India's broadband plans hit by lack of spectrum, says MTS's Vsevolod Rozanov
10 November 2011
Sistema Shyam's MTS India competes in the market by offering high-speed wireless broadband, but government broadband targets cannot be achieved unless it makes more spectrum available, says the CEO Read more: India MTS Sistema Shyam wireless broadband Qualcomm
Vsevolod Rozanov: India is the most competitive market in the
world. You have to reinvent yourself every moment to outperform
your competitors
The Indian government wants 160 million wireless broadband customers in the next few years — a relatively modest target in a country of 1.2 billion people. But the CEO of one of the most innovative mobile broadband providers in the country believes the government has not made enough spectrum available to achieve even that challenge.
“We have only 2.5 megahertz of spectrum and we are one of the data leaders,” says Vsevolod Rozanov, the CEO of MTS India, a Russian-backed operator in India’s highly competitive mobile market.
The government’s department of telecommunications is trying to persuade other parts of the government to release more spectrum for commercial use. “There is a significant business development opportunity,” says Rozanov, a Russian economist and management consultant who has led the Russian-Indian joint venture since it was set up in 2008.
“The government’s target is 160 million on broadband, but we have to get the spectrum, otherwise it’s impossible to realise the target.”
The official name of MTS India is Sistema Shyam Teleservices, but it uses the MTS brand that parent company Sistema also uses for the operator it controls in Russia.
Sistema’s holding in MTS India is just over 56%, and there is a small amount belonging to public shareholders, but there are two other main shareholders: Shyam Group, an Indian industrial company, with 24%, and the Russian government’s Federal Agency for State Property Management, which put in 17% in March 2011.
Sistema is the biggest shareholder in MTS in Russia, the NYSE-quoted company that is one of the three big Russian nationwide operators. It competes with VimpelCom, which uses the Beeline brand, and Megafon, as well as some smaller players.
India is a fiercely competitive market and it has become even more so in the past few years. As many as 14 operators are trying to win customers in India, of which nine have virtual nationwide coverage. “It’s probably the most competitive market in the world,” says Rozanov. “Some companies are less active but nine are very aggressive in the key markets.”
That compares with a usual total of three or four nationwide operators in most countries in the developed economies of Europe, North America and the richer areas of the Asia-Pacific region.
Even among the fast-growing poor nations — the four so-called BRIC countries of Brazil, Russia, India and China — conditions for Indian operators are tough. Average revenue per minute is $0.01 in India, says MTS India, half that of the more regulated Chinese market. By comparison, Russian operators can charge $0.05 a minute and Brazilian companies $0.13.
“This is a very, very tough market. The pricing is one of the lowest in the world and the number of operators per state is one of the highest.”
So what is the upside? Why does anyone bother? “Huge growth opportunities,” says Rozanov. “India has hundreds of millions of people.”
The number of subscribers has gone up 45% a year in the past three years, but there are still 700 or 800 million people without mobile connections. Those with mobile phones, however, may have two, three or four SIM cards — so customer loyalty is not high, something that Rozanov and his colleagues are also addressing in their strategies.
Tariffs dropped to their current levels after 2008, when the number of nationwide operators increased. MTS India was one such. At first it had a licence covering one region — or circle, in Indian terminology — and “we rolled out across the country from March 2009”.
“After the price wars, operators have stabilised prices, and now they are starting to increase them,” says Rozanov.
Cheaper handsets needed
But he wants to see one price in particular lower than it is at the moment: the retail cost of an entry-level handset. “The cheapest handset is $15, and that’s still not affordable to many people,” he says. That limits growth in the basic voice and text market so MTS India is looking for alternative growth opportunities in data. “We have to find a niche to distinguish ourselves among the 14 players, and we have started a data-focused, voice-enabled strategy,” he says.”
MTS benefits, he says, from a decision taken in the early days of the Indian operation, to choose Qualcomm’s CDMA technology in preference to GSM for its operations, which use spectrum in the 800 megahertz band. The company uses the EV-DO revision A standard, allowing it to transmit data at speeds from 500 kilobits a second to 1.8 or 2 megabits “depending on the particular situation”, says Rozanov cautiously.
The company is upgrading to the so-called phase II of Qualcomm’s standard, which should push the speed to 4.5 megabits, “and that gives us very significant differentiation”, he says. Data “is something that allows us to be differentiated in a very crowded market. Our brand is considered one of the most data-friendly brands.”
The “focus on CDMA proved right”, he says. If MTS had wanted to use GSM it would have needed to use the 1,800 megahertz band, with poorer coverage in buildings and in rural areas. “Our spectrum means lower costs because we need fewer base stations. Most of our new customers are from semi-urban or rural areas and it would be suicidal for us to go for 1,800 megahertz spectrum.”
But wireless broadband in India is not a route to riches: it is still a tough market, says Rozanov. Of MTS’s 14 million customers in India, only 1.2 million are data customers. The price of smartphones is one of the barriers: “We sell a $100 Android device and we are the price leader in India,” he says. “We need a $50-$60 device to significantly increase the penetration of data.”
But there’s an education challenge too, he adds. Even when customers are buying smartphones, they are not making the most of them. He estimates that “even if we launched a super data device”, 90% of its usage would still be for voice.
And, he notes, even those on unlimited data plans do not make the most of them. “Customers don’t know what to do with the data. We require a huge education programme to use this data opportunity.”
It varies from region to region across the country, he notes. “Our analysis of every state in terms of potential voice and data revenue shows that some states are very voice-heavy.” Key places for data include the big cities of Delhi, Bangalore, Mumbai, Chennai and Kolkata, he notes.
There is “natural growth” in the broadband data market, but “it’s no hockey stick market”, he warns. But in urban markets where voice has reached 100% penetration, data is important in differentiating MTS from its many rivals.
Market consolidation
Will there always be as many rivals? In the past few weeks, the Indian government has started to show signs that it recognises the need for consolidation. “The market is very crowded and customers are suffering because the networks are very limited,” says Rozanov.
If the rules are relaxed he hopes that “there will be certain consolidation in the market”, which will allow spectrum to be consolidated and used more effectively. “At the moment spectrum is distributed very narrowly among the operators,” he says. He compares the overall allocation to Austria’s, “a very different market”.
Before coming to India Rozanov was chief financial officer of the MTS group, having joined in 2006 when MTS merged with Comstar-UTS, another Russian operator, of which he was deputy CEO and CFO. He came into the industry after eight years with the management consultants Bain & Company, working in Moscow, London and Stockholm.
How does India compare with the Russian market? “It’s definitely much more competitive,” says Rozanov. “You have to be extremely innovative in driving costs down. But that’s something that creates excitement and challenge,” he adds.
MTS recently asked its staff in Russia and Ukraine if they would like to work in the Indian operation. “We had 200 applications for 15 positions,” says Rozanov. “The business really excites people. You have to reinvent yourself every moment to outperform your competitors. If you can make it in India, you can make it anywhere.”
One of the challenges, as he explained earlier, is the cost of handsets. “We’re working very closely with Qualcomm and the vendors to reduce this barrier,” he says. “Prices are going down. That is absolutely critical for [India’s] broadband plan.”
Price cuts are needed not just on smartphones, but on basic phones too, he says. “A 10-20% price reduction is something we can realistically expect. Operators have to work with vendors to drive the prices down.”
Despite the challenges, MTS India is adding from 800,000 to one million customers a month, he says — a number that means it is the second-fastest growing CDMA operator in the world, behind China Telecom’s two to three million a month increase.
The two big US CDMA operators, Verizon Wireless and Sprint, are both planning moves to LTE; meanwhile China Telecom is also likely to adopt something in the LTE family. How does MTS India see its long-term strategy?
“We’re not at this stage limited by the technology,” says Rozanov, “but we have questions to Qualcomm, given the spectrum situation in India.” The next step in the EV-DO family is revision B, “and if we get more spectrum, rev B will satisfy us for many years ahead”.
But he’s looking further ahead, to five or seven years, “and we do have time to address the roadmap for CDMA operators”, he says. First he needs to know how much spectrum the Indian authorities will license by 2016-17.
There are huge opportunities for operators in India in the coming years, but those operators have to consolidate to make the most of them — and they have to persuade the government to release spectrum if they are to work together to realise India’s broadband potential. GTB
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