Author
1991-1995 1991 Industrial Policy Amend-ed. Licensing only for indu-stries related to security and strategic concerns MRTP Ordinance removes restrictions on establishing new undertakings, expansions, amalgamations and takeovers Industrial licensing only for 18 industries Trade policy amended Rupee devalued 20 per cent Telecom equipment manufacturing de-licensed Electricity (Supply) Act, 1948 amended 1992 Radio paging, mobile and telephone services opened to the private sector MoU signed with Enron for 2,000 MW power plant 1993 National Mineral Policy announced 1994 National Telecom Policy announced; licences for mobile services in metros Air Corporation Act repealed. Private operators can provide air transport services 1995 Mobile licences issued for 19 circles Mega power policy to increase investments in projects with over 1,000 MW Airports Authority of India constituted 1996–20001996 Private sector allowed to set up air cargo complexes to smoothen export of cargo 1997 Independent statutory regulatory body Telecom Regulatory Authority of India set up Automatic approval for mining investments involving foreign equity participation up to 50 per cent in mining projects, and up to 74 per cent in services incidental to mining 1998 National Highways Authority of India constituted by an Act of Parliament. It is responsible for the development, management and maintenance of national highways Golden Quadrilateral project to four-lane national highways launched Central Electricity Regulatory Commission set up 1999 New Telecom Policy (NTP '99) announced. Telecom sector migrates from a fixed licence fee regime to a revenue-sharing mechanism; validity of cellular mobile licence extended to 20 years from 15 years earlier First private airport opens in Kochi 2000 Long-distance phone services opened up to private competition 2001-20052001 Fourth national cellular licence issued through bids; nation-wide licence issued for Rs 1,658 crore 2002 Delhi Vidyut Board (DVB) split into six companies—three distribution companies, one holding company, one transmission company and one generation company Department of Telecom Services corporatised to form Bharat Sanchar Nigam barring Delhi, Mumbai Delhi Metro begins services with the Shahdara-Tri Nagar stretch 2003 New Electricity Act introduced; replaces Electricity Act 1910, the Electricity (Supply) Act 1948 and the Electricity Regulatory Commissions Act 1998 2004 FDI cap for domestic airlines hiked to 49 per cent. However, foreign airlines barred from picking direct or indirect equity National Broadband Policy introduced Work begins on North-South four-lane highway corridor 2005 FDI in telecom raised to 74 per cent National Electricity Policy introduced National Maritime Development Programme launched 2006-20112006 Foreign direct investment allowed in the mining sector; in all non-atomic and non-fuel minerals can have FDI up to 100 per cent Delhi and Mumbai airports handed over to the private sector for modernisation 2008 22 new unified access service licences issued for mobile telecom services at Rs 1,658 crore each National Action Plan on Climate Change launched. This comprises eight missions including the National Solar Mission and the National Water Mission National Mineral Policy introduced to streamline and simplify procedures for the grant of mineral concessions 2010 Spectrum for the launch of 3G and broadband wireless access (BWA) services are auctioned. The Centre is richer by over Rs 105,000 crore Maritime Agenda 2010-20 launched. Focus on private sector in expanding port capacity Terminal 3 of Indira Gandhi International Airport in New Delhi opens in time for the Commonwealth Games 2011 Cargo movement at Indian ports exceeds 1 billion tonnes for the first time ever (This story was published in Businessworld Issue Dated 22-08-2011)
Read More
It has been in the eye of the storm almost ever since it was conceived. Last week, the government gave the go-ahead to the 9,900 MW nuclear power plant at Jaitapur in Ratnagiri district of Maharashtra. Once completed, it would be the single-largest power plant in India. Jaitapur got the clearance despite opposition from the residents of the region. Apart from dislocating villagers from the mango bowl of Maharashtra, the plant is located on the coast in a seismic zone — though a significantly lower one than Fukushima, Japan. Situated 10 metres above mean sea level, the threat of a tsunami affecting operations is also relatively lower.While most countries are reviewing their nuclear power strategy, India has decided to go ahead with the Jaitapur plant. The question is why.By this decision, the government has indicated that India's nuclear power programme will continue despite Fukushima. As things stand, nuclear power could be critical in meeting the growing power demand in the country. At present, India has 20 nuclear reactors at six locations that generate 4,780 MW of power, which accounts for just 2.2 per cent of India's total power generating capacity. The government expects nuclear power plants to generate 20,000 MW by 2020 and 63,000 MW by 2032.With GDP growing at over 8 per cent per annum, India would need power generation capacity to grow at close to 10 per cent per annum. It also fits in with the government's plans to add 100,000 MW of power generating capacity during the 12th Plan (2012-17).India has been looking to expand nuclear power capacity in a big way ever since the 2008 nuclear deal with the US. It has signed preliminary agreements with the US, France and Russia for acquisition of new reactors. It is in this context that Jaitapur has got the green signal.The 9,900-MW Jaitapur nuclear power plant will have six nuclear reactors of 1,650 MW each to be set up in three phases. The first phase will have two European pressurised reactors (EPR) supplied by France's Areva. That is likely to be commissioned in 2018. The capacity at Jaitapur alone will be more than double the current nuclear power capacity of 4780 MW.While there have been concerns on the EPR, government officials point out that these are commercial reactors and not experimental reactors. They are upgraded versions of French N4 and German Konvoi reactors that have been in use for several years in these countries. French EPRs are currently under construction in Finland, France and China.The action on the nuclear front is not just limited to adding power-generation capacity. The government is expected to introduce a Bill in the next session of Parliament for the formation of an independent and autonomous nuclear regulatory authority.While that is a step in the right direction, the big issue at stake now with Jaitapur is the environmental impact of the project and long-term safety. If the government manages to address these issues directly, it could well assuage the anti-nuclear groups in the country and open the doors to setting up more nuclear power plants.(This story was published in Businessworld Issue Dated 16-05-2011)
Read More
India’s largest mobile service provider Bharti Airtel has launched Wynk — a music application. That makes it the first Indian telecom operator to offer an Over the Top (OTT) mobile application in India. What this means is that for the first time, Airtel will be offering a service to users of all networks.This move ensures that it can keep up with the competition and ensure a steady rise in data revenues. The app that is available on the Android and iOS platforms, offers 1.7 million songs in eight languages — Hindi, English, Tamil, Telugu, Bengali, Kannada, Punjabi and Bhojpuri. The advertisement free app runs primarily on subscription revenues. It will compete with Saavn (South Asian Audio Video Network) and Times Internet’s Gaana. It has priced its offerings at rates lower than both these applications.Wynk is available in three versions—free, Wynk Plus and Wynk Freedom. In the free version, users can stream songs of their choice online and listen to internet radio. With Wynk Plus, they can enjoy unlimited in-app song downloads and play music offline at Rs. 99 on Android and Rs. 60 on iOS. Airtel customers using Android phones can enjoy a special introductory price of just Rs. 29 on this. Wynk Freedom at Rs. 129 is available to Airtel customers in 3G circles using Android phones. That gives them unlimited streaming and download of music without incurring additional data charges.The move is the first bid by an operator to get back revenue that they are losing to OTT operators. Already, operators are losing to social media platforms like Facebook and Twitter. Now for the first time an operator is looking to make the most of data that is travelling on its pipes. Says Srinivasan Gopalan, Director, Consumer Business, Bharti Airtel: “With the rise of smartphones in India, mobile phones have emerged as the most preferred platform to experience music on the go and accounts for almost 85-90 per cent of total digital consumption."The target consumers for Wynk are largely the youth. While data revenues are expected to rise, much of that could be while users are on a wifi network, reducing the data earnings of operators substantially. Airtel is banking on the rising demand for smartphones in the country.
Read More
He has all the right genes. The second son of former Punjab-based Congress Member of Parliament (Rajya Sabha), Sat Paul Mittal, has been witness to political activity at home right from his school days. Yet, neither Sunil Mittal nor his brothers Rakesh and Rajan have entered politics, yet. Sunil got into business and built India’s largest telecom services company virtually from scratch. Both Rakesh and Rajan have been part of the Bharti Airtel growth story. As polling ended for the 2014 Lok Sabha elections, the charismatic Sunil Mittal has gone out on a limb and stated that under the circumstances, Prime Minister Manmohan Singh did a fine job. He says: “As a member of the Prime Minister's Council on Trade and Industry, I have seen him dealing with critical national issues and ensuring that conflicting positions were resolved expeditiously.” This is not the first time that Mittal has endorsed leaders. In January 2009, Sunil Mittal, Mukesh Ambani and Ratan Tata went all out to endorse Narendra Modi during the Vibrant Gujarat Global Investors Summit. Mittal had then stated to thunderous applause: "Chief Minister Narendra Modi is known as a CEO, but he is actually not a CEO because he is not running a company or a sector. He is running a state and can also run the nation." With Singh no longer in the political race, there will be many who will analyse his tenure threadbare. So was he an ineffective PM? Mittal does not believe so. He states: “History, I have no doubt, will judge him better than some of the present day commentators, who chose to overlook both the goodness of the man and his extraordinary work.” That remains to be seen. But, the irony is that Singh despite being feted globally as an economist failed to lead the government in his second tenure as Prime Minister starting 2009. Agreed the business environment globally has been tough ever since Lehman Brothers collapsed in 2008. And Singh with a coalition cabinet could not push policy measures while the government faced a series of scams including telecom, coal and the Commonwealth Games. It remains to be seen whether and how quickly the new government can help push up growth rates. But as Mittal sums up, it can be very lonely at the top especially when confronted with politically explosive situations. Singh could now emerge as a great speaker on the global lecture circuit quite like Bill Clinton. And he will no longer need to worry about what others say about him. anup.jayaram@gmail.comanup@businessworld.in
Read More
This January, then Prime Minister Manmohan Singh inaugurated a 5 million tonne per annum (mtpa) terminal at Kochi by Petronet LNG, India’s largest liquefied natural gas (LNG) regasification company. For the company, the new terminal was a step closer to achieving its targeted capacity of 30 mtpa by 2020. In a business where demand is huge and rising but supply is limited, Petronet sources 7.5 mt of gas from RasGas in Qatar and another 2.5 mt annually from across the world. “In the long run, domestic gas will not be able to meet the continuously rising demand in India. Imported gas is the solution. That’s where our business model, which is based on regasification charges, comes in handy,” says A.K. Balyan, CEO and MD, Petronet LNG. Besides its own imports, Petronet is open to regasifying LNG imported by others. It’s no surprise the company has achieved an average four-year sales growth of 38.57 per cent. However, for its model to work best, Petronet needs a network of pipelines to supply gas to customers. Its 10 mtpa Dahej terminal in Gujarat is connected to five pipelines that move gas across north and west India. The Kochi terminal is currently linked by a 44-km pipeline to Cochin Refinery. In the second phase, two pipelines are planned for Kochi— Tamil Nadu to Bangalore and from Kerala to Mangalore. Petronet is also working to set up another 5 mtpa terminal on the east coast at Gangavaram in Andhra Pradesh.“We need to multiply the length of pipelines so that the current grid in north-west India is connected to the southern grid.”Petronet, which sources the bulk of LNG from Qatar, is looking to diversify its gas imports as more and more gas assets start production. For that, the government needs to first finalise the price of domestic gas. Once that happens, things should become clearer for Petronet.The company has already found buyers for its Kochi terminal for the next 20 years. Besides, a combination of low domestic natural gas output and ever-increasing demand from companies helped Petronet LNG maintain an over 100 per cent utilisation of its Dahej terminal. That’s huge considering LNG regasification plants the world over work at 50-55 per cent of their capacity. (This story was published in BW | Businessworld Issue Dated 11-08-2014)
Read More
It has been talked about for quite some time now. But it needed direction from the top. In his first Budget, finance minister Arun Jaitley did just that. He proposed to add 15,000 km of gas pipelines to form a national gas grid. That comes as a shot in the arm for India’s newest Maharatna, GAIL. It currently has a 10,900-km pipeline network and is working on adding another 5,000 km. “We are striving to expand India’s gas grid substantially in the coming years with the construction of the Jagdishpur-Haldia, Surat-Paradip and Kochi-Mangalore-Bangalore pipelines,” says B.C. Tripathi, chairman and managing director, GAIL.In recent times, GAIL India (in which the government of India has a 56.11 per cent stake) has been in the news for all the wrong reasons. The fallout over the recent gas leak being just the latest setback. Yet, India’s leading gas transporter has notched up a four-year net sales growth of 23.1 per cent. This is on the back of GAIL adding over 4,000 km of pipeline in the past three years and reviving the 5-million-tonne-per-annum (mtpa) Dabhol LNG terminal.During FY2014, over 76 per cent of GAIL’s revenues of Rs 57,245 came from gas trading. Fertiliser companies accounted for 32 per cent of the gas supplied by GAIL, followed by power (31 per cent) and city gas (11 per cent).One of the key issues for GAIL has been gas pricing. Says Tripathi: “We believe an upward revision of gas prices will have a positive impact on our topline, though the bottom line may be hit slightly because of exposure to liquid hydrocarbons and petrochemicals. However, the actual impact can be assessed only after a change in the pricing policy.” Tripathi was given a five-year extension as head of the state-owned utility in October 2013. Over the past few years, GAIL has considerably expanded its global footprint. It formed GAIL Global (Singapore) for tapping overseas business opportunities. It also established a wholly owned subsidiary, GAIL Global (USA) in Texas, which acquired a 20 per cent working interest in a joint venture with Carrizo Oil & Gas in the Eagle Ford shale gas acreage in Texas. Through aggressive sourcing agreements, GAIL has created a long-term import portfolio of 23.8 mtpa of re-gasified liquefied natural gas from diverse sources such as the US, Russia, the Middle East and Australia. Of this, 5.8 mtpa has been secured from the US, at prices based on the attractive Henry Hub index; this will ensure the Indian market receives relatively cheap natural gas from 2017. GAIL also expanded its exploration and production portfolio by starting production from two blocks in Myanmar.Within the country, it is looking to expand its city gas distribution business to 50 cities.(This story was published in BW | Businessworld Issue Dated 11-08-2014)
Read More
Some 30-odd kilometres south of Delhi is the dull, drab industrial town of Ballabgarh — home to the 66-acre campus of global construction equipment major JCB. The verdant campus, in stark contrast to its surrounding, is dotted with hundreds of yellow 2-tonne backhoe loaders (vehicle with arm and bucket at the back and a loader in the front) ready to be shipped out across India and abroad. After all, the world’s largest backhoe loader manufacturing plant rolls out an average of 100 machines every day. For the £2.7-billion, Staffordshire, UK-based JCB, the action is very much in India. And, why not? While the global construction equipment market is growing at a meagre 5 per cent, India is clocking a healthy 15 per cent. And JCB has been the prime gainer. So much so, the company accounts for close to half the backhoe loaders sold annually in India.JCB chairman Anthony Bamford recently called India a hub and said it was a crucial destination for the world’s third largest construction equipment manufacturer by volume. Interestingly, for a company with operations in close to 150 countries, India is truly the crown jewel, accounting as it does for a little more than a quarter of JCB’s global revenues. JCB entered India in 1979 as a joint venture partner with Escorts. As the Indian economy grew, JCB bought out its partner in 2003. It brought in the latest technology from Europe. This gave the company the much-needed edge over peers such as state-owned Bharat Earth Movers, and pushed it to the No. 1 slot from 2006-07 onwards. With the Golden Quadrilateral project taking off and the announcement of other road projects, the firm gained traction. The company has seen revenues rise from just Rs 450 crore in 2001 to Rs 5,700 crore in 2012. JCB’s Global Revenues (2012) £2.7 BILLION (RS 22,295.35 CRORE)JCB India Revenues Rs 5,700 CroreJCB India’s Share Of Global Revenues 25.59%Named after founder Joseph Cyril Bamford — the Bamford family was ranked the ninth richest in the UK by a business magazine in 2013 — JCB is among the global construction equipment majors looking to grab a bigger slice of India’s growing construction pie. The reasons are not hard to find. The $6.5-billion Indian construction equipment market is expected to be worth a whopping $23 billion by 2020, according to a 2013 Accenture report. Earth-moving equipment accounts for $3.7 billion (57 per cent) of the Indian market, and JCB is currently the biggest player in the segment. “Anybody who needs to dig earth comes to us,” says Vipin Sondhi, MD and CEO, JCB India. The construction equipment market globally comprises four verticals — earth-moving equipment, material handling and cranes, concrete equipment, and road-building equipment (in descending order of market share). JCB is among the 21-odd global construction equipment majors to have invested in India. These companies are setting store by the central government’s announcement last year that it would spend $1 trillion on infrastructure development during the 12th Five-year Plan (2012-17). Spotting an opportunity, global firms, including Caterpillar, Eaton Construction, John Deere Construction Equipment (with Ashok Leyland) and LeeBoy Indian Construction Equipment, have been expanding operations in India. This has raised the level of activity among construction equipment companies in India. Recently, Larsen and Toubro bought out Japan’s Komatsu from a joint venture. Meanwhile, Japan’s Hitachi is looking to make India the base for its construction equipment and power electronics business, and intends to invest Rs 4,700 crore by 2015-16. It plans to set up a research and development centre for construction equipment in Bangalore. So widespread is the company’s presence in India that its bright yellow backhoe loaders with ‘JCB’ imprinted on them have now become synonymous with earth-movers. While JCB is the market leader in India, it trails the global majors in other emerging markets. It recently entered Brazil and faces immense competition from domestic manufacturers in China. But in India, the firm already has three manufacturing facilities — two in Pune and one at Ballabgarh. One Pune plant is component-oriented and caters to the needs of JCB factories in India and abroad, while the other makes excavators, wheeled loading shovels and vibratory compactors. The company plans to invest an additional Rs 500 crore over the next five years in a new plant in Jaipur. To be initially used for fabrication work, it is being set up on a 115-acre plot at the Mahindra World City special economic zone. “India is a very important market for JCB. The investment in Jaipur is a vital step to further strengthen our position in this growing market,” says Alan Blake, who recently retired as JCB’s global CEO. All along, JCB India’s focus has been to meet the needs of road projects. As Sondhi says, the Golden Quadrilateral project saw demand for equipment rise manifold. However, with many road projects getting delayed, JCB saw revenues fall 15 per cent in 2012. So, the company decided to give exports from India a push. In 2012, it exported 970 machines to the Middle East and Africa, over three times the number it exported in 2011. Surprisingly, Sondhi continues to be unfazed by the slowdown in road projects. “We’re an infrastructure-deficit country,” he says, convinced that demand will soon pick up, and a lot of the action in the sector will start once the 2014 elections are over.Market MedleySo how does JCB fare in such a competitive market? The answer lies in the numbers. “Almost every second construction machine sold in India today is made by us,” says Sondhi. In 2012, JCB accounted for close to half — over 24,000 of the 49,000—of the backhoe loaders sold in India. Its closest competitors are Caterpillar and Case New Holland. break-page-breakBut the real opportunity lies in the fact that even today JCB India makes only 24 of the 300-odd machines that it makes globally. That is where the investment in Jaipur will help. Fabrication work can be used as a template for machines that will be produced in the future. JCB is also looking to expand its India advantage. It has set up a 200-person design centre, spread across 18,000 sq. ft, in Pune to cater to its global needs. This is in addition to two design centres that the group has in Rocester and Foston in the UK. Over the next few years, the company plans to add more products to its India portfolio. The other advantage the company has is its distribution muscle. Today, it has 58 dealers and 500 outlets as compared to 45 dealers and 175 outlets five years ago. This network is much bigger than what any of its competitors have. Across other construction equipment companies, it is estimated that there are a little less than 1,000 outlets. Though demand has been rising steadily, input costs have outpaced it. The biggest outgo is definitely on steel. The industry has been looking at ways and means to curb costs. “The objective of construction equipment companies all along has been to undertake value engineering projects that prune costs. That, however, is not easy in a world of rising commodity prices,” says an industry consultant. Apart from production costs, the other issue that needs to be factored in is the cost of ownership. The growing demand for infrastructure entails increasing investment in these machines. Incidentally, it is not large corporations that are picking up these machines that start at around Rs 22 lakh and go all the way up to Rs 50 lakh. Close to 40 per cent are first-time buyers who use the equipment as an investment to get into a lucrative business. Satinder Singh, 32, a petty contractor from Narela near Delhi is one such person. He bought a backhoe loader a couple of years ago on loan. He operated the machine on his own while working for contractors on the six-laning of the Delhi-Jaipur highway. Now, he is all set to add a couple more machines. Says Singh: “Shuruat mein thodi mushkil thi. Uske baad to kaam aata raha hai (It was difficult at first, but the work flow has been steady ever since).” That, according to Sondhi, is the norm. Most people who start with one machine now have many. He points out that most owners lease the machines out to road developers, while others hire people to run them. Singh can earn around Rs 600 an hour by leasing out his machines to road companies. ON A ROLL: The JCB plant turns out 100 units a dayTo ensure that people operate the machines correctly, JCB has set up operator training centres. This is important as the machines have multiple gears to handle different operations. The centres do not just help bridge the gap between the demand and supply of trained operators but also assist in improving the productivity of the machines due to better operations. Apart from training, they also help people like Singh run their additional machines.But like with most other equipment, the machines in India need to be far more rugged than in the developed world. That’s because the conditions in India are harsher, the machines are used for much longer periods at a time and operators have to factor in the supply of adulterated fuel. To make the machines cheaper for the price-sensitive Indian customer, JCB has localised its products. More than 80 per cent of the components in the backhoe loader are now sourced locally. However, JCB has still been quite focused on sticking to a small range of equipment unlike global competitors, which have moved on to make bigger machines that cater to the needs of the mining industry. JCB has no immediate plans to manufacture mining equipment in India. Apart from backhoe loaders, the company also makes tracked excavators, wheeled loaders and compactors in India. At the recent Excon 2013 (South Asia’s largest construction equipment exhibition) in Bangalore, JCB introduced 19 made-in-India machines. After all, it is the infrastructure deficit that Sondhi is looking to address. That will take a lot more time after the damage wrought by the Uttarakhand floods and the Phailin cyclone. The demand for construction equipment is, however, definitely on the rise. That means JCB should see a lot more orders in the next few months. But, it remains to be seen if it can retain its pole position in a market that is teeming with global companies looking to make a mark. (This story was published in BW | Businessworld Issue Dated 10-02-2014)
Read More
At the reception of Sanchar Bhawan, a stone’s throw from Parliament House, was where it all began. On Thursday, 10 January 2008, the Department of Telecommunications (DoT) issued 122 mobile telecom licences to eight telecom operators in less than two hours. By the end of the day, the government was richer by a neat Rs 12,386 crore. Matters came full circle 49 months later — 4 February 2012 — when Justices J.S. Singhvi and Asok Kumar Ganguly of the Supreme Court quashed the 122 licences, leaving behind a trail of badly bruised telecom companies. The next 18 months were the hardest the telecom industry has faced since inception. The tough times coincided with the slowing down of the Indian economy. That’s when operators, old and new, big and small, national and regional, went all out on reducing costs. The cuts have been maniacal since the industry was saddled with a debt of Rs 250,000 crore ($41.7 billion). One, many free offers were reduced while others were stopped. Some operators did the unthinkable by hiking baseline tariffs. Two, large operators like Bharti Airtel and Reliance Communications (RCom) took measures to retire debt, while newer entrants restricted operations to just a few circles. Three, in the last 18 months, operators cut close to 8,000 jobs, most of which will not be replaced. Four, as voice revenues stagnate, operators have cut data rates — be it 2G or 3G — to woo users. All this fits in to meet the challenge that Mukesh Ambani’s Reliance Jio Telecommunications is likely to pose once it launches operations in 2014. The recent move to allow 100 per cent FDI in the sector could lead to consolidation.The fallout of the licence cancellations was immediate. In less than three months, three operators — Etisalat, Loop Telecom and S Tel — decided to exit. Three others — Uninor, Sistema Shyam Teleservices (SSTL) and Videocon Telecommunications — decided to restrict operations to just a few circles. The subscriber numbers said it all. In the last fiscal, India’s mobile base fell 50 million from 951 million (March 2012) to 898 million (March 2013). While that has resulted in overall teledensity falling from 78.66 per cent to 73.32 per cent, average revenue per user (Arpu) of GSM users has risen from Rs 95.5 in June 2012 to Rs 98 in December 2012, while minutes of usage rose from 346 minutes (March 2012) to 359 (Dec 2012). So is the worst over for the industry? It seems so. Sunil Bharti Mittal, chairman, Bharti Airtel, says: “The telecom industry is on the mend and will get into a strong recovery mode.” Ending Freebies As subscriber numbers fell, operators started by cutting down on freebies. Bharti Airtel reduced discounts and limited the validity of pre-paid cards in January. Idea Cellular and RCom followed suit. While Bharti did not touch tariffs, promotional benefits were reduced and free minutes cut sharply. So, while subscribers pay the same amount, they now get fewer minutes of talk time. Says Hemant Joshi, partner, Deloitte, Haskins & Sells: “What this has done is weed out inefficiencies in the system.” While other operators cut freebies, RCom raised tariffs twice — from 1.2 paise to 1.5 paise a second, and then to 2 paise a second — over the past few months. It’s an indication of a degree of rationality in the industry as it moves from chasing subscribers to improving revenue per minute (RPM) and profitability.That was the easy part. The tough task lay in reducing debt accumulated over the years. Bharti Airtel led with a Rs 63,840-crore ($11.7 billion) debt, followed by RCom with Rs 38,864 crore ($7.15 billion) and Idea Cellular with Rs 11,588 crore ($2.13 billion). The leading operators are highly leveraged. While the net debt/Ebitda (earnings before interest, taxes, depreciation and amortisation) ratio of Idea Cellular is 2.1, it rises to 2.3 for Bharti and 5.4 for RCom, according to a report by financial services firm Axis Capital. Over the past month, both RCom and Bharti Airtel have retired $1 billion of debt each. RCom completed full repayment of two syndicated ECB facilities totalling Rs 6,000 crore ($1 billion) during the quarter ended June 2013. It has also repaid another Rs 1,200 crore ($207 million) of other foreign currency loans during the period. In addition, RCom is looking to leverage land in Navi Mumbai and Delhi. It is believed RCom’s debt/Ebitda ratio could come down to 3 soon. break-page-breakRCom also struck a deal to share its tower infrastructure (45,000 towers) with Reliance Jio Telecom, which will pay RCom at least Rs 12,000 crore ($2.1 billion) over the 15-year licence period. So, RCom is assured of at least Rs 800 crore every year from Reliance Jio. A telecom consultant says: “While it will help RCom pare its debt, it also allows Reliance Jio to launch services faster.” Meanwhile, Bharti Airtel raised $1.5 billion through bond issues in March. It recently retired around 10 per cent of its debt using the Rs 6,796 crore it received from the proceeds of the preferential allotment of 5 per cent equity shares to Qatar Foundation Endowment. During the earnings call after the 2012-2013 results were announced, Sarvjit Dhillon, group CFO of Bharti Enterprises, said, “We do have a process to diversify the debt portfolio. We did have a maiden bond issue this quarter raising $1.5 billion. It is a 10-year bullet repayment.” Restricting CoverageWhile debt is not a problem for newer operators, they are slashing costs. In the November 2012 spectrum auctions, Uninor bid for only six circles, Videocon for seven and SSTL for eight (in March 2013). That has started showing results. Uninor has achieved break-even in three circles — UP East, UP West and Andhra Pradesh, which account for 53 per cent of its 31.8 million subscribers. Says Yogesh Malik, CEO of Uninor: “We currently cover 40 per cent of the population. We will grow wider and deeper in the circles that we cover initially.” We are working to achieving break-even in all six circles by December. Says Ranjan Banerjee, head of strategy, SSTL: “We are working towards breaking even in all circles by end-2014.” Older operators too are tightening their belts. Tata Teleservices (TTSL) has stopped operations in Assam, Jammu & Kashmir and North-east circles, while Aircel has reduced operations in five. Telecom Regulatory Authority of India data shows that the national RMS (revenue marketshare) of the top seven operators is 96.7 per cent. In UP East, the RMS of new operators is the highest nationally, at 6.5 per cent, followed by UP West (5.7 per cent). Now the big focus is on increasing data revenues. The first signs of a rise in data earnings are already there. According to the Nokia Siemens Networks (NSN) MBit Index that tracks mobile broadband in India, mobile data grew 92 per cent during 2012. Says Neeraj Arora, director, Internet Business Solutions Group, Cisco Systems: “As operators face declining profit growth, the push into data increases. We see video as the key disruptor in 4G services.” While 3G is yet to gain traction, operators have slashed both 2G and 3G data tariffs, trying to cash in on rising demand in small town India. Says Mohammad Chowdhury, leader telecom, PwC India: “The recent data tariff reductions are aimed at stretching usage, since they kick in once a user has exhausted his pre-paid data limit. So rather than a ‘price war’, we see this as a further step towards building usage in data.”Much of the increased data usage is because of the government, which has started putting information online. Says Rajan Mathews, director general, Cellular Operators Association of India (COAI): “Data uptake is expected to rise as it becomes easy to access data on government sites.” Across operators there has been a spike in data usage. In the year ending March 2013, Bharti Airtel recorded a 75 per cent increase in data usage per consumer. The biggest uptake in data has been from Airtel’s recent scheme of watching a video at Re 1. A consultant says, “This scheme has taken small towns by storm. It is providing a lot more data traffic than was initially expected.” Like Mittal says, the signs of a revival are visible. But industry needs regulatory support. And DoT needs to settle many issues including 3G intra-circle roaming, tax claims on operators, prospective licence fees and spectrum prices. The biggest driver could be the policy on mergers and acquisitions. Having 6-7 strong operators is better than a dozen weak operators. That could well be the much-needed shot in the arm the industry needs. anup.jayaram@abp.inanupjayaram@gmail.comtwitter@anupjayaram(This story was published in BW | Businessworld Issue Dated 26-08-2013)
Read More
