Russian President may take up the issue in his March visit..

CANCELLATION OF 122 TELECOM LICENCES Russia to Take Up Sistema’s Cause with Indian Govt KALYAN PARBAT KOLKATA Russia is set to join Norway in mounting diplomatic pressure on India to protect foreign investors who have pumped in billions of dollars in telecom firms whose licences were scrapped by the Supreme Court last week. Norway’s minister for IT and Government Administration Rigmor Aasrud met telecom minister Kapil Sibal on Tuesday to express her government’s concern over Telenor’s . 14,000 crore investment in its Indian operation, Uninor. Russia’s communications minister Igor Shchyogolev is likely to follow suit and communicate concern over the cancellation of Sistema’s pan-India mobile permit by the apex court. Indian operations of Telenor, Sistema, Dubai’s Etisalat and Bahrain’s Batelco are among the 122 licences that have been scrapped. The Russian Federation, which owns a shade over 17% in Sistema Shyam, is likely to depute Shchyogolev to take up the matter with his Indian counterpart Kapil Sibal, a top official in the Russian embassy told ET. Shchyogolev is expected to drive home the point that Sistema did not break Indian laws and is being unfairly penalised. Sistema Shyam, a joint venture between Russian conglomerate Sistema and India’s Shyam group which retails mobile services under the MTS brand, is also likely to file a review petition in the Supreme Court. Its mobile permits in all regions except Rajasthan were quashed by the apex court. Russia, an official who did not wish to be named said, does not favour immediate international arbitration proceedings because it believes its long-term economic ties with India can help break the ice within the next two months. “Arbitration in any international court of law is both time consuming and costly. The outcome can also never be predicted,” the official quoted above said, adding that the meeting of the two ministers should yield a resolution. Sistema has not formally enlisted the support of the Russian government yet, the official said. If the Russian minister fails to make headway, the issue may figure during Russian Federation president Dmitry Medvedev’s upcoming meetings with the Indian leadership during his Delhi visit in late-March for the Bric summit. “President Medvedev’s intervention on the Sistema case may be sought only if all bilateral initiatives, including talks at the level of the communication ministers of both countries fail to resolve matters,” said a top official in the Russian embassy. Meanwhile, the Russian Federation is about to nominate a director on the Sistema Shyam board. “SSTL has decided for induction of a Russian Federation representative as director on its board. However, a formal nomination of the director is awaited from the Russian Federal agency,” said a Sistema Shyam spokesman. According to The Wall Street Journal, Sistema has said it will not lay off its India staff nor renegotiate deals with equipment vendors, about 50% of whom are Chinese. Like Telenor, it has reportedly indicated that its Indian JV, SSTL will bid for the 2G airwaves provided the base price is reasonable once the new auction rules are notified. Sistema and the Russian government collectively own nearly 74% in SSTL, while the Shyam group and others hold 24% and 2.8%, respectively.

Sistema Shyam Plans Plea Against License Cancellation

NEW DELHI -- The Indian unit of Russia's Sistema JSFC is preparing to file an appeal asking the Supreme Court to review its order cancelling the company's telecommunications licenses along with those of several others.
"We think there are good reasons to believe that we can be successful [in the review petition]," Vsevolod Rozanov, president and chief executive at Sistema Shyam Teleservices Ltd., said Tuesday. "Our overall management is finalizing the steps."
In case the review petition is unsuccessful, Sistema Shyam plans to file a curative petition.
According to Indian law, an individual or company can apply for a review of a Supreme Court ruling within 30 days of the judgment. If that is dismissed, another plea--termed a curative petition--for reconsidering a judgment can be filed.
Sistema Shyam Teleservices is 17.14%-owned by the Russian government, 56.68% by Sistema and the rest by India's Shyam Group.
The company has invested more than $3 billion and provides services on the Code Division Multiple Access, or CDMA, technology, in all of India's 22 service areas under the MTS brand. It has 15 million users.
India's Supreme Court last week ordered the cancellation of 122 mobile telecom service licenses--including 21 of Sistema Shyam--issued without auction after January 2008. The ruling, which will be operative after four months, came on complaints of corruption in the allotment of the licenses.
Sistema Shyam follows Tata Teleservices Ltd. in stating that it will file a review petition. Tata Teleservices' three licenses are affected due to the court order.
Mr. Rozanov said the Russian government is "concerned," and is being apprised on the developments.
Russian government officials couldn't be reached for comments. They may get involved in discussions with Indian authorities to protect Russian investments.
Norway's information technology minister has already met India's communications minister to discuss the license cancellation of the Indian unit of Norwegian company Telenor ASA.
Sistema Shyam still has faith in the potential of the Indian telecom market, which is the second biggest and the fastest growing in the world. It plans to participate in the auctions that India's telecom department has to conduct within four months to real lot the licenses and bandwidth, Mr. Rozanov said.
"We have invested huge money, we do believe in India and we do believe in the opportunity," Mr. Rozanov said.
For now, its business usual for Sistema Shyam. It isn't planning any layoffs or cutting its contracts with vendors, he said.

Sistema Shyam Teleservices Signs Agreement With Vodafone India

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MOSCOW -(Dow Jones)- Sistema Shyam Teleservices Ltd., majority owned by Russian conglomerate AFK Sistema (AFKS.RS), has signed a franchising agreement with Vodafone India, Russian daily Vedomosti reports Tuesday, citing Vsevolod Rozanov, Sistema Shyam's general director.
According to the agreement, Vodafone sells modems under the NetCruise brand that run on Sistema Shyam's network. Sistema Shyam will share the revenue for servicing clients with Vodafone. Modem users will be considered Sistema Shyam subscribers but will be billed by Vodafone, Rozanov says.  

Sistema Shyam Teleservices Ltd raises Rs 1280 cr loan from banks through NCDs

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The Indian arm of Russian conglomerate Sistema, that offers mobile services under the MTS brand has raised Rs 1280 crore loan from a consortium of banks through Non Convertible Debentures (NCD).

Deutsche Bank is the lead banker of the issue. This issue has been partially secured by guarantee of one of Russia's leading bank, Sberbank.

This is the second time in the last six months the company has raised money to fund its expansion plans. In September 2011, it has raised a Rs 920 crore loan from Barclays Bank and ICICI Bank. The telco has also said that it currently had several other facilities in pipe-line.

The entire amount of INR 1280 Crore has been received by SSTL. The 8 year Debt is payable by 2019, the company said in a statement.

"It was quite challenging to raise such significant funds with such long tenor under current uncertain regulatory environment in India, but business has to continue and grow. We are planning to utilize the proceeds to further scale up our telecom operations and repayment of maturing loan," Sergey Savchenko, chief financial Officer of Sistema Shyam Teleservices Ltd said.

The company also got about $600 million when the Russian government bought under 20% stake in it in December 2010.

Post this deal, Sistema's stake in the JV has declined to about 54%. There are no changes in the Shyam group's shareholding and it has about 24% in the JV. Other minority shareholders own the residual 2% in the telco.

MTS goes 'unlimited' for traders

India Blooms News Service

Mumbai, Jan 11 (IBNS): Sistema Shyam TeleServices Limited (SSTL) that nationally operates its telecom services under the MTS brand, on Wednersday announced the launch of ‘MBiz’ for its existing and new prepaid voice customers in Gujarat, Mumbai, Kerala, Karnataka, Andhra Pradesh and Tamil Nadu.

"Given the ever increasing economic activity in the region, MTS has specially designed its New Year initiative to suit the needs of the business community. Customers availing the offerings will get freedom to speak a lot more without worrying about huge mobile bills," said an official spokesperson.

According to Cheenu Seshadri, Chief Operating Officer, South & West Regions, MTS India, “The latest in our list of firsts is MBiz to provide unlimited local calling for our customers in Gujarat, Mumbai, Karnataka, Tamil Nadu, Andhra Pradesh and Kerala. This proposition has been specially designed to address the needs of high usage customers including the business community.”

Research shows, business community are heavy users of local calls made to customers, associates and employees. 

Sistema holds back IPO,may look at it after new telecom policy

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NEW DELHI: Volatile market conditions and uncertain regulatory framework in the telecom sector has forced new telecom operator Sistema-Shyam to postpone its proposal to enter the capital market through an IPO, but would consider the plan after the new telecom policy is announced.

"Given the present regulatory environment and unproductive market conditions, especially in the telecom sector, known to everyone, an IPO might not result in good valuations... One is looking forward to introduction of the new telecom policy which should in turn enable liberal merger and acquisition norms," Sistema-Shyam Teleservices (SSTL) President and CEO Vsevolod Rozanov said.

Such policy issues would go a long way in consolidation of the sector and thereby improve the operating environment for the entire telecom industry, he said.

SSTL offers mobile services under MTS brand and claims to be one of the fastest growing telecom companies in India in the telecom space.

The current economic environment has dampened the spirit of unlocking value of a range of infrastructure companies. The impact is felt even more so within the telecom sector given the range of issues being faced by the sector, he added.

Industry observers believe that such sentiments are a reflection of the current mood in the telecom industry.

In October last year, Telecom Minister Kapil Sibal had unveiled draft National Telecom Policy-2011 that paves the way for mobile telephone users to make calls without paying roaming charges and change operator outside their circle while retaining the same number.

Declaring an agenda of 'One Nation-One Licence' across services, the NTP endeavours to create an investor-friendly environment by attracting additional investments in the sector, which has been marred by controversies relating to 2G scam in the recent past.

SSTL has invested over USD 2.5 billion in India, focusing on its data centric and voice enabled strategy.

The company nationally provides telecom services to over 15 million wireless subscribers, including more than 1,200,000 high speed mobile broadband customers in over 200 cities across the country.

The company is a joint venture, involving equity participation by Russia based-Sistema, the Russian Government and the Shyam Group of India.

The Russian government holds a 17.14 per cent stake in the company. Sistema is the majority shareholder with a 56.68 per cent stake, Shyam Group holding a 23.98 per cent stake and others 2.2 per cent.

Government to charge for spectrum beyond 4.4 MHz from new players

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NEW DELHI: In a move that will provide a huge advantage to old GSM operators and impact the valuation of new entrants in the telecom sector, spectrum allotment beyond 4.4 MHz will now be done through an auction, though older players were spared such additional charges till they had 6.2 MHz.

"Telecom commission has decided to charge new operators. For additional spectrum beyond 4.4 MHz, telcos have to buy additional airwaves through auction," according a person with direct knowledge of the matter.

Recently, new telecom operators such as Tatas, RCOM (for foray into GSM services), Sistema-Shyam, Uninor and others have written a letter to telecom minister Kapil Sibal terming the proposal to charge new telcos for additional spectrum beyond 4.4 MHz as discriminatory, saying it will impact their sustainability and scalability.

Trai has been mulling charging operators for additional 1.8 MHz (GSM)/2.5 MHz (CDMA) spectrum, beyond the start-up spectrum of 4.4 MHz/2.5 MHz, respectively. Any change to the already existing contractual arrangements with regard to allocation of additional 1.8 MHz/2.5 MHz will be highly discriminatory, against the level playing field and likely to derail business plans, the new operators had said.

Citing various TDSAT rulings and views of DoT and Trai at various times, the operators said 6.2/5 MHz is considered the contractual minimum and the optimal quantity of spectrum for pan-India GSM operations.

The telcos had said that such changes would be in violation of the present licence conditions. Further, saying that any changes to the contract were not legally tenable, the operators have asked the government to re-consider the proposal and seek legal opinion on the same, before passing any final decision.

According to new players, they should be given more concessions in view of limited market as the old players have already cornered maximum spectrum as well as subscriber base.

Any move to charge for spectrum beyond 4.4 MHz from new telco would send a wrong signal to the investors as they have entered Indian market based on licence conditions and business models of incumbent players.

Imran Khan to endorse MTS in Rs 10-crore deal

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Imran Khan to endorse MTS in Rs 10-crore deal

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NEW DELHI: Telecom service provider MTS India has roped in Bollywood actor Imran Khan as its brand ambassador for two years. The 10-crore deal makes the Delhi Belly star the latest one to join a long list of celebrities, including Shah Rukh Khan, Abhishek Bachchan and MS Dhoni, endorsing telecom service companies. While it's the first time that Sistema Shyam TeleServices' brand has taken the celebrity plunge, Imran already endorses Coke and Levi's jeans.

However, MTS India spokesman and celebrity management firm Kwan Entertainment, which doesn't manage Khan but helped him in striking this deal, declined to comment.

"Imran will promote MTS through mass media, online and below-the-line promotional activities. He will also be part of Red Energy, a youth-centric online activity for the brand," an official directly involved with the developments said.

While the 2G scam has not deterred telecom firms from wooing celebrity endorsers, it has impacted their ad spends. Eight of the country's top 10 TV advertisers during January-September this year were consumer goods makers. Idea Cellular was the only telecom firm in the ranking, according to the media research firm TAM.

The telecom sector has been facing tough times with raging controversy on 2G spectrum allocation, rock-bottom tariffs, sliding average revenue per user, thinning margins and falling profits. High interest costs, banks shying away from lending and 3G roaming agreements being disputed by the government add to the sector's problems.

Approval and introduction of the new telecom policy that would have allowed liberal merger and acquisition norms and helped in consolidation of the sector, has been pushed back by nearly half a year. This may further add to telcos' woes. 

Sistema keen on telecom acquisitions, awaiting M&A norms

 Moscow, Dec 21: 

Stuck with a meagre 2.5 MHz of spectrum, Indo-Russian telecom operator MTS-India is awaiting the new government policy on mergers and acquisitions (M&A) to expand its operations in India.

“We are waiting for the new M&A policy because we do believe that the Indian market should be consolidated. We want to participate in this consolidation,” Sistema JSFC CEO, Mr Mikhail Shamolin, told a group of visiting journalists here.

MTS-India is a joint venture between Shyam Telecom and Sistema JSFC. Sistema holds the majority stake in the joint venture.

At the same time, Mr Shamolin said MTS India was keen on having an additional 2.5 MHz of spectrum, as it has fulfilled its contractual obligations and has the required number of subscribers, making the company eligible for additional bandwidth.

“We have an agreement with the government which says that we get 2.5 MHz spectrum and if we fulfil our obligations, we get another 2.5 MHz at the price we have paid initially,” he said.

However, he said 5 MHz (2.5 MHz+2.5 MHz) was not a good quantity of spectrum to provide quality telecom services and pointed out that the global standard was 20 MHz.

“Five MHz is too thin and too little,” he said, indicating that the group was waiting for the M&A policy to improve the situation.

“We are interested in consolidation. In which form exactly and in what kind of combination remains to be seen.

Definitely, we want to be one of the players. We do not want to exit the market given how much we have invested there and how important it is for the business of MTS and Sistema,” Mr Shamolin said.

MTS CEO sends greetings for all shareholders

Dear Alok and shareholders at AMSOST,

Thank you very much for the nice message and wishes. Let me reciprocate the same, I do hope the upcoming year will be joyful and prosperous for you and your families!

All the very best,

V.Rozanov

Sistema Shyam may get NLD licence soon

Sistema Shyam may get NLD licence soon

Press Trust of India / New Delhi December 15, 2011, 20:30 IST

The Telecom Ministry is likely to grant National Long Distance (NLD) licence to new telecom operator Sistema Shyam TeleServices (SSTL), which offers mobile services under MTS brand.
"...The proposal may be considered along with the draft of Rs 15,000 as processing fee," according to a Department of Telecommunications (DoT) note.
The company has fulfilled almost all the criteria required for being eligible to have NLD licence.
The company has submitted the certified copy of memorandum of article of association (MAA) and it has also submitted a copy of the paid up capital as of March 21, 2011 is Rs 31,93,92,00,000, so the networth criteria has been fulfilled.
The applicant company (SSTL) has stated that they have 26.05% Indian equity and 73.95% foreign equity. The foreign equity of the applicant conforms to 74% ceiling for which they have acquired FIPB approval.
The company has submitted business plan with funding arrangement as required under NLD guidelines.
With this the DoT has said that a letter of intent to SSTL for NLD licence may be issued.
Sistema Shyam TeleServices provides telecom services under the brand MTS with over 14 million wireless subscribers and operates in all 22 circles.
At the end of September 30, 2011 (Q3), the total capex investment by the company in India stood at Rs 6,243 crore, including Rs 161.7 crore made during the quarter. Consolidated debt from banks and financial institutions at the end of Q3 stood at Rs 6,860 crore.
Similarly at the end of Q3, SSTL's data card subscriber base stood at 1.07 million subscribers. The company's mobile subscriber base reached 13.27 million.
SSTL is a joint venture in which Russian conglomerate Sistema holds 56.68% stake, while the Russian government holds 17.14%. India's Shyam Group holds 23.98% and the remaining 2.2% is held by others.

India readies new rules on telecoms M&A : FT

India readies new rules on telecoms M&A

“The Indian telecom juggernaut is slowing fast, and the sector is trying to move beyond its infancy and adolescence towards maturity,” says Mohammad Chowdhury, head of telecoms at PwC in Mumbai. “A shakeout and some form of consolidation is going to be a big part of this process.”

The new, more liberal mergers and acquisitions framework is understood to have been agreed in draft at a meeting of India’s Telecom Commission on Friday, and is set to be confirmed at a further meeting this week. It will provide some relief to a sector that has struggled to get more profit out of its more than 900m users.
Things have become so bad that a delegation of long-time rival chief executives – including Vodafone’s Vittorio Collao, Bharti Airtel’s Sunil Mittal and Reliance Communications’ Anil Ambani – earlier this month trooped in to see Manmohan Singh, India’s Prime Minister, to complain about the country’s changeable and often-contradictory telecoms rules.
In a private letter handed over during the meeting, a copy of which has been seen by the Financial Times, the CEOs claim that the sector has “been brought to crisis point to the extent that the future of the industry is under threat”. The letter pleads for a “stable regulatory and fiscal regime” with no further “midterm surprises” – a barbed reference to the habit of Indian regulators of dreaming up new and unexpected rule changes.
The meeting is understood to have been brokered by Mr Ambani, whose debt-laden Reliance Communications has lost close to half its market value this year, against a backdrop of persistent speculation that he will enter some form of tie-up with his estranged brother and fellow billionaire, Mukesh Ambani.
In common with other groups, Reliance faces a telecoms market that is among the world’s most competitive and confusing. It boasts 12 operators – about twice as many as the norm for a developing market – competing in 22 “circles”, or geographic areas defined by regulation.
Meteoric growth in users over the past 5 years has come despite a dizzyingly complex regulatory set-up and has resulted in an overcrowded and bad-tempered market characterised by weak profits, flat revenues and falling investment. Analysts suggest that before things can improve the half dozen or so smaller operators must either exit or be bought out by larger groups.
On Friday the Telecom Commission, a body bringing together the disparate parts of India’s government, is understood to have agreed draft rules that future mergers could be allowed if the market share of any newly combined company does not exceed 60 per cent, up from the current limit of 40 per cent.
Vodafone, India’s third-largest mobile operator by subscribers, said: “We welcome greater flexibility in M&A rules, although it is not yet clear how the authorities would ensure that these were applied consistently.” Other industry figures, who spoke on condition of anonymity, cautioned that this higher upper limit was subject to further negotiation and could come with complex subsidiary regulations that would limit or delay consolidation.
In a test of the industry’s new-found unity, a range of other issues remain. The regime for spectrum is especially sensitive, given that allegations about its improper allocation lie at the heart of India’s $39bn telecoms corruption scandal – the aftermath of which is still rumbling on inside India’s Supreme Court.
The industry remains firmly united on one issue, however: its frustration with the government. One senior telecoms executive, who asked not to be named, said that even with clarity on merger laws, the authorities were unlikely to avoid the temptation of new charges and fees. “The government does not see that the telecoms industry is struggling. They see it as a golden goose, whose golden eggs can be harvested again and again, until the goose is dead.”

SSTL consolidated revenues up by 18%

India Blooms News Service

Mumbai, Dec 12 (IBNS) Sistema Shyam TeleServices Ltd. (SSTL), which operates its telecom services under the MTS brand in India, on Monday announces its unaudited consolidated US GAAP financial results for the third quarter ended September 30, 2011.

Key Financial & Operational Highlights for the Third Quarter of 2011:

Consolidated revenues up by 18% Q-o-Q to INR 3,282 million (USD 72 million). Quarterly revenues continue to grow faster than wireless (Voice & Data) subscriber base, which was up by 13% to 13.27 million.

Non-voice revenues from both data and mobile VAS for the quarter up by 32% Q-o-Q to INR 1,052 million (USD 23 million), which now contributes 32% of total revenue and the contribution has increased by 3.4 p.p for the quarter.

Blended mobile ARPU for the quarter increased to INR 85 vs. INR 82. The increase in ARPU is in contrast to a declining trend in the market.

SSTL’s data card subscriber base for the quarter up by 30% to 1.07 million subscribers. SSTL added 0.25 million data card subscribers during the quarter, highest additions in a quarter till date.

Consolidated OIBDA loss for the quarter stands at INR 4,584 million (USD 100 million). OIBDA margins improved 7 p.p. Q-o-Q.

SSTL launched, MTS MTAG 3.1 and MTS Livewire, India’s most affordable Android powered Smartphones in the Sub INR 5,000 category. With the launch of affordable Smartphones, SSTL takes the power and appeal of Android to the masses.

According to Vsevolod Rozanov, President and Chief Executive Officer of Sistema Shyam Teleservices Ltd, “SSTL has once again demonstrated robust growth across its key business metrics. The market response to our data centric: voice enabled strategy continues to be extremely positive. In fact, Government’s intent to increase broadband penetration in the country, as outlined in the Draft National Telecom Policy 2011 also supports our business strategy.

"However, we are awaiting further clarity on issues, such as additional spectrum availability. Inspite of all these challenges, we are committed to further drive growth in data usage amongst the masses, with smartphones and tablets playing a major role in this process.”

SSTL’s mobile subscriber base increased by 13% quarter-on-quarter and reached 13.27 million customers as of 30th September, 2011.

The growth in subscriber base of the company was largely driven by further strengthening of the distribution network, an increase in its retail universe across India and increased contribution from newly launched circles, said the company.

Mobile subscribers’ MoU for Q3 2011 declined to 291 min vs. 294 min in Q2 2011; the decline in MoU was mainly because of the decreasing share of free on-net minutes and also due to seasonal dip in the subscriber’s activity.

Industry net subscriber addition in Q3 2011 dipped further to 22 million compared to 39.9 million in Q2 2011. Total subscriber base reached 874 million and wireless tele-density was 73% at the end of Q3 2011. SSTL’s subscriber market share increased to 1.52% in Q3 2011 (vs. 1.38% in Q2 2011).

SSTL reported an OIBDA loss of INR 4,584 million for Q3 2011, reflecting an improvement in OIBDA margin by 132 p.p. Y-o-Y, margins improved as a result of 125% revenue growth over Q3 2010, the revenue growth was driven by 100% increase in subscriber base over Q3 2010.

By the end of Q3 2011, SSTL’s high speed mobile data services cover more than 200 cities in India, including all five metros. The number of data subscribers increased by 30% over Q2 2011 to 1.07 million.

SSTL’s bottom line during the quarter was impacted by increased forex charges. The Rupee has depreciated considerably against Dollar and other foreign currencies thus resulting in increased forex charges on long term Foreign Currency denominated loans.

Sergey Savchenko, Chief Financial Officer of Sistema Shyam Teleservices Ltd., commented, “One of the key highlights of our Q3-2011 results is that our Non Voice Revenue growth continues to be higher than the industry.

"Contribution of Non Voice Revenues to overall revenues increased to 32% during the current quarter, an increase of 3.4 p.p. over the last quarter. During the quarter our blended mobile ARPU increased in contrast to a declining trend in the market, this is again a strong reflection of our continued efforts to target quality customers.”

The CAPEX investments made by SSTL in India at the end of Q3 2011 stands at INR 62.43 billion; this includes the investment of INR 1,617 million made during Q3 2011. Consolidated debt from banks and financial institutions at the end of Q3 2011 stands at INR 68.6 billion.

Sistema Shyam TeleServices Ltd. (SSTL) is a venture, involving equity participation by Sistema {LSE: SSA} of Russia, the Russian Federation and the Shyam Group of India.

Sistema is the majority shareholder in the company which operates its telecom services under the MTS brand.

MTS adds nearly 800,000 customers with Android smartphones (India)

MTS adds nearly 800,000 customers with Android smartphones (India)

MTS, a unit of Sistema Syam TeleServices Limited (SSTL), has reportedly added around 800,000 customers in the month of October alone, with the launch of two low cost Android smartphones – MTS MTag 3.1 and MTS Livewire priced under US$ 100.

According to reports, a spokesperson for MTS has said that they were able to get 7,95,523 customers in the festive month of October because they gave the CDMA consumers the option to choose from a variety of Android phones at different price points and they also initiated a lot of awareness campaign across the country. He added that the launch of the two smartphones in the festive season helped propel their growth.

As per sources, pre-paid users received 150 minutes of calls, 150 SMSs and 150 MB of data free every month for 12 months, with the smartphone. Whereas postpaid users were offered a 12 month contract during which users had to pay Rs 250 each month, against which they received 250 minutes of calls, 250 SMSs and 250 MB of data free each month.

India's broadband plans hit by lack of spectrum, says MTS's Vsevolod Rozanov

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