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"Without last mile connectivity we are all dead." - Views on News from Equitymaster
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  • Sep 14, 2000

    "Without last mile connectivity we are all dead."

    Mr. Prakash C. Bajpai is the President and Chief Executive Officer of Hughes Ispat Ltd. He is spearheading the company's effort in building the country's first broadband network to support voice, data and web application. Mr. Bajpai has 22 years experience in the electronics industry and has held management positions in IBM, AT&T Network Systems and Tata Lucent.

    In an interview with equitymaster.com, Mr. Bajpai spoke extensively on the Indian telecom sector and built his case on why one should invest in the fixed price IPO of Hughes Tele due to open on September 20, 2000.

    EQM: How has the telecom industry evolved since its liberalization in '94 and where do you see it heading in the next 3 to 5 years? Where do you think the potential will lie?

    Mr. Bajpai: I think the privatisation process has now been on for quite some time. Whenever, big-ticket privatisation is to happen then it is very critical that the regulatory process is equally matured and firmly in place. A large gap between the privatisation and de-regulatory process hampers the growth of the industry. This is what happened during the initial years of telecom deregulation.

    Going ahead it is critical that a level playing field is created, deregulatory processes are in place and policies are conducive for bringing investments into the industry. This is especially true for telecom, which is capital and effort intensive at least in the initial years like any other infrastructure project. The good news for the industry is that the frustration culminating from the above factors are a thing of the past.

    The telecom regulatory authority, TRAI, is now firmly in place and has made several recommendations in the past few months. This is a good development for the industry but at the same time the pressure of reforms should be maintained so that the environment remains conducive for investments. All this talk about the IT revolution and net economy will happen only when the infrastructure is improved.

    For India to become an IT superpower the infrastructure needs to be really robust, bandwidth should be constraint-free and security must be ensured. These areas still require large-scale investments. Therefore, in terms of investment opportunity India has great potential. Further, if we look at penetration of basic and cellular telephony, we are still way behind China, which has close to 140 m basic and 70 m cellular subscribers and compare that to India's 26 m basic and 2 m cellular subscribers. Therefore, there is lots to be done and hopefully there will a lot of growth, investment and excitement in the sector. One should also remember that investments in setting up last mile connectivity is almost four times more than the combined investments required in the other segments. In this segment not much has been done and lots more investments will have to flow into basic telephony.

    EQM: What opportunities does this bring to Hughes Tele.com and how does it plan to exploit these opportunities? How much of this opportunity does Maharashtra circle represent?

    Mr. Bajpai: For Hughes Tele.com this is a period of lot of excitement. We are beyond the start up phase and have our business processes and employees with requisite skills in place. Going forward we are now positioned to achieve geometric growth rates.

    Firstly, the circle of Maharashtra with Bombay included is by far the best property in India. Bombay continues to remain the commercial capital of the country. A large percentage of the GDP emanates from this region and businesses located here have felt the need for modern means of communications. The affordability of the business community is comparable with the best in the world. In fact, they have been paying telephony rates that are amongst the highest in the world. The affordability is there and the needs are identical, however, the service in return is not commensurate to the price paid. Therefore, in Maharashtra there is an enormous potential to exploit this gap.

    Consequently, Hughes Tele has chosen to set up a broadband network to overcome all the existing maladies of last mile connectivity. This will enable the user communities to get the benefit of the Internet, net economy, intranets, extranets and other telephony applications. At this point we plan to offer these services and are very excited about the potential it offers.

    EQM: TRAI recently opened up basic telephony with no limit on the number of players; how much will this new policy affect Hughes Tele?

    Mr. Bajpai: The opening of basic telephony is part of the continual reform process, which the Government of India has undertaken. Hughes Tele welcomes this move, as it will bring more investments into the sector. The task ahead in basic telephony is very huge and this will allow existence of multiple players. However, caution should be taken in maintaining a level playing field. Currently, it looks like the regulator, TRAI, and the Government are committed to this school of thought and as long as they follow this policy we welcome the move of opening up basic telephony.

    EQM: Drop in cellular tariffs have seen subscriptions zoom. Subsequent rounds of rate cut could see the growth continuing. How much of a threat is the cellular industry and how does Hughes plan to counter this competition?

    We do not consider the cellular industry as a threat. In fact we view these two businesses, cellular and basic, as complementary. The cellular industry, one will agree is very exciting, with advances made in mobile Internet, m-commerce etc is growing very rapidly. But business communication is a separate field. This will include networking applications such as virtual private networks, intranets, extranets and security applications. Both these fields are different and offer huge opportunities. From what is being offered today to what can be offered there is an exciting opportunity in both the fields.

    I say that there is no conflict between cellular and the services we are offering is because we are not expecting to see a cellular behind an EPABX system or a LAN / WAN interconnection in your office. Business communications, data communication, networking solutions is a different field of activity and represent different opportunities. Both, basic and cellular, play a role in improving the state of telecom infrastructure in the country.

    In fact, I believe that not enough work has been done in the cellular domain and that is a cause of concern. With opening up of other areas like DLD, basic, ISP and cable this is the only segment that has remained closed. If this segment is opened it would give us greater opportunity for offering larger value to our customers, as we will be able to leverage on existing technology to provide such services.

    EQM: What are the value-added services Hughes Tele plans to offer and how much of the revenue will such services contribute?

    Mr. Bajpai: India will gradually become an information and web centric society, especially business and commerce. Currently, the way the tariffs are structured, if we analyse the communication bill of any organization you will notice that 90% or more of the cost is incurred on telephony as compared to data line bills. Businesses are beginning to use more data communications, however, we anticipated at least in the initial years that 80% to 90% of the traffic would still be in basic telephony because of the skewed tariff structure. As for the value added services they will start picking up now. These include pre-paid cards, calling party pays, toll free numbers, premium rate services, information services and many more.

    The killer application will be the network builder. If a business is located in Bombay one can anticipate that it is only the tip of the iceberg. This is the hub and it will have its spokes spread out in the state, country etc. Business is looking to network its customer relation chain and supply chain for better logistics. The exciting benefits of B2B and B2C commerce will be available only when he has access to secured networks. There is a crying need for creating such applications and it for this reason that Hughes Tele has applied for a nationwide ISP license.

    EQM: Hughes Tele has invested a considerable amount in creating access; how important a role will the last mile connectivity play in the convergence game?

    Mr. Bajpai: Without last mile connectivity we are all dead. At the same time a majority of the customer woes today are due to last mile connectivity. This is primarily due to the poor copper cables and last mile is one of the biggest problems this country faces. If the network is to be upgraded this where the large investments are needed and this where the Hughes business model is focused.

    We will bring the power of broadband optic fibre connectivity right up to the business doorstep. Currently, in India 170,000 Km of optic fibre has been already laid but not an inch of that is in the last mile. To bring into perspective the task ahead of us, of all the telecom investments in the country, last mile will make up 80% of the investments. So instead of last mile it should be called first mile.

    EQM: Why should a person subscribe to your public issue?

    Mr. Bajpai: There are four key points. One, Maharashtra is the best telecom property in India. Two, we are offering a differentiated value proposition where our products and services will the best of breed. We plan to achieve this by leveraging on our human capital and technology backbone. Three, this is a high growth business, which means we will see geometric growth rates. And finally, the sponsors are highly committed. Hughes is not a new name in India, the lineage of the company is strong, it is part of General Motors (GM) group. As a result the company has inherited strong ethos and believes in maximizing shareholder value. Yes, we will not be making profits immediately being an infrastructure project. However, we believe this issue is for participation of a discerning investor.

    EQM: Any person that has influenced you significantly?

    Mr. Bajpai: A person who influenced me most during my early years was my father whose value system I cherish and hope to live up to during my life.



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