Sistema Shyam won't hold IPO in 'foreseeable future'

By Olga Razumovskaya, Dow Jones Newswires Wednesday 14 September 2011

Official announcement from Indian mobile operator follows talk of possible IPO in 2012.

Sistema Shyam TeleServices Ltd., the Indian mobile phone unit of Russian conglomerate AFK Sistema, won't hold an initial public offering in India "in the foreseeable future," Sistema's president and chief executive said Wednesday. "There is no IPO planned in the foreseeable future," Mikhail Shamolin said at a press conference. The announcement comes despite comments from Sistema Shyam President Vsevolod Rozanov on Sept. 8 that the company could float in India in 2012. He said that if the Indian government's new telecommunications policy, expected to come into effect in October, is more favorable to the market than the current one, the company may set a date for an IPO as soon as six to nine months after the policy is issued.

Sistema Shyam: India IPO Possible In 2012 If Policy Favorable

MOSCOW -(Dow Jones)- Sistema Shyam TeleServices Ltd.'s (SSTL) President Vsevolod Rozanov said Thursday that the Indian government's new telecommunications policy expected in October would influence its decision on whether to hold an initial public offering in the country.

If the policy is more favorable to the Indian telecoms market than the current policy, the company may set a date for an IPO as soon as six to nine months after the policy is issued, Rozanov said.

Sistema Shyam, an Indian unit of Russia's OAO AFK Sistema (AFKS.RS), now has a market share of 1.38%, which is expected to grow by 0.5 percentage point annually, taking it to just under 4% within five years, he said.

The company's net profit in the second quarter of 2011 was practically unchanged at 6.575 billion Indian rupees ($142 million) compared with a year earlier. Its operating income before taxes, depreciation and amortization margin fell from -627% to -236% over the same period, in line with the company's plans, Rozanov said.

Sistema Shyam plans to be in the black in the last quarter of 2013.

AFK Sistema owns 56.68% of Sistema Shyam, India's Shyam Telecom owns 24%, the Russian government's Federal Agency for State Property Management of the Russian Federation, or Rosimushchestvo, owns 17.14%, and other shareholders own 2.18%.

India's largest phone providers include Bharti Airtel Ltd. (532454.BY), Bharat Sanchar Nigam Ltd. (BSNL), Vodafone Essar Ltd. and Reliance Communications Ltd. (532712.BY).

Copyright © 2011 Dow Jones Newswires

Sistema Q2 loss at Rs 657.6 cr ; Debt now at Rs 5736 crores !

New Delhi: Sistema Shyam TeleServices Ltd (SSTL), which operates telecom services under the MTS brand, today reported a net loss of Rs 657.6 crore for the second quarter ended June 30, 2011.

The company had posted a net loss of Rs 661.3 crore for the same quarter of the previous fiscal, SSTL said in a statement.

SSTL's revenues rose to Rs 278.2 crore in the April-June quarter of FY'12, up 164 per cent from Rs 105.5 crore in the same quarter last fiscal.

The company said overall revenues have continuously grown by over Rs 40 crore per quarter over the last four quarters.

"In spite of the continued challenges faced by the telecom industry in India, SSTL is on track to successfully execute its data-centric, voice-enabled strategy," SSTL President and Chief Executive Officer Vsevolod Rozanov said.

Non-voice revenues from both data and mobile value-added services for the quarter were up 36 per cent quarter-on-quarter at Rs 79.69 crore, contributing 29 per cent of the company's total revenue.

Blended mobile average revenue per user (ARPU) for the last three quarters remained consistent at Rs 82, the company said.

SSTL's data card subscriber base for the quarter rose by 40 per cent to 820,000 subscribers. SSTL added 236,000 data card subscribers during the quarter, the highest number of additions it has registered in a single quarter till date, the company said.

Mobile subscribers' minutes of usage (MoU) declined to 295 minutes in Q2, 2011, from 305 minutes in Q1, 2011. The decline in the MoU was mainly because of the reduced quantity of free on-net minutes offered by the company to its subscribers.

SSTL's mobile subscriber base stood at 11.7 million customers as of June 30, 2011. By the end of the second quarter of FY'12, SSTL had expanded its high-speed mobile data services to more than 200 cities in India, including all five metros. The number of data subscribers increased by 40 per cent vis-a-vis Q1, 2011, to 820,000.

"Our revenue growth continues to be faster than our growth in wireless subscribers. In the current quarter, our blended mobile ARPU remained consistent, as against a declining trend in the market. This is a strong reflection of our continued efforts to target quality customers," SSTL Chief Financial Officer Sergey Savchenko said.

The capital expenditure made by SSTL in India by the end of Q2, 2011, stood at Rs 6,080 crore, including an investment of Rs 252.7 crore during Q2, 2011.

The company's consolidated debt liability at the end of Q2, 2011, stood at Rs 5,736.7 crore.

Vodafone to market Sistema Shyam's CDMA-based data service

Vodafone to market Sistema Shyam's CDMA-based data services

Thomas K. Thomas

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New Delhi, Aug. 31: 

Vodafone has signed a franchisee agreement with Sistema Shyam to sell CDMA-based data services on a revenue-sharing basis.

According to the agreement, Vodafone will market CDMA dongles under a new brand, Netcruise. The service will ride on Sistema Shyam's spectrum and network infrastructure. While billing and collection is to be done by Sistema Shyam, Vodafone will get a share of the revenue generated from Netcruise subscribers.

The service, which was launched as a pilot in few areas a month ago, is now being extended across the country.

Sistema Shyam offers mobile services under the MTS brand and has a network suited for data services based on EVDO technology. When contacted, an official spokesperson of Vodafone confirmed the agreement. “The partnership leverages core strength of both business groups i.e. the EVDO network of MTS and the branding and distribution experience of Vodafone,” the spokesperson said.

However, Netcruise tariffs are higher than the data plans under MTS's own brand mBlaze. “Vodafone is merely distributing an MTS product, which is differentiated by the brand and distribution strengths that Vodafone provides. MTS have chosen to differentiate the tariffs on this basis,” Vodafone said.

Vodafone, which until now has been offering GSM-based services in India, added that the CDMA dongles would help it to address a wider customer base.

“The Netcruise product is positioned quite differently in the market from Vodafone's 3G products and provides more options at varied price points to the customer. This helps meet all customer segments and needs,” the spokesperson said.

Market analysts said that with spectrum being scarce, this type of deal will be on the rise in the telecom space. Earlier, Tata Teleservices and Virgin Mobile had inked a similar deal.

MTS Android 2.3 tablet - coming soon

MTS Android 2.3 tablet

By Sandeep Budki, The Mobile Indian, New Delhi, September 01, 2011

Mobile operator MTS will soon launch an Android 2.3 tablet. In the past five months it has released high end and sub-Rs 5,000 Android handsets bundled with its network services.

MTS, a mobile operator that is part of Sistema Shyam TeleServices Limited (SSTL), will launch an Android 2.3 based tablet for Indian consumers in the next three months.
Vsevolod Rozanov, president and chief executive officer of MTS India said to The Mobile Indian, "We will be launching an Android 2.3 based tablet by year end for the Indian market."
He didn't elaborate on the tablet's specifications or its manufacturer but said, "We will have tablets for both premium and price sensitive customers."
While there are many GSM tablets in the market there are not many that run on CDMA.
It may be recalled that around five months ago MTS started focusing on offering its subscribers high end smartphones bundled with its network. It started with HTC Pulse, a CDMA Android smartphone bundled with free calls, data and SMSes in India.
The smartphone, worth Rs 18,000, is available almost free for its existing as well as new customers, who just need to sign up for a monthly rental of Rs 1,500 with a commitment of 12 months to get the device.
Users get 1,500 minutes of talk time along with 1,500 free SMSes and free data usage of 1,500 MB every month for twelve months.
Apart from that MTS, a couple of days ago, unveiled two Android smartphones - MTS MTAG 3.1 manufactured by Huawei and MTS Livewire manufactured by ZTE, both in the sub-Rs 5,000 category.
Both phones incorporate Snapdragon S1 processors. Running on CDMA EV-DO Rev A technology, MTS MTAG 3.1 and MTS Livewire support high quality voice and net enabled data services. These phones will be available in the market from the third week of September.
During the unveiling of these devices, Rozanov said, "I am immensely pleased to announce the launch of MTS MTAG 3.1 and MTS Livewire smartphones, incorporating Qualcomm's Snapdragon S1 processors. This initiative has been designed to take the power of Android to the masses. Launched in the sub-Rs 5,000 category, these are the most affordable Android smartphones in India."
MTS is also gearing up to attract high end mobile and tablet users on its CDMA network, which is a better choice for data users.
Let's have a look at the possible CDMA devices in India that might come bundled with an MTS connection:

MTS launches cheapest Android smartphones

MTS launches cheapest Android smartphones

Karishma Saurabh Kalita, NDTV, August 30, 2011,

MTS has launched two Android Smartphones for just Rs.5000 for its subscribers in India. The MTS mTag 3.1 and MTS Livewire will feature Android 2.2 Froyo with Qualcomms S1 Snapdragon processors.

The MTS mTag 3.1 will feature a 2.8 inch capacitive touchscreen along with a 3.2 Megapixel camera. Both the smartphones  have direct access to Google, YouTube, Google Maps and Google Talk. Both the devices have an additional feature of Voice Search which will enable the user to find anything without having to type.

The MTS mTag 3.1 and MTS Livewire comes bundled with services like free talktime, free SMS's and free data usages. It also gives access to the Android Market which will give the users more than 200,000 applications. Both these handsets get access to Live TV and on-demand video playback services as well.

MTS ties up with Vodaphone for data services

Mobile service operator Vodafone has launched USB internet dongles under a new service line, NetCruise which essentially offers internet access through CDMA operator MTS‘ EVDO network. This was first reported by Telecom Talk, which also mentioned that the service is being run as a pilot in the selected cities of Pune (Maharastra), Mysore (Karnataka), Jaipur (Rajasthan) and Coimbatore (Tamilnadu). The NetCruise website also mentions the same in fine print : ” Vodafone Mobile’ branded services are being offered by MTS through a brand franchise with Mobile Commerce Solutions Limited (MCSL). MCSL will provide MTS with designing, marketing and servicing of ‘Vodafone Mobile’ branded products being powered by MTS.”
Similar to MTS’ MBlaze, the service offers prepaid and postpaid data plans with speeds of upto 3.2 Mbps. It also free browsing on Yahoo and Wikipedia websites.
Paying a Premium just for a Brand?
While the arrangement made by MTS is to leverage Vodafone’s premium brand equity, we fail to understand why the service is priced at a premium compared to MTS’ own data plans on the same network. For example, the Unlimited 799 plan on NetCruise has a fair usage policy cap of 3.5GB, after which speeds are throttled to 144 Kbps or 64 Kbps from upto 3.2 Mbps. MTS’ MBlaze offers a similar plan with a monthly rental of Rs 750 and the usage cap is 5GB. Clearly, the NetCruise service is charging a premium for the Vodafone branding.

This is not the first time that such tie-ups have been inked. A similar partnership, close on the lines of an MVNO (Mobile Virtual Network Operators), was established between Tata Teleservices and Virgin, to brand, market and support a separate service on the same network under the Virgin brand name, targeted at the youth.
Also, Future Group and Tata Teleservices run a GSM service under the brand name T24 Mobile in Karnataka, Gujarat, West Bengal, Jharkhand, Chhatisgarh, Orissa, Punjab, Haryana, Rajasthan, Uttar Pradesh, Tamil Nadu, Kerala, Madhya Pradesh, Mumbai and Maharashtra,which offers rewards to customers who shop at Future Group’s retail stores.
However, this tie-up doesn’t offer any value addition to the service except for the premium branding. Also, wouldn’t it confuse Vodafone’s existing and potential customers, since the service runs on a completely different technology standard, and might even affect the sale of its own 3G WCDMA/HSDPA based dongles? This is probably one reason why Vodafone does not even make a mention of the service on its own website.

MTS to decide on IPO after the introduction of NTP

Sistema Shyam TeleServices Ltd (SSTL), which operates its telecom services under the MTS brand in India, today said it would decide on the ways and means to raise funds, including the IPO, after the introduction of the new telecom policy.
"We are waiting for the the telecom policy to come before we can decide on our fund raising plans including IPO," SSTL President and CEO Vsevolod Rozanov said here today on the sidelines of celebration for MTS crossing two million customer base in West Bengal.
The new National Telecom Policy (NTP) is likely to come in October and the company expects it will provide a clear direction for its long term planning.
He further said the company is looking at ways other than IPO as well, to raise money for investments next year.
"There are various options before us and IPO is one of them. We are working towards it like having adequate independent directors, scaling up operations. However, work and investment will not stop if IPO does not come soon as there are alternate means of financing," Rozanov said.
The investment for 2011, was funded by capital raised from 17.14% stake sold to the Russian Federation.
Rozanov did not elaborated on investment plan for 2012, however he said the company is working to introduce Version B of CDMA technology for faster data movement by modems.
"By September (Q3) we will launch this new technology for trial in Rajasthan," he said.
This technology is nothing but EVDO-B which can offer faster speed to the users as compared to GSM 3G. MTS garners 28% of its revenue from non-voice, of which about 20% comes from data services.

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Interview: Sistema Shyam Keen to Acquire or Merge in India

NEW DELHI --Sistema Shyam Teleservices, which controls about 1.29% of India's 826.93 million-user telecom market, is looking to buy or merge with another operator in an effort to boost business.

"Sistema is definitely eager to take a step" but it has to wait for the government to finalize new regulations, said Chief Executive Vsevolod Rozanov.

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Sistema Shyam Teleservices

Chief executive of Systema Shyam Teleservices Vsevolod Rozanov.

He didn't sound very optimistic, saying that "I think we are very far from this," but this is the first time in recent months that a telecom operator has said it is interested in buying out or merging with another.
"Consolidation" is a key word these days, with intense competition hurting profits in the world's fastest-growing telecom market.
The competition grew due to the entry of new players in 2009, which led to call tariffs plunging to as low as half a cent a minute.
India now has up to 14 operators in most telecom service areas, and analysts say consolidation is inevitable.
Federal Telecommunications Minister Kapil Sibal, while unveiling the broad contours of a new telecom policy earlier this year, said the new rules expected later in 2011 will pave the way for consolidation, leaving about five-six operators in the country.
Mr. Rozanov thinks this will be difficult, but he too feels that India will be left with six operators--five private and one state-owned.
He said Sistema Shyam is open to buying or merging with an operator which offers services under the more popular global system for mobile communications, or GSM, technology. More than two-thirds of India's mobile subscribers use GSM phone services.
Sistema Shyam--which is 56.68% owned by Russia's Sistema JSFC (SSA.LN), 17.14% by the Russian Federation and the rest by India's Shyam Group--provides services on the less popular Code Division Multiple Access, or CDMA, technology, competing directly with Tata Teleservices and Reliance Communications.
Sistema Shyam has licenses to provide services in all of India's 22 service areas and offers telecommunications services under the MTS brand.
Commenting on a recent company decision to delay a planned initial public offering, Mr. Rozanov said "there is limited opportunity for us to realize value for our shareholders."
Apart from volatile market conditions, Mr. Rozanov also cited ongoing federal investigations into the alleged rigged sale of licenses and bandwidth in 2008, which have dampened sentiment in the sector.
IPO aside, Sistema Shyam has enough cash to meet its capital expenditure target of over $200 million to expand its business in 2011, hesaid.
The expansion plan includes a contract to ZTE Corp. for upgrading its networks to a newer technology.
The new technology, called Evolution-Data Optimized Revision B, offers better connectivity for data services such as multimedia.
The company plans to start offering services on this new technology in the July-September period.
Sistema Shyam's plans to expand its wireless broadband capability come after initial success for its high revenue data services, which now contribute about 25% of its overall revenue. The company, which follows a January-December financial year, reported revenue of 2.36 billion rupees in 2010.
Its average revenue per user--a key gauge of profitability for wireless telecom companies--for its mobile internet services was 250 rupees and 600 rupees per month for its prepaid and post-paid users, respectively. Its voice average revenue per user was 82 rupees a month.
Market leader Bharti Airtl's revenue per user is 194 rupees for the January-March period, with 15% coming from data services.
To push up its mobile internet revenue, Sistema Shyam is in talks with global computer makers to introduce tablet computers in the country later this year, Mr. Rozanov said.
And, despite the regulatory overhang and the intense competition, the company is still bullish on the sector, given that the country is adding more than 15 million new users every month, and that only about 33 of every 100 people living in rural India use mobile phones so far.
Sistema Shyam added about 800,000 new users in May, with about 88,000 being wireless broadband subscribers.
Combined with the expectation that call rates won't drop further, Sistema Shyam's plans to break even at the operating level by 2013 remain "on track," Mr. Rozanov said.
"We are on a risky track, a very harsh track... but on track," he said.

Sistema’s India operations losses widen Rs 663 crore

DELHI: Mobile phone company Sistema said losses from its Indian arm widened by 63% to Rs 666 crore for the three months ended March 31 and attributed the fall to rising cost of operations and additional capital expenditure to expand services to new regions in the country.


"The decrease in margin is on account of increase in operational costs due to further scale up operations across all circles. Additionally, the circles of UP East, West and Gujarat, were launched in the latter part of 2010, hence the impact of their launch was felt in Q1 2011," the telco, in which the Russian government recently picked up close to 20% stake,said in a statement. India's Shyam group has a minority 26% stake in the teleco.

Sistema Shyam's results are a pointer that expansion costs, interest payouts for thousands of crores in loans for putting up networks in new areas and lower usage by new additions outside metros and big cities will continue to squeeze its profits and margins of all new entrants that are struggling to make in mark in the ultra competitive 14-player market.

The company's consolidated debt stands at Rs 5,584 crore.The telco's losses widened despite its sales jumping three-folds to Rs 236.2 crore during January-March quarter of FY'11, as against Rs 78.6 crore in the same period last year.

For the first time, our revenue growth during the quarter was faster than our growth in wireless (voice and data) subscribers, the company said.The company's results however have two key pointer that indicate that underlying trends are still positive.

First, its blended Average Revenue Per mobile User (ARPU) for the quarter remained consistent at Rs 82, as against a declining trend in the market. But, this is still low when compared to incumbent GSM operators such as Bharti, Idea and Vodafone, whose ARPUs are close to the Rs 200 mark.


Next, against an industry average of 10-15%, Sistema said its data services offerings accounted for a quarter of its revenues. "Non voice revenues from both data and mobile value added services for the quarter (was) up by 33% Q-o-Q to INR 588 million (Rs 58.5 crore) which contributes 25% of total revenue and the same has increased by 2 percentage points for the quarter," the company added.

It also said that at the end of Q1 2011, the company had expanded its mobile data services to 130 cities in India, including all five metros. The number of data subscribers increased by 36% over Q4 '10 to 580,000. Currently, MTS' HSD services are present in over 150 cities, its statement added.

Sistema defers listing

Sistema defers India listing on bourses till 2G probe is over

Sistema Shyam TeleServices (SSTL), a joint venture (JV) of Russia-based Sistema and the Russian Federation, and India's Shyam Group that offers telecom services under the MTS brand, has deferred plans for listing the company on the bourses till the completion of the 2G probe .

"The company wants to go public by listing on the Indian bourses. But in this kind of environment, I would say we would definitely have to see what the outcome would be of the various investigations," SSTL president and chief executive officer (CEO) Vsevolod Rozanov said. "One has to see the rules of the game. We have to look at the outcome of these investigations, the rules of the proposed new telecom policy and the spectrum issue. We definitely need to wait until regulatory clearance arrives," he added.

In 2010, the Russian government invested Rs 2,698.8 crore in SSTL with additional finance to help it to rapidly expand its highspeed data network across India. The Russian Federation holds a 17.14 per cent stake in the firm, while Sistema holds majority stake with 56 per cent participating interest and the remaining stake rests with its Indian promoters.

The firm will complete three years of Indian operations in October with a total investment of $3 billion by the end of this year. Sistema has arranged $3 billion for overall commitment from the group on various operations, out of which around $2.5 billion has already been invested and the rest will be realised by the end of this year, Rozanov said.

"Our network is present in 20 circles out of total 22 circles in the country. We will launch the last two in a few days in J&K and North East," Rozanov added. The firm has over seven lakh data subscribers. Including voice services, it has more than 11 million customers. India's telecom sector that majorly contributes to the country's gross domestic product (GDP) has come under a probe late last year after it found a presumptive loss of over Rs 1.76 lakh crore due to the sale of 2G spectrum in 2008 by former telecom minister A. Raja at 2001 rates.

The matter is being investigated by various agencies, which led to the arrest of Raja last year, along with his party and ministerial colleague Kanimozhi besides other corporate honchos involved in the scam.

India Moves to Revamp Telecom : WSJ

NEW DELHI—India is finalizing an overhaul of its telecommunications policies to address criticism that regulations are wrecking one of the nation's hottest industries by fostering price wars, degrading service quality and blocking much-needed consolidation.

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Bloomberg News

'India's cellphone rates have plunged in the past several years. Above, a mobile phone shop in Mumbai.

Kapil Sibal, India's minister of communications and information technology, said in an interview that the new policies, which will be in place by September, will relax restrictions that have prevented mergers and will aim to consolidate the wireless industry to only six carriers per market within India, down from 12 or 13 in many markets now. He also promised to free up radio spectrum, the airwaves that carry wireless signals, and allow companies to share spectrum.

In an interview with The Wall Street Journal, Kapil Sibal, India's telecom minister, gave the outlines of a major revamp in telecommunications policy expected to be unveiled by September. WSJ's Paul Beckett and Amol Sharma discuss what's at stake.

India's cellphone rates have plunged in the past several years in a hypercompetitive environment. Averaging about seven-tenths of a U.S. cent per minute, the rates are among the world's lowest. That has helped to bring mobile phones to the masses and turn India into the world's second-largest wireless market, after China, with more than 800 million subscribers.
The industry's rapid growth over the past decade is frequently cited as one of modern India's greatest success stories and has attracted billions in foreign investment.
But the setup has battered cellphone companies, whose revenue and earnings have declined sharply.Average revenue per user per month at Bharti Airtel Ltd., the nation's largest wireless carrier, dropped to just over $4 in the quarter ended March 31 from about $10 four years ago. Other carriers have reported similar drops.

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Carriers have pulled back on capital investment, which dropped 42% from 2008 to 2010 to $7.2 billion, according to Prashant Singhal, head of the India telecom practice at consulting firm Ernst and Young. That has raised fears that operators aren't nurturing their networks for the next phase of telecom development, the rollout of wireless Internet services. While India is in the early stages of introducing such third-generation services, the U.S. and many other developed markets are upgrading to 4G.
The government's new rules will go a long way toward determining whether India's telecom revolution sparks anew or fizzles over the next few years.
Mr. Sibal, a Harvard-trained lawyer who was appointed telecom minister in November when his predecessor resigned amid a corruption scandal, is trying to strike a balance in the telecom rules. Current call rates are unsustainable, he said, but the new policies must not put telecom services out of reach of India's poor.
"Ultimately, technology is meant to serve a public purpose, so that objective cannot be lost," Mr. Sibal said. "At the same time, the operator must get a return on his investment that is attractive, and the industry must prosper."
Telecom firms complain that strict merger rules, such as a stipulation that a carrier can't have more than 40% of the revenue or subscribers in any market, have headed off deals between midsize and large carriers and left the industry with far too many players, fueling price wars.

Operators also say they are desperate for the government to make more airwaves available. A sluggish bureaucracy and the reluctance of government ministries to give up airwaves have meant that Indian carriers have a small fraction of the spectrum that their counterparts have in the U.S. and Europe.
"There is an artificial scarcity of spectrum in India, which is holding back Indians from getting world class telecom service," said Nick Read, chief executive for Africa, the Mideast and Asia Pacific for Vodafone Group PLC, a major player in India.
Kunal Bajaj, a telecom consultant with Analysys Mason in New Delhi, estimated that under current levels of spectrum, carriers will be able to provide reliable broadband service to only 117 million users in 2015, even though there will be demand for a further 65 million connections.The amount of lost potential revenue to the industry would be equivalent to 0.7% of gross domestic product, he said.
Mr. Sibal said the government will move swiftly to sell more spectrum through a "market-based" mechanism that will ensure that prices are fair to carriers. He said the sale wouldn't necessarily be through an auction but wasn't more specific. Prices skyrocketed in last year's 3G auction, forcing companies to shell out several billion dollars apiece to cover just a portion of the country. "The big companies who have deep pockets only want an auction because they can snuff out everybody else," Mr. Sibal said.
In a shift, operators that aren't using all of their spectrum also will be allowed to rent portions to other companies, who could then offer wireless service. A common practice in many developed markets, including the U.S., this would put spectrum to more efficient use, Mr. Sibal said. "We want the regime to be far more flexible than it's ever been before," he said.
Still, there will be some major constraints. Mr. Sibal said companies will have to pay a one-time fee for any spectrum they hold over a specified limit, a move big carriers like Vodafone and Airtel oppose because it could cost them billions of dollars.
Mr. Sibal said spectrum availability and the number of players in the market also could be affected by a lawsuit that alleges that the government sale of 2G frequencies in 2008 was corrupt. The case, which is being heard by the Supreme Court, could result in some companies having their licenses revoked or having to return spectrum to the government.
Shifting and unpredictable regulations have put further stress on operators. After several companies finalized offerings of video calling on their nascent 3G networks late last year, the government said they would need a special security clearance.
"You can't launch a service and then be told after the fact that you need some new permission," said Srinivasa Addepalli, senior vice president for corporate strategy at Tata Communications Ltd. "It leads to uncertainty in the market and a waste of resources."
Regardless of what regulators do, Mr. Sibal said, operators and their investors shouldn't be concerned about a meltdown. "India is a market that cannot be snuffed out. There's no way in the world that will happen."
Write to Amol Sharma at amol.sharma@wsj.com

MTS is optimistic about prospects in India

In March of this year the Russian government made its first investment in telecommunications abroad. True the business in question, India’s Sistema, is a subsidiary of Russia’s AFK. Since 2008 Sistema Shyam Teleservices Ltd. (SSTL) has operated under the brand MTS India. How will SSTL use Russia’s $600 million investment? How does Indian business differ from Russian business? Will SSTL’s acquisition of Indian frequencies cause a scandal? Vsevolod Rozanov, president and CEO of Sistema Shyam Teleservices Ltd., spoke to Oleg Salmanov of Vedomosti about these and other questions.

Vsevolod Rozanov, president and CEO of Sistema Shyam Teleservices Ltd (left). Source: AP

Sistema is the only Russian company to date to have successfully exported its consumer business to India. How did you do it?

It’s true. Inside of two and a half years we were able to create virtually from scratch a cell network that encompasses almost all of India and serves more than 10 million subscribers. Going into India was definitely the right step because it is one of the few countries in the world where enormous goodwill towards Russia has always existed. The people we hire want to associate themselves with MTS, one of the world’s top 100 brands. And although few people believed that a Russian company could be successful in the consumer sector outside Russian-speaking territories, we managed to make a real breakthrough.

How does the Indian market differ from the Russian?

In the level of competition, certainly. India has 14 [mobile phone] operators. Not all of them serve all of India, but in any one region there are at least nine operators, and 10 to 12 on average.

Has that led to price wars?

The height of the price wars was in late 2009 and, thank God, in 2010 the situation more or less stabilized. ARPU (average revenue per user) is still going down, but smoothly and predictably. The situation does not look the way it did in 2009 when new operators — Sistema, Tata DoCoMo, Uninor (a subsidiary of Telenor), and others — all launched and a price war began between the top two players. During that period tariffs fell by 40% in one quarter alone.

Both for voice and data transfer services?

No, in data transfer the situation is different. Until recently there were only three players and the market was more or less stable because the two players who were there before us — Tata and Reliance — focused mainly on post-paid and the corporate sector. The market for mobile broadband access for mass consumers practically did not exist. MTS India is essentially creating that market. Now the ordinary person can walk into one of our stores and buy an affordable pre-paid product. We control around 60% of the mobile broadband market. We have more than 600,000 Internet subscribers. The market is still small, but it has huge prospects.

Why are you so sure of that?

Several years ago the Indian government set itself the task of substantially broadening the penetration of voice communications. Today India, with a population of more that 1.2 billion people, has around 800 million subscribers. Now the government has set itself the task of reaching some 140 million broadband subscribers within three years. And it’s absolutely clear that in a country like India where penetration of fixed communications is very low, it’s unlikely that broadband access will develop along the same lines as fixed communications. Except perhaps in large cities like Mumbai, Delhi or Bangalore. But overall we are absolutely certain that broadband access will be primarily mobile, and in that market we are now in third place. We expect to remain in the top three in future because, as one of the first to enter this market, we are the only ones focusing our efforts just on it.

Originally we were aiming at mass coverage with voice services so as to become OIBDA (operating income before depreciation and amortisation) positive as soon as possible. In 2009 we corrected our strategy to emphasize broadband access since it had become clear that it would be very hard to achieve a large cash flow with only voice services. Data transfer and additional services played a positive role: ARPU in data transfer is fairly high, and our brand has been effectively differentiated from the competition.

Now our revenue share from data transfer and additional services is more than 25%, that’s the highest index on the Indian market. For us, mobile broadband access is a steadily growing business. Every month we sell from 60,000 to 70,000 modems, and we launch services in new cities and regions where there’s gradually appearing a demand.

It seems that data is the CDMA operator’s karma. But SSTL didn’t initially plan to focus on data. Why did you choose a CDMA-based  technology? South America, for instance, has rejected CDMA.

South America, or rather, countries in the Caribbean basin, is the only market to have rejected CDMA (code division multiple access). In all other markets CDMA is developing fairly rapidly. Verizon in the United States is one of the leaders in the number of hook-ups. The world’s leading CDMA operator is China Telecom with 3 million hook-ups every month. And many of them already have Rev.A technology, rather than 1x. So I wouldn’t say that it’s karma. It’s a matter of markets that have a strong GSM segment, and CDMA as a second technology — in Russia, for example, in India, in Ukraine, in Poland where the CDMA operators focus mainly on data transfer. But in markets where the scale of business is large — in China, Korea, the United States, and to a certain degree in Indonesia — CDMA exists in all segments and is successfully developing.

Our decision to build a CDMA-standard network was a function of the fact that when the conditions for acquiring licenses were announced, it was clear that the affordable technologies were either GSM-1800 or CDMA-850. A GSM-1800 network is very expensive to build, since for construction in India you would need roughly three times as many base stations. Also GSM-1800 is mainly voice services.

Even now, even though 3G services have appeared on the market, we feel that our business will develop steadily because most Indian subscribers are convinced that in the current conditions data transfer using CDMA networks provides better quality than GSM networks or even 3G. In the near future, most likely of all, the market will not be re-divided in any major way, it will simply expand.

Is it true that in India there is a completely different attitude toward the use of mobile communications and that people manage to relay information to each other without paying?

Yes. For example, a shop owner wants some tea. He calls the little boy who brings it and lets the phone ring four times. The little boy doesn’t pick up, but he knows to deliver four cups of tea. People agree on certain code signals. For example, a man is leaving to see a doctor in another city and tells his family: if I call and let the phone ring three times, that means “come and get me”, four rings means “I’ll be home today”, five means “I’ll be home tomorrow”. Indians are exceptionally resourceful people.

In late March 2011 the Russian government concluded a deal giving it a 17.4% stake in SSTL. This is the government’s first such deal abroad. How will it change the way the company is managed?

We assume that representatives of Russian state organs will join our board of directors. And we will expand the board to comply with Indian law, which says that a majority of the board members must be Indian citizens. It doesn’t matter who nominates them (in our case they may be proposed by Sistema), they must be Indian citizens.

To what use will the $600 million received from the deal with the Russian government be put?

First of all, it will go to implement a business plan. We aren’t planning any radical changes — we’ll continue to focus on broadband access, expanding our presence in cities where we aren’t yet operating with EV-DO (Rev.A) technologies. We’re already offering mobile broadband services in more than 130 cities (where some 250 million people live) and are planning to substantially increase our presence in the near future. We also plan to develop our mono-brand store chain. It’s a very successful project — we already have around 1,000 stores. I think that by the end of the year we should have as many as 1,500. The money will also go to support operations.

At one point the possibility of an IPO (initial public offer) was under active discussion. What are the prospects?

I estimate that we will complete the preparations for an IPO by the end of the year. But to be honest, although we are sure of our business model and its prospects, the general impression among India’s telecom-market investors today is not the best. The stocks of the three public operators are low, and many investors refuse to invest in India’s telecom market on principle. It will be very difficult for us to combat that bias. In order to receive a fair offer at an IPO, the sense of the Indian telecom market has to change among investors. That will happen only when the regulatory system has stabilized and the rules for consolidation have become more flexible. We won’t put together an IPO for the sake of an IPO. We are in agreement about this with our minority shareholders. The necessary documents should be ready by the end of the year. After that we’ll decide [how to proceed] depending on the state of the market.

Is there a minimum share that one must sell for an IPO?

Indian law requires that the share of new stockholders be no less than 25%.

In Russia many people are talking about fourth generation (4G) mobile communications called LTE. Is there any talk in India of switching to 4G?

Let me remind you that in India there was a 3G auction only last year. The government is currently developing a new telecommunications policy. In India it is the custom for the minister of communications to hold a sort of round table once a quarter with the heads of operators to discuss various tasks. Now at these meetings there is more and more discussion about the vagueness of India’s telecom policy. Everyone says that the current policy is obsolescent, while a new one has yet to be worked out. In the last three years not one operator has acquired additional frequencies, despite the fact that the subscriber base has swelled to hundreds of millions. We are in line to acquire additional frequencies in a number of regions where we’re successfully developing, but we don’t know how to acquire them since according to the old rules the regulator doesn’t issue frequencies, and there are still no new rules.   

The new minister of communications has promised that a new policy will be drafted by the end of the year and then presented for discussion to the government. I imagine that it will also mention the matter of 4G.

Is the situation different in Russia?

I actually am always holding up the Russian market as an example to my Indian colleagues because it is fairly balanced and substantially more transparent. On the one hand, the level of margin is fairly high, investments are being made and dividends paid; on the other hand, there is a lot of competition, consumer tariffs are among the lowest in the world, services are affordable for broad swathes of the population. The coverage and quality are constantly improving. In short, the communications ecosystem in Russia is healthy.

This is not true in India. In India, operators are constantly being pressed to lower their prices. On the one hand, the Indian government rightly says that we need to go into the villages where there is no infrastructure, that this is a social mission; on the other hand, they support such fierce competition that there are no resources left over for development in regions where solvent demand is relatively small.
Now this situation has changed. The Indian leadership realizes that serious investments need to be made in communications, while no investments will stimulate the current ecosystem with its 14 operators, except perhaps in the richest regions. That is why new operators begin building their networks from the south — from Tamilnad, Karnatak, Andra-Pradesh, and megapolises like Delhi and Mumbai — and no one is focusing on the less developed regions. In certain districts today we are the only ones offering mobile broadband access. At the same time, we can’t lease passive infrastructure from other operators because in remote regions there is no infrastructure. We have to build it ourselves. And again we are helped out by CDMA technology: a GSM operator would have a very hard time developing given the situation now with tariffs.

We expect that the new telecom policy will cover (in addition to plans and aims for the future) the subject of a soft regulatory system of consolidation.

Are M&A deals forbidden now in India?

They’re technically possible, but in case of consolidation the operator must return the frequency band. What’s more you can’t own more than two operators in one region.

One of the problems with the Indian market is the narrowness of a band: it’s very difficult to acquire a broadband frequency for data transfer. Voice services also suffer — the quality of connections in India is not very high. Therefore we are actively raising the question of issuing new frequency waves.

The question of using the existing waves more effectively is also on the agenda. The Finance Ministry, which possesses great authority in India, also has a keen interest in the proposals of operators: the revenue which the government received from the 3G auction exceeded all expectations.

But didn’t the issuance of frequencies in 2008 cause a scandal that led to the minister’s replacement?  

Those frequencies could probably have been sold for a higher price, but the government had an entirely different aim which it clearly articulated at all levels: to drive prices down. To make prices fall sharply, the government decided to increase the competition and issue frequencies to new players. Any questions should be addressed to the organs that made those decisions because the operators were simply playing by the rules they had been offered. Now the change in those rules is being reviewed after the fact. But we and many other players have already invested billions of dollars in developing networks! 

How did that scandal affect SSTL?

In his report the general auditor and controller had no complaints about SSTL. Instead he referred to the shortcomings of the process and to the fact that it had been violated by a number of the players. This primarily concerned the so-called new operators, whereas Shyam Telelink (SSTL) was operating on the Indian market before it acquired a pan-India license.

I should also say that we were the only operator to bid for the one package of CDMA frequencies. Some thirty operators wanted to acquire GSM, whereas no one but us was interested in CDMA, so there was no competition.

What complaints are there about SSTL now? Have you received any letters from the regulator?

The situation right now is this: in all regions we have complied with all requirements, but in some regions our compliance came into force a little after the prescribed deadline. This largely resembles the Russian situation. Not one cell operator has ever managed to fulfill all the requirements of his license on time.

We have paid all the fines imposed on us, but we are currently disputing the size of those fines since we do not agree in every case with how they were calculated. Nevertheless, the question, in our view, is settled, so long as it does return to the political plane.

Is there any danger of the licenses being revoked?

We have been notified that we must explain our delay in launching networks in three districts; if we don’t, our licenses may be recalled. We are preparing the answer on the basis of which the Indian regulator will make his decision. We are counting on a positive outcome: in those three districts we have more than 1.7 million subscribers. 

How may the situation turn out for the market?

The new minister of communications is taking steps to regularize the issuance of frequencies and to clarify the circumstances of their issuance ahead of time. I hope that there will be no actions entailing serious consequences for our business. Especially since they may shake foreign investors’ faith in India. And India is very sensitive about its investment climate.  

We're in for long haul and not for quick buck : Mikhail Shamolin, Sistema

by Samidha Sharma & Shubham Mukherjee, Times of India


Mikhail Shamolin, 41, stepped into the president's role at one of Russia's biggest business conglomerates, the Sistema Group, just a couple of months ago but has already charted out big plans for the diversified group. Right on top of his list of 'things to do' is to make India a key market for the $28-billion group with interests in sectors as varied as oil and gas, telecommunications, retail among others.
The group's presence in India is currently limited to its mobile services joint venture, Sistema Shyam Teleservices (SSTL), which runs the MTS brand, but Shamolin is ready to take the next step.
The LSE-listed group has identified the oil and gas space as one such area of interest. It signed an agreement with ONGC Videsh, the foreign arm of the state-owned energy explorer last year and is now looking at ways to take this relationship beyond the Russian market. ONGC and Sistema have agreed to jointly explore and invest in oil and gas in key countries. Other areas like infrastructure and entertainment are also on the radar for the group, which generates 47% of its overall revenue from oil and gas while the telecom business contributes about 41%.
Before coming on board at the group, Shamolin served as the MTS Group president and CEO for three years till March this year as he spearheaded many significant developments at the mobile services company.
Credited with transforming MTS-the largest mobile services operator in Russia-from being a mobile-only access provider to a fully integrated telecom company, Shamolin drove MTS's entry into fixed-line services through the acquisition of Comstar-UTS, a provider of integrated telecommunication solutions in Russia. Even though the Sistema chief admits that he is not an India expert just as yet, the group's vision is to make India a lucrative market-only next to Russia-in the long term despite all the challenges that it throws up.
Tell us about what the Sistema Group is expecting from India as a market considering you are now looking to grow beyond telecom here?
India will grow at about 9-10% annually with consumption levels rising and a stable political system in place. It is one of the toughest markets to compete in but the potential is great as well. We came to India understanding the potential of the country. It is clearly the big focus area for us after Russia.

We entered India through our telecommunications business and it has been a tough industry to be in considering the number of players, regulatory issues, which do not allow for consolidation, and the price competitiveness. There are too many players and therefore there is too much strain on the industry and the quality of services has suffered on the voice and needless to say on the data side. But we are here for the long haul and not to make a quick buck and exit.
What are the new business ideas you are exploring here?
Sectors like infrastructure and energy where we are partnering with ONGC are the big growth areas. We are also evaluating the entertainment business as back home we are into movie production. We have the money; it's about the returns we can generate and in how much time. Talks are on with many parties but no final decision has been made yet.
What exactly will you explore with ONGC Videsh?
The agreement with ONGC Videsh enables us to consider opportunities for a potential transaction involving our majority stake in JSC Bashneft and 49% stake in RussNeft, each of which owns and operates numerous fields and refining assets, and ONGC Videsh's 100% stake in Imperial Energy Corp, which owns and operates fields in Russia. Along with this, any other oil and gas asset, which ONGC may acquire before definitive agreements are signed, plus possible cash investments are also part of the agreement. We have also agreed to consider joint investments in each other's existing and future exploratory assets in key markets as well.
As far as India goes, what are the plans here considering the group has its biggest play in the oil and gas sector back home?
We see there is huge opportunity as far as energy needs go for India. We may buy a coal mine or build an LNG terminal and import gas from other markets. Be it an electrical power plant, new field development, liquid gas terminals-we are considering all these opportunities seriously. There are many options and we are talking to a lot of players here in India. Most of these ventures will be through joint ventures as the capital expenditure is huge and therefore we will like to share the risks.
You spoke about the potential of the infrastructure sector in India, what sort of options are you weighing in this space?
 
We are looking at Glonass, a system of navigational satellites for location-based services just like the GPS as a big project which has been introduced in Russia. It is something that we can bring to India as there is a huge market for transport applications to develop intelligent traffic management systems. We want to develop a product jointly. In fact, we are holding talks with an Indian company which is designing a traffic development system for Delhi. This technology can be embedded in our mobile phones as chipsets along with GPS for higher accuracy.

What about MTS? What is the way ahead for it considering you have spoken about looking at merging operations with bigger players? Also, does it hurt your growth in India that you are only a CDMA technology player?

We will look at both acquisitions and mergers to gain scale in the market. But we want to maintain the MTS brand in whatever consolidation that takes place as it is very strong globally. MTS India currently has about 11 million subscribers. But we will like to add scale to our operations and consolidation is the way forward. We expect the new telecom policy will help address this issue.

Reshuffle at top to help MTS expand

Reshuffle at top to help MTS expand

OUR SPECIAL CORRESPONDENT

New Delhi, May 24: Mobile operator Sistema Shyam Teleservices (SSTL), which operates under the MTS brand, has realigned its top management. The company is a joint venture between Russia’s Sistema and the Shyam group. Under the new structure, chief marketing officer Leonid Musatov has been given the additional responsibility of the chief sales officer for MTS India. In his two years as the chief marketing officer, Leonid is credited with launching the MTS brand. “The change in organisational structure and subsequent realignment in key leadership positions has been designed to enable faster decision making and ensuring flawless execution of our data-focused, voice-enabled strategy,” said Vsevolod Rozanov, president and CEO, SSTL. A regional structure has also been introduced to lend support to its fast-growing operations. Atul Joshi, currently the chief sales officer, will now become the chief operating officer for the north and east. Cheenu Seshadri will take on the responsibility of the chief operating officer for the southern and western regions. At present, Seshadri is the chief strategy officer. “MTS India has reached a significant scale during the last two years and plans to further grow both its voice business along with a special focus on the data business. Our future plans involve rapid scale up of our operations and strengthening of new lines of business,” said Rozanov.