Tariff wars will last till 2019, after which it will shift to service war: Telecom Secretary Aruna Sundararajan

Tariff wars will last till 2019, after which it will shift to service war: Telecom Secretary Aruna Sundararajan

The transition from 4G to 5G will be a software transition so it can be done much faster, says Telecom Secretary Aruna Sundararajan.

Telecom Secretary Aruna Sundararajan Telecom Secretary Aruna Sundararajan

The telecom sector is at a crossroad. For almost three years, since the entry of Reliance Jio, the fundamentals of the sector have gone for a toss. The fight between new operator Jio and incumbents has reached a stage where fresh investments in improving the quality of services, and future technologies like 5G have been affected. In a conversation with Business Today's Manu Kaushik, Telecom Secretary Aruna Sundararajan talks about a whole bunch of issues, including the ambitious targets set out in the draft telecom policy, 5G roadmap, the expected timeline of the return of stability in the sector and the future of MTNL and BSNL. Edited excerpts:

The draft telecom policy mentions attracting investments of $100 billion in the next four-five years in the telecom sector. Many people believe that it's too ambitious target. How do you justify these targets?

The fact of the matter is that digital infrastructure is becoming far too important for us. Unlike other forms of infrastructure, the digital infrastructure can actually supplant a lot of physical infrastructure. We admit that we have a huge physical infrastructure deficit, and huge service deficit. The only you can hope to bridge that kind of deficit within a foreseeable period is if you invest heavily in digital infrastructure. There's a handicap because this infrastructure is invisible.

People are very happy and they want to have more roads, more ports, more airports, more railways, etc. In each of these cases, 90-100 per cent of the investment is coming from the government. In this sector, 100 per cent of the investment is coming from the private sector. Then, we want to also expropriate revenues from this sector like rights of way. Apart from GST which is 18 per cent, we have a levy of 31.2 per cent. If you add the spectrum charges, it's somewhere 42 per cent. For every rupee earned by the sector, forty paisa is coming back to the government, and they are going into physical infrastructure. There's a gross asymmetry, and one of the things is to draw attention to that.

How are we saying that these are not unattainable targets? Let's look at the only comparable market which is China. Even though we are the second largest sector, it's possible that over the next 10 years, we will actually become the largest sector. China is investing $70 billion in telecom every year - that's $350 billion in five years. We are saying only $100 billion. It's the kind of investment that you would require if you want 100 per cent of your towers to be fiberised, smart city infrastructure to come up, broadband penetration to reach every citizen, and enable 5G. All of us have to put our heads together, and see how we can make it happen.

When do you expect the tariff wars to draw down?

You have three very strong players. Now these three players will continue to invest if they are able to see returns. Till about 2019 or the first quarter of 2020, after that I do believe that the fundamentals of the market will take over, and you will see enough monetisation. Basically, I think that even for Jio, there's a trend towards monetisation. I think that you will probably have a situation where each of the market players will have the same size. This tariff war will shift to a service war. That's the only way they will survive. Jio has the same compulsion as others. All kinds of inputs that I am receiving are that once they (Jio) get to have respectable [subscriber] share, they will come in line with the rest of the sector. They will have to.

Do you think operators are investing enough in improving the quality of services?

The quality of service has been the biggest casualty. Quality of service is poor. So we have to do a lot of work on the quality of services. I think that will have to be the big effort going forward. Actually it's a mystery. Operators say that it's because unlike the rest of the world, the loads in peak density areas is skewed. They say the density is almost two-three times what you would find in a similar tower. Therefore, these equipment have not been made for that kind of (traffic). But I'm not sure. I think the way voice and data have grown, our infrastructure growth has not kept pace. They are not investing enough but we have to let this period stabilize.

But the operators keep saying that they are investing?

It's going in to conversion from 3G to 4G but much more investment has to come.

What's happening on the 5G front?

One of the big milestones in the last few months has been the setting up of this high-level committee. It is the first time all three secretaries - Department of Science & Technology, Ministry of Electronics and Information Technology, and telecom - have come together. The roadmap is evolving quite well. The roadmap is looking at three things. One is accelerating the early deployment, and making sure the deployment scenarios are identified in advance. The second thing that we are looking at is to try to influence the whole evolution of the 5G framework. The third is to try to develop core expertise in these technologies.

The key in the future is going to be how much IPR we can generate in these areas. The fact of the matter is that right now we don't have the kinds of IPRs we should be holding. It's a peculiar situation. It's not that Indians don't have the capabilities. We have the capabilities but most of the IPRs are residing with foreign companies. One of the longer term objectives is how to actually get into some of these core areas and develop our own manufacturing and research capabilities.

The transition from 4G to 5G will be a software transition so it can be done much faster. One thing critical for this is: What's the state of readiness of the rest of industry because at the end of the day? Telcos need to be able to make money out of it. The second will be the availability of spectrum for 5G. For that, TRAI is already is in advanced stage of finalizing their recommendations on spectrum for 5G.

The finance ministry expects some 58 per cent increase in revenue from the telecom sector in 2018/19. Given the state of the telecom sector, what are going to be key drivers of this growth in revenues?

They have taken conventional approach that over the last 15 years, the telecom has been steadily growing, and they have extrapolated that and said that the same kind of growth will continue. But I think some amount of rationalization of that will happen.

What are your long-term plans with state-run MTNL and BSNL?

MTNL is a more challenging problem than BSNL. BSNL still has good assets in rural areas, and they still have pockets where they are very strong. For example, they are number one in Kerala. In some states, they are #2, and in many states, they are #3. It's a technology investment problem. BSNL has a legacy of large number of people. Now everything is changing in terms of technology. For example, the minister has already said that we will consider BSNL for 4G spectrum.  Once they get 4G spectrum, they will have to upgrade their networks, and they will be in a better position to compete. In the next five years, we expect a lot of rationalization of staff to happen. They still have over a lakh people.

For MTNL, there are three-four proposals right now. One of them is merger with BSNL. I don't know whether that decision is really going to help the two companies because BSNL is healthier, and tagging on MTNL will really help, I don't know. The other proposal is to how can we monetize the land assets, and try to reinvest into the company. For many years, they have not invested in networks. We are looking at these options.