subscribers now. That’s the critical mass where we get great economies of scale. The legal ratification of that consolidation will happen in a couple of years.

Then what are the new players entering this business for?
Globally there is room for about four players. Only four players are viable in telecom in every country. In India it could be five, may be six.

Why is that?
Because of critical mass. The cost structures are high, the capital expenditure, operating costs are very high…

So consolidation is inevitable?
Yes, that is the reason. So I am saying that if five or six operators are viable then the balance six will not be viable because they will not have the critical mass. They will have serious trouble in the next three years till consolidation takes place.