Sistema seeks law changes to favour telecom M&As

The global head of Mobile Telesystems (MTS), the telecom arm of the Russian diversified group Sistema, has called on the government to radically change the telecom laws in favour of takeovers and reasserted the group’s investment plans for India.

Michael Shamolin, global President of the MTS said the policy of giving out mobile operator licences to a large number of players has made it impossible to offer high value services and crimped the growth of the sector.

Speaking on the sidelines of the Indo-Russian Forum in the national capital, he asked the government to radically alter the telecom laws to reduce the number of operators from 15 to 5.

“India has a broadband penetration rate of less than 1%, so it needs mobile internet. But with an industry structure like this (with 15 operators), India will not have mobile internet at all,” Shamolin, whose firm has been one of the most aggressive wireless internet companies in India, said.

Shamolin said the company has launched its voice and data services on the bare minimum spectrum of 2.5 megahertz (total 5 MHz), while similar services in most countries were rolled out on much more spectrum. In the US, wireless broadband operators use between 20 to 60 MHz to operate their wireless broadband services. Having snapped up more than 300,000 users for its MBlaze wireless broadband service, MTS India seems to be fast realising the difficulty of maintaining quality of service as it tries to meet burgeoning demand for internet.

“India has developed into a very fragmented market. With a large number of players who hold between 1.5-5 MHz of spectrum. Even for voice, you can only roll out an average service with this much spectrum,” he said. “We are able to achieve a bandwidth of just 3 Mbps per base-station, while companies in the US are testing 250 Mbps per base station,” he added.

In an indication that MTS is interested in acquiring over other players in the Indian market, Shamolin said the government should amend its spectrum surrender rule. The rule — designed to prevent spectrum hoarding and trading — that forces a merged company to surrender some of the spectrum acquired through an acquisition if the combined entity does not have enough subscribers.

“The market needs to be consolidated. The 15 companies need to be converted into 5 companies with good spectrum,” he said.
MTS is one of the several operators that have been asked to show cause why their licences should not be cancelled or penalties imposed for not rolling out their services within one year as stipulated in their licences issued in early 2008.

Due to the issue of licences — which carry 4.4x2 MHz of start up spectrum— and the subsequent failure by most of the new operators to roll out, large amount of spectrum released in 2008 is yet to be put to any use. Each circle is estimated to have 2 or 3 such operators which have no or negligible services and are essentially squatting on spectrum, leading to spectrum scarcity among other players.

Shamolin deflected questions on the failure of MTS to roll out its services in nearly half of its licence areas, as pointed out by the telecom regulator. He, however, said the company’s invested $1.3 billion in the Indian market already and plans to invest another $5 billion in the next seven years.

The guidance is in line with the original plan of investing nearly $5 billion in the first five years.