Bharti bull

What's the outlook for the Indian mobile phone business?

Gupta: The outlook is extremely bullish. Analysts forecast that India will have 100 million mobile subscribers by 2007 and 200 million by 2009. We're currently the biggest GSM operator in India with 10 million subscribers and we will obviously benefit greatly from this growth.

What are your plans for 3G?

Right now we have no plans for 3G because the government of India has yet to take a view on how they want to proceed on it. Our guess is that a decision on 3G is 18-24 months away. We'd like to watch the developments in 3G in the rest of the world. I understand from what I see that 3G is getting better, but still has some way to go.

The government is waiting to see that it is commercially-viable before it's introduced in India. I understand from our discussions in Hong Kong that it still has technical problems with handovers from 3G to 2G networks, and the battery life is not good.

Analysts reckon the cost to build a 3G network in China will be about $10 billion. Is it the same for India?

I cannot comment. But it hasn't come to a price point where we would like to start looking at it. 3G has a long way to go down in terms of pricing. There's no great hurry as far as 3G is concerned in India.

How do you plan to fund your expansion in mobile and fixed line? On the fixed side you are planning to expand into 12 new cities.

We believe our needs can be funded by internal cash generation. We have no plans to issue new equity. If we do any debt, it will be more about refinancing our existing debt. But we don't need any more debt at this point in time. We already have $350 million as an approved line of credit from the export credit agencies. So there is plenty of financing available.

The high yield bond market has been attractive recently.

The high yield bond market doesn't really suit us at all. We get debt at a very cheap rate. Our overall cost of debt today is below 6.5%, so the high yield bond market doesn't make much sense for us. When I refinance I'll be looking for an even lower cost of funds.

Do you use the derivatives market actively?

We cover about 70% of our foreign exchange debt with forwards.

What's your outlook for the rupee versus the dollar?

If I go by what the bankers say, then it should appreciate a lot. The rupee is looking strong. I don't expect it to depreciate. The range should be 43.50 and 44 to the dollar.

There have been two successful sell-downs of Bharti's stock by Warburg Pincus. What does this mean for Bharti?

Warburg Pincus is an equity fund and over a period of time it has to exit every company. The timing is right for them, because they invested in 1999. What it means for the company is it brings more stock into the market and increases the liquidity, and that is something the company needed. So we are very pleased by the recent transaction, which also reflects the increasing depth of the Indian capital market. The success of the transaction is also a recognition that Bharti is the leader in the Indian mobile market. It is a vote of confidence that very large investors lapped up this stock in an overnight trade.

What is Warburg Pincus's position in Bharti now?

Warburg Pincus still retains 5.8%.

SingTel is another major shareholder. How does that relationship work?

The relationship we have with SingTel is absolutely wonderful. We really enjoy SingTel being a strategic partner. They are on the board and their advice has been invaluable.

Does it bring any value in terms of synergies?

Yes, it brings a lot of value, because the entire SingTel group of associate companies get together for forums and discuss their various problems and experiences. That is a great platform.

Is it a bit like an airline alliance, except of Asian telcos?

Not in that sense, but it is an alliance where we can bounce ideas off each other. Of course, SingTel has gone through many developments before us, so whenever we are introducing anything, SingTel can give advice. For example, when we set up a project on 1800Mhz, they were able to help us - indeed, because of the problems they may have faced integrating 1800Mhz and 900Mhz, that meant they had valuable advice for us.

Are there common negotiations with equipment vendors, to get the cheapest deals?

We have a different capital expenditure model. Instead of buying boxes we buy capacity; and the price is based on dollar per erlang. So we have a slightly different model than the other companies. In fact, they are looking at it very closely, because we believe it is a very useful model.

Can you go into a bit more detail about how that model works?

Traditionally, all telecoms companies buy boxes and individual pieces of equipment, and put them together to produce capacity. What we have done is contracted Ericsson, Nokia and Siemens and we pay them for the capacity we claim. The pricing is not in terms of each individual piece, but dollar per erlang - that being the technical term for the measurement of the capacity on the mobile network. The payments are linked to the quality of the networks - so there are service level agreements. Plus we have an agreement that we only pay them as we start utilizing the capacity. That gives us good cashflows and enables us to rollout much quicker. We start depreciating it the moment we pay and start using it.

What's next for Bharti?

Out of 23 mobile telephony circles in India, we are operational in 21. The other two we should become operational in this month. So by the end of this financial year we should have a complete all-India footprint. In the coming year, we will expand into more cities and towns. We are currently in 2,300 cities and towns and we intend to be in 4,200 by next year.

If a fund manager is looking to invest in one Indian telecom company, why should it be Bharti?

Well, on the mobile side, we are an all-India player, the leading player, and have a proven track record of sustained profitability. We are also an integrated player, so we are not dependent on our competition for a long distance backbone, or international long distance. We also have a very successful fixed line operation. So if someone is looking to buy into an integrated player in the Indian telecoms sector, we are a very viable option.

Will there need to be consolidation in the Indian mobile market? There are now six players.

We believe the market is big enough for six. If India is set to have 200-250 million mobile subscribers, then it is a big enough market for six.