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Economy

Digital market beset by problems: Industry leader

Big players caught between investing in connectivity, ensuring affordability

Rajan S. Mathews, director general of the Cellular Operators Association of India, speaks to The Nikkei. (Photo by Yuji Kuronuma)

This stellar industry has become such a problematic sector. This started in 2012, when the government began to auction off spectrum, for which money was paid upfront, and also continued to share revenue of telecom operators, which should have stopped.

The government wanted money and got it at the expense of the industry. We are pushing to remove license fees and spectrum usage charges -- 8% and 5% of telecom firms' adjusted gross revenue, respectively.

The Telecom Regulatory Authority of India itself recommended in 2014 that the government cut license fees to 2-3% and bring the SUC down to 1% and then slowly remove it, but there has been no response so far.

Even as the industry was saddled with all these expenses, it faced its biggest challenge with the September 2016 entry of Reliance Jio Infocomm, which offered services for free, further eroding the revenue stream.

At the Telecom Disputes Settlement and Appellate Tribunal and the Delhi High Court, we pointed out the new operator's predatory pricing -- selling below cost. Secondly, should they have had such a long "trial period," when they were actually adding customers? Another factor is that a dominant company was using its power to squash competition.

Companies are finding that the type of investments required in India cannot be done on a standalone basis. From 12 companies, we have gone down to five. We support the market dynamics that push people to consolidate, as it is difficult to sustain profitability as an industry if we have more than four or five operators.

Nobody forced Norway's Telenor to leave -- they came here, they bid and they found it's not that easy, especially given the cost of spectrum, and decided in February to sell to Bharti Airtel and exit. The UAE's Etisalat decided to leave in 2012.

The big thing is connectivity, which needs high investments in a network and the next is affordability which requires low rates. I am caught between a rock and a hard place.

Digital India is a risky proposition because these two critical parameters of digitization are both at risk when the financial health of the telecom sector is in question. If the government wants to connect 1.3 billion people, it has to address how this sector is going to raise the money.

By 2020, the government expects to have 650 million internet users. To get that, smartphones will have to come down to 2,500 rupees from the current 4,000-5,000 rupees. For 1 billion, it has to come down to 1,000 rupees.

Interviewed by Nikkei staff writer Kiran Sharma

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