New Telco’s Looking For A Way Out Of India’s Telecom Mess- A report

New Telco’s Looking For A Way Out Of India’s Telecom Mess: Report

Some of the new telecom operators in India, which received licenses and allocations spectrum in a questionable first-come-first-served manner in January 2008, have approached India’s Department of Telecommunications (DoT) for an exit option, reports the Economic Times. According to ET, which quotes an unnamed DoT official, some new telcos want their money back (Rs. 1651 crore), and a complete exit, while others want to selectively surrender licenses

How New Telco’s Have Performed
The following telecom operators were given spectrum in January 2008, and below is the data for the quarter ending June 30th 2010:
- Datacom/Videocon: 1,942,364 subscribers
- MTS / Shyam Sistema: Gross revenue 109.09 crore for April-June 2010 quarter. 5,102,876 subscribers
- Etisalat DB / Swan Telecom: Rs. 0.18 crore gross revenue for April-June 2010 quarter. 18,196 subscribers
- Uninor/Unitech: Rs. 64.07 crore cross revenue for April-June 2010 quarter. 6,023,655 subscribers
- S Tel:  Rs. 11.81 crore gross revenue for April-June 2010 quarter. 1,326,506 subscribers

Apart from these, Loop Telecom, Tata Teleservices, Allianz Infratech, Idea Cellular and Spice Communications  were allocated spectrum. Of this group, Allianz Infratech was sold to Etisalat DB.
Loop Telecom reported gross revenues of 165.50 crores in Mumbai Circle, for the quarter ending June 30th 2010, and 2,926,797 subscribers. Loop had announced the launch of services beyond Mumbai, to Tamil Nadu and Orissa, but is it even there? According to the gross revenue reporting to TRAI for April-June 2010, Loop has reported revenues only for the Mumbai circle. Apart from STel, none of the new telcos were allocated 3G spectrum.
Of the the telecom operators which received spectrum in 2008, Etisalat, S Tel, Videocon and Loop appear to be struggling for a rollout. There were also rumors of Etisalat planning to buy stake in RCOM, and exiting the Swan venture.
Telecom Merger & Acquisitions Terms & Conditions
Recently, the Sachin Pilot, the Minister of State for Communications & IT clarified to the Parliament that the government had prescribed the following in the Guidelines (dated 22.04.2008) for intra service area merger of licences:
- Merger: Any permission for merger shall be accorded only after completion of 3 years from the effective date of the licences.
- Cross Holding: No single company/ legal person, either directly or through its associates, shall have an equity of 10% or more in more than one licensee Company in the same service area for the Access Services (Basic, Cellular and Unified Access Service).
- Lock In: there shall be a Lock-in-period for sale of equity of a person whose share capital is 10% or more in the UAS licensee company, till completion of three years from the effective date of the UAS licence, or till fulfillment of all the rollout obligations.
However, issue of additional equity share capital by way of private placement or public issues is permitted, as long as the person on whom the lock-in applies doesn’t transfer share capital directory or indirectly during the lock-in period. In case of issue of fresh equity, within the lock-in period the declaration of dividend and/or special dividend shall be barred.
Our Take
We’re currently in a situation wherein those with subscribers are starved for spectrum, and many of those without subscribers don’t appear to have the wherewithal to acquire and/or retain subscribers and actually utilize the spectrum. It’s a mess, and it was created by an opaque and allegedly corrupt spectrum allocation process, that also withheld available spectrum from incumbent telecom operators who needed it to service existing customers.
At the same time, all the companies that bought these licenses knew their risks, and if they were ready for the upside, they should have been prepared for the downside too. The Indian government should not offer them a refund, or give them a bailout. In our view, no M&A should be permitted until the three years are over, and if these companies do not meet their rollout obligations, then the government should take back the spectrum.
But one need not wait for three years for a way out of this artificial spectrum scarcity: if no M&A is allowed, at least licensees should be allowed to lease out spectrum to other licensees.

Six new telcos to be fined for missing rollout deadline - ET

Six new telcos to be fined for missing rollout deadline

• NEW DELHI: The telecom department is finalising the quantum of penalty for delayed rollout of services by new players in the telecom market, an official with direct knowledge of the matter said. The latest entrants include Videocon, Sistema, Uninor, Loop, S Tel and Etisalat DB. Aircel Cellular that got licences for some circles before 2008 may also be penalised for delays.

India’s telecom regulations mandate that any company with a licence must meet deadlines for commercial launch of services. These six mobile phone companies, which bagged licenses in January 2008, have missed several deadlines for launching commercial services, the Department of Telecom (DoT) official said. DoT has powers to cancel licences of mobile phone companies in circles where they have not launched services even a year after getting the licence.

At the same time, as reported by ET on Monday, DoT is examining proposals that will allow many of these new mobile operators, to sell out or exit, paving the way for a possible consolidation in the 14-player market.

Some of the new entrants refused to comment on the development. Etisalat DB promoter Shahid Usamn Balwa said the ‘company had fulfilled all its rollout obligations and hence the penalty would not apply to them’. An executive with another new entrant explained that DoT had the powers to impose financial penalties for delayed launches.

An executive close to Uninor said the company had 22,000 telecom towers across the country as it had executed commercial agreements with infrastructure companies. “Technically, Uninor has completed rollouts in all 22 circles — the deals with tower companies shows its intent,” he said.

DoT is consulting the finance ministry to impose penalties on similar lines on older players who got licenses before 2008 and had delayed launching services. This is because, there have been recent changes in the calculation method.
The Central Vigilance Commission is probing the reasons why all new entrants barring Sistema Shyam have delayed rollouts. The prime office has asked the department of telecom for an explanation.

Even after almost three years, Etisalat DB has not yet started full-fledged commercial services, while Loop Mobile offers services only in Mumbai. Etisalat and Loop say they have ‘technical launches’ in several circles. These are not full-fledged commercial services and analysts say they are token launches to meet rollout obligations. Videocon has launched mobile services in only five of the 22 circles. S Tel offers mobile services in all its six circles, but overshot the deadline. Uninor, owned by Norway’s Telenor, has missed deadlines in half its circles.

Existing laws mandate mobile companies to provide commercial services in at least 10% of the district headquarters by the end of the first year. DoT can fine mobile phone companies Rs 5 lakh a week per circle for the first 13 weeks of delay. The fine then increases to Rs 10 lakh each for the next 13 weeks followed by Rs 20 lakh for delays up to 26 weeks.

The maximum amount of time an operator can sit on the licence, which comes bundled with airwaves, the radio frequencies, on which all mobile operators travel, is 12 months.

“The licenses of these operators must be taken back and penalties must also be imposed for squatting on spectrum, as these airwaves are a national resource. If the same airwaves have been allotted to existing operators, the government would have earned revenues on them — the new entrants must be made to compensate this revenue loss,” said BK Syngal, senior principal at Dua Consulting.

Videocon plans to sell 26% stake in telecommunication arm

India-based Videocon Industries plans to sell 26 percent in its telecommunications venture Videocon Telecommunications once valuation for that business reaches INR 150 billion, reports Reuters, citing Videocon chairman Venugopal Dhoot. Dhoot declined to comment on current valuation for the telecommunication business. The Economic Times newspaper had in June said the business was valued at a little over INR 120 billion. Dhoot said foreign investors from the US, Europe and Japan had expressed interest in the mobile operator. The Videocon Group, which launched mobile services in India under the GSM platform in March this year, has said it will invest INR 140 billion over the next three years as it builds its mobile network.

Trade shares using your cellphone : SEBI

In a first, Sebi allows trading in shares using the cellphone

Investors can buy and sell shares through mobile phones now. The Securities and Exchange Board of India has allowed registered brokers who provide internet-based trading to facilitate securities trading using wireless technology, including mobile phones and laptops with data cards.
In a circular issued today, SEBI said the stock exchange should ensure the broker complies with requirements of secure access, encryption, security of communication for internet-based trading and securities trading using wireless technology.
“DOT policy and regulation will govern the level of encryption,” SEBI said.
Vinesh Menon, Deputy CEO, Online Investments & Stock Broking, Bajaj Capital said: “This is a welcome move that reiterates the regulator’s commitment to enable a wider network of retail investors participate in stock markets.The fact that the Indian telecom industry is the fastest growing in the world, and the fact that 630 million Indians use the mobile from a mere 5 million in 2001, reflects the huge opportunity that exists in this space. Clearly, trading through mobile phones will outpace trading through internet in less than two years, and will truly enable on-the-move trading facility.”

Column : Telecom pricing gets rational : FE

If the first quarter (April-June) earnings are anything to go by, mobile operators have a reason to heave a sigh of relief, although the time to start sporting a smile again is still some distance away. While the profitability of the top two operators, Bharti Airtel and RComm, continued to decline on a yearly basis with the former’s net income declining by 32% and the latter’s by 85%, the good news is that this was the second consecutive quarter that did not see any major tariff cut by the incumbent operators. In fact, headline tariffs have started moving slightly upwards! As a result, the minutes of usage (MOU), which has always been a real yardstick to measure the telecom operators’ profitability in India, since the ARPU long ceased to matter here considering the rock-bottom tariffs, has also started to marginally increase. This signals that traffic is returning to the operators.

The Indian model is low-cost high-volume and since more than 40% of the populace still does not have access to phones, the model works well for the operators. This perfect script got soiled around a year ago, when in the fight to garner more subscribers, the race to the bottom in terms of tariff gathered full steam, leaving holes in everyone’s pockets. The ARPUs were always falling but for the first time the MOU also started declining. This meant that people were taking phone connections as the monthly subscriber addition continued to be around 15-20 million but were not talking enough to make up for the low tariffs, which could only be compensated with average talk-time increasing. The result was that first operators like Bharti Airtel, which were recording high double-digit growth, fell to low single digits and then the decline began.
The first signs of stability returning to the market were visible in the January-March quarter of the last fiscal when the zest to reduce tariffs slowed down, and the quarter just gone by only saw the trend strengthening. The other positive trend to have emerged is the focus of the operators on revenue generating customers and the slow cleaning up of the free minute consumers. Bharti, for instance, posted a growth of 1% in MOU on a yearly basis and 3% on a sequential basis. In the fourth quarter of the last fiscal, the same declined 4% on a yearly basis but had grown 5% on a sequential basis. So if the company’s CEO (India & South Asia), Sanjay Kapoor, maintains that the era of ‘irrational pricing’ is over, there’s some basis to the statement. The shift away from what Kapoor calls irrational pricing is quite evident as RComm in the past quarter reduced free minutes and focused on increasing paid minutes. The reduction in free minutes has been to the extent of almost 50%, bringing in the rate per minute in line with the industry. This is significant since RComm’s rate per minute three quarters back used to be 8-10 paisa per minute lower than other operators. This brings out that the focus has shifted from throwing away minutes to garner subscribers to mainly concentrate on revenue generating customers. If the trend stabilises, the average talk-time will again start showing an increase, thus restoring the balance that is so crucial in the low-cost high-volume model.
But there is still some time before the ideal gets restored. None of the telcos give a revenue guidance but Kapoor maintains that the first and second quarters generally remain weak, and it is the third and fourth quarters that show growth. If the cycle repeats, then the operators will have a wholesome story to tell by the end of the financial year. There would be another reason to add to the growth story in the latter part of the year—the first beginnings of 3G services. Both Bharti and RComm are confident of beginning the 3G services by the end of the calendar year, once the government allocates spectrum next month. Obviously, 3G in its initial days would see better ARPUs and MOUs than 2G.
The optimism of the incumbent operators’ that there would be no more bloodbath in terms of tariffs is also born out of hard economic reality. All the major operators have spent huge amounts bidding for 3G spectrum and are in no position to lose money any more. Whatever irrational tariffs are coming or may come would be from the newer operators, but considering their size and scale of operations, it would not make any substantial impact on the market.
The other threat potential of RIL’s return to the sector through the wireless broadband route is also overstated. A lot has changed in the telecom landscape since the company’s big entry in end-2002. It will be still quite sometime before RIL starts operations and this time its approach would likely be collaborative rather than disruptive, unlike the last time.
rishi.raj@expressindia.com

33% mobiles are inactive : JuxtConsult

Some mobiles don't ring a bell Shivani Shinde & Katya Naidu / Mumbai August 30, 2010, 0:29 IST One tenth mobile subscribers in India own multiple mobile phone connections, says a report. Mumbai-based architect Vrushali Sawant prefers to have two mobile connections. Sawant, who has been using these connections for more than a year, says, “My first mobile number was an MTNL SIM card that I still use, but a year back, I also took a Vodafone connection.” She uses her Vodafone connection for daily voice calls and the MTNL SIM card for 3G access.  Click here to visit SME Buzz   Also Read   Related Stories News Now - Markets have a good start - Rupee to gain tracking higher Asian shares - Obama says US economy not growing fast enough - Nikkei jumps, yen slips as BoJ meets - GAIL to commence pipeline work in October More If the situation sounds familiar to you, then you too are among the 10 per cent mobile subscribers in India who own multiple mobile connections. According to a study, Mobile India 2010, conducted by JuxtConsult, out of the 650 million-plus mobile subscribers, about 59 million own active multiple mobile connections. Active connections are those that are in use by subscribers and are periodically recharged (if pre-paid, within six months) or paid on a monthly basis (for post-paid).   MULTI TALK * One in three mobile connections is not in active use  * Users between 25-35 years form the single largest category among mobile users * Outgoing STD, call waiting, and domestic roaming are the most subscribed services Source: Juxt Already, multiple SIM card owners are becoming a concern for telecom operators. “There are two types of customer churn in this industry. The first is newly-acquired customers going away. The other is when long-standing customers move away,” explains Madhusudan M, CEO of Virgin Mobile. Though giving free talktime to new customers helps operators expand their customer base, these new subscribers move away once their free minutes are used. “This is fast multiplying into a big number. Telcos are already witnessing churn rates of between five and six per cent,” notes Madhusudan. In fact, JuxtConsult claims that 355 million connections are being used regularly. The problem is aggravated by the growing number of inactive connections that are not surrendered by the subscribers. “Earlier, if a customer did not recharge in a month, the connection was labelled inactive. But now, with life-time validity tariffs for pre-paid connections, the subscriber is required to recharge for a minimum of Rs 50 in six months,” says Surya Mahadevan, COO, Loop Mobile. JuxtConsult data suggest that ‘unskilled and skilled workers’ form the largest ‘occupational’ chunk of mobile users in both urban and rural India. Customers, Mahadevan of Loop Mobile agrees, use SIM cards selectively for incoming calls or just use the free minutes before moving on to another network. Then, there are budget-conscious subscribers like Gaurav Deoras, a Pune-based professional working with Vodafone who owns three mobile connections — an MTNL connection that allows affordable calls between Pune and Mumbai, where his mother resides, a Reliance connection which he uses to talk to friends, and a Vodafone connection that was given to him when he joined the company. But even with multiple connections, Deoras is not willing to splurge on bills. “I ensure that I don’t spend more than Rs 300 on any of my mobile connections,” he claims. A steady rise in the number subscribers who do not want to spend over Rs 200-300 every month on their mobile bills has become a cause for concern for the industry. On a year-on-year basis, the revenues of operators have been declining or growing flat. With availability of too many options in the market, multiple SIM ownership is set to rise, admits Sanjay Tiwari, CEO and director of JuxtConsult. “This trend of owning multiple SIMs is only going to increase, at least in the short term,” he says. Tiwari believes that the focus of the marketing initiatives of most telecom operators is such that they end up selling more SIM cards to existing customers. “They are especially aggressive among the new entrants who want to get a substantial customer base,” he notes. JuxtConsult underlines that almost two-third mobile-using households are still ‘single-mobile-user households. Tiwari concludes, “The scope to increase the user base and penetration of mobile phones is huge than just to play mainly the game of multiple connections and increasing the teledensity.”

Telcos bank on outsourced apps to ring in revenue : BS

Telcos bank on outsourced apps to ring in revenue

Katya B Naidu / Mumbai August 30, 2010, 0:31 IST

In February, India’s largest telecom operator, Bharti Airtel, launched an app store, giving its consumers access to 1,250 applications. Vodafone followed, offering around 800 applications.
As telecom companies play the numbers game with the applications they offer, they have now started outsourcing this to specialised application developers. “There are hundreds and thousands of applications in the market. It is not possible for telecom companies to develop all these apps in-house,” said Neeraj Roy, managing director and CEO of Hungama Digital Entertainment.

Click here to visit SME Buzz

Also Read   Related Stories News Now - Markets have a good start - Rupee to gain tracking higher Asian shares - Obama says US economy not growing fast enough - Nikkei jumps, yen slips as BoJ meets - GAIL to commence pipeline work in October More

Reliance Communications has tied up with American application developer Get Jar. This will give its subscribers access to GetJar’s catalogue of over 65,000 applications, available for free. If an application is developed in-house, a telecom company can earn from a licence fee charged when an app is downloaded. However, many companies (such as Reliance) are not focusing on that revenue. Instead, they are banking on the data usage generated as subscribers consume more data to download and use these applications.
“RCoM’s application store strategy is directly linked to increase in data traffic, increase in data plan adoption and sale of other services through the use of free applications. This strategy will help achieve mass mobile data plan adoption and mobile internet use," the company said.
Loop Mobile has recently launched a mobile application developed by SMS Gupshup. Called ‘Reply all’, this allows consumers to SMS to a group of seven people at the cost of one SMS. If one of the consumers in the group replies, the response will be sent to all the users, allowing a chat conversation in a group, giving the same utility as a reply-all e-mail.
“Applications are not great technologically innovative products. Application development is all about generating good ideas and telecom companies can never aggregate as many ideas. This has to be driven by market forces and should come from a wider community,” said Alok Shende, principal analyst and co-founder, Ascentius Consulting.
‘Not our expertise’
Outsourcing also helps telecom companies convert fixed costs into variable costs. While most telecom companies have an in-house team which work on applications, this is not the core business of a company. “Engaging a team takes up a lot of bandwidth. Besides, so many app developers are working independently and our aim is to launch a product as quickly as possible. We always get better developed products from outside,” said Surya Mahadevan, COO, Loop Mobile.
Telcos that have to cater to a wide range of tastes also look at niche value-added services (VAS). This could be better achieved by sourcing from specialised developers. CanvasM, a subsidiary of Tech Mahindra, focuses on utility-based, VAS-like, commercial transactions and mobile banking. SMS Gupshup specialises in social networking-based applications. A telecom company can pick and choose different types of applications across categories from each of these developers.
“We can get different kinds of content-based apps as well. Some offer jokes and some offer beauty tips. Adding these apps happens on a continuous basis as we keep offering different kind of products to our customers,” said Mahadevan.
Experts also note that exclusivity in apps is also reducing, as companies have stopped developing these in-house and developers license these to many operators. A lot of revenue models are followed by companies with regards to apps, the most popular being revenue share, where the developer gets a part of the revenue. There is also a minimum guarantee model, where a telecom operator pays an upfront amount, even if the application does not generate any revenue. The telecom company will enjoy all the upside if the application becomes successful.
Currently, telecom companies prefer to take the lesser risk of a failure and share the rewards. A telecom company also invests in the success of a value-added service by spending on promotion and advertising the application. But the focus is to decrease churn and increase consumer stickiness to their network, which they attempt by regularly offering innovative products.
“Once consumers are tied to an application, they are tied to a network. This is one of the many reasons why telecom companies need to build an ecosystem of applications,” said Shende.

6 billion mobile users by 2020 : Booz

The number of mobile users will reach six billion by 2020: Booz & Company

By ARAB NEWS

Published: Aug 30, 2010 00:30 Updated: Aug 30, 2010 00:30

MANAMA: By the year 2020, the number of mobile users will reach six billion and the number of people accessing the Internet will reach 4.7 billion, according to a new study by Booz & Company.

In its new study titled ‘the Rise of Generation C: Implications for the world of 2020’ it said that in the course of the next 10 years, a new generation—Generation C—will emerge (the C stands for connect, communicate, change).
“Following the lull that took place during the recent worldwide recession, we expect to see some form of economic growth, with globalisation picking up speed again,” said Richard Shediac, the Booz & Company partner leading the firm’s Middle East Public Sector practice. That will reestablish an international environment of global migration of talent and labour as well as capital. With ageing Western populations, new consumer segments will be created, including a relatively wealthy retirement segment and a new young middle class, and the BRIC countries (Brazil, Russia, India, and China) will continue to grow rapidly. The pace of innovation will create an ever more digital world, even as wireless devices confirm their emerging role as the dominant tool for trade, entrepreneurship, and Internet access for the masses. Finally, concern for the environment and for energy security will remain at a high level.
“The trends outlined will have a wide range of effects on how people use communications technology, on how they gather and consume information and entertainment, and on how they interact,” said Ramez Shehadi, the Booz & Company partner leading the firm’s Middle East Information Technology practice. The latest consumer behaviour studies confirm that these trends are real, and they are reshaping the mass market.
“The Internet’s power will develop through its online economic might and also offline as a cultural and political influence. At the same time, personal and business activities will mingle seamlessly, as the day fragments into a flexible mix of personal and business activities—work, commuting, shopping, communications, entertainment,” the study added.
“The average person in 2020 will live in a web of 200 to 300 contacts, maintained daily through a variety of channels.
People will dramatically increase their consumption of digital information. The vast pool of available information will allow consumers to pick and choose the information they want and how they want to consume it. “Nonlinear” information consumption will become the norm and the supply of digital information itself will explode,” it said.
“Growing use of social networking increasingly determines consumption patterns. Viral marketing and positive peer reviews become essential to success, which in turn erodes the concept of brand value, traditional marketing, and bricks-and-mortar outlets,” added Shehadi.
The upper limit of the digitally literate grows older, as the 50-plus-age bracket broadly migrates online. At present, 65-year-olds spend just two to three hours online in a typical week, yet the 65-year-olds of 2020 will spend closer to eight hours online weekly. Generation C will distance itself, particularly in the development of its own pervasive culture of communication. That culture has led observers to dub this group “the Silent Generation,” as digital communication channels have replaced the physical interaction so dear to prior generations.
“Skilled and innovative digital entrepreneurs will emerge throughout the developing world in massive numbers. These have the potential to significantly disrupt traditional Western business models and have a highly connected audience that can benefit from their new ideas,” the report added.
“These will have major implications for the telecommunications and technology industries, which must begin now to develop complex webs of interacting technologies and business models,” added Shehadi.
“The trends outlined above will pose real challenges for every player in the global telecom industry over the next decade. We expect there to be real opportunities for growth, especially in specific areas,” said Shehadi.
The advent of Generation C will drive fundamental change in most industries—and create substantial opportunities and threats for all involved. Booz & Company predicts a series of “eras” triggered by the sequential rise of critical new technologies. The year 2020 will be a different world. The general outlines, and a great deal of the particulars, are clear. As such, it is incumbent on the technology and communication industries to prepare to help lead us into this world, and to benefit from the technological, social, and cultural changes that will take place.

New telcos may exit, set off consolidation :ET

New telcos may exit, set off consolidation

NEW DELHI: The telecom department (DoT) is examining proposals that would allow new mobile operators, who were given licences and airwaves under controversial circumstances two years ago, to sell out or exit, paving the way for a possible consolidation in the 14-player domestic telecom market.

A senior DoT official said ‘exit options’ were being discussed after some new entrants approached the telecom department seeking a refund of their Rs 1,651-crore entry fee in return for them surrendering their licences and spectrum to the government. While the official declined to name any particular company, he added that some players wanted to selectively surrender licences and spectrum in specific circles as they faced ‘several’ constraints, including funding, in launching mobile operations across all 22 geographies in the country.

The official said several possibilities were being considered, including allowing new companies to merge with larger operators, shortening the three-year period during which the promoter of a new company cannot sell out, and relaxing rules to allow incumbents to retain airwaves held by these new companies if a buyout or merger were to happen. He added that these discussions were still at an ‘initial stage’ and nothing had been finalised.

Stringent M&A restrictions had been imposed on the telcos a few years ago to prevent new players, who had got pan-India licences and spectrum at a flat fee of Rs 1,651 crore, from selling out at huge profits. Earlier this year, the telecom regulator issued a new set of M&A guidelines which were criticised by some of the big telcos as these recommendations effectively shut them out of the consolidation process.

But the Solicitor General of India has recently said that it is no longer mandatory for the telecom department to seek the telecom regulator’s recommendations while making policy changes, giving DoT the power to unveil new M&A norms on its own.

Romal Shetty, telecom practice head at telecom consulting firm KPMG, said both new entrants and existing operators were keen that the M&A norms be amended as ‘the industry is of the view that a 14-player market will kill the sector’. “At most, the country has to have 6-7 players for the sector to be profitable. Existing norms will have to be relaxed, and globally, companies have always talked to regulators for favourable policy measures for their survival,” he said. Mr Shetty added that mergers would also lead to more efficient use of airwaves.

Bharti Airtel, the country’s largest telco, too believes that consolidation is inevitable. “We have been saying from day 1 that 14 operators cannot have an economic model that is sustainable and viable. We have always maintained that final consolidation will see not more than 5-6 operators,” said Sanjay Kapoor, CEO, India & South Asia, Bharti Airtel.
Uninor, which has had the most successful rollout among the new telcos, says it will keep its M&A option open.

“We believe consolidation will happen when the environment supports it. We intend to grow further with a long-term business case based on organic growth. Of course, we will keep our M&A option open—when the environment is more suitable and a good opportunity becomes available,” says Rajiv Bawa, executive vice-president, Uninor.

New players have struggled with their rollout plans and their rate of adding new subscribers has slowed down. Etisalat and Loop (except in Mumbai) are yet to launch commercial operations despite holding pan-India airwaves to launch mobile services for nearly three years. Videocon has launched in only five of the 22 circles. STel, another new player, is also exploring options to merge or buy out another telco as its licences are limited to just six small circles.

Uninor, STel, Loop, Etisalat DB, Videocon and Sistema together added less than 12% of 18 million customer additions in June, according to data released by Trai. This is in sharp contrast to last year’s numbers when Uninor added a million users within 30 days of launch. STel managed to clock one million subscribers in 90 days from three small circles. While Videocon added 1.39 million users in May, it could add only a third of that in June. The new entrants together account for less than 3% of India’s 600 million mobile users.

All new entrants — with the exception of Sistema Shyam — are under probe by both the Central Vigilance Commission as well as the Prime Minister’s Office for delaying the rollout of their operations. Telecom minister A Raja has been publicly flogged by Opposition parties for allegedly causing the exchequer an estimated loss of more than Rs 60,000 crore by awarding 2G licences to companies at throwaway prices.

Mr Raja did not heed calls from several sectors, including the finance ministry, to auction these licences, which came bundled with start-up 2G airwaves. This controversy also prompted CVC to investigate this issue. In its queries to the DoT, CAG had alleged that the losses were to the tune of Rs 26,000 crore.

While their growth rates may have slowed down, the bruising price war launched by the new companies has adversely impacted the profits and revenues of the established players.

This led to combined revenues for the telecom sector in March 2010 being lower than the industry’s total revenues for the quarter-ended December 2008, despite the addition of over 200 million new users during this period.

Earlier this year, Vodafone Group Plc, which controls India’s third-biggest mobile company, said it was taking a charge of $3.3 billion on its operations here on account of the price war and increasing spectrum costs. The sector has stabilised over the last six months as no new price cuts have happened during this period.

FINALLY GOOD NEWS FOR THE SHAREHOLDERS!!

The AMSOST managment team toiled hard for several months to convince the MTS India managment for a favorable view and

THE COMPANY  HAS AGREED TO OFFER A RIGHTS ISSUE FOR ALL SHAREHOLDERS AT 1 SHARE FOR 3 SHARES HELD AT PAR !!

We have signed relevant documents few hours back and await the official word soon enough !

The members of the AMSOST who made significant contributions are Mr Alok Jain and Mr Narendra Gupta.
We also congratulate Mr Vsevolod Rozanov, CEO and his team on this occassion.

‘Virtual Consolidation underway in Indian telecoms market’

NEW DELHI: India’s largest private telcos – Bharti Airtel and Reliance Communications - claim that "virtual’ consolidation is underway in the country’s crowded telecoms market, with new entrants scaling down their rollout plans and shying away from reducing tariffs further.

"Although 14-15 telcos continue to exist ‘consolidation has already begun in the virtual sense’, says Mahesh Prasad, president for wireless services at Reliance Communications (RCOM).

"In most circles, only about 6 operators continue to sustain market momentum, The intensity of competition has come down," says Mr Prasad.

Some of the new entrants in the telecoms market have not rolled out networks in many geographies despite being granted spectrum. Many new entrants did not bid for 3G and broadband spectrum. All this are tell-tale signs that consolidation has started in the minds of companies, says Sanjay Kapoor, chief executive of the country’s largest telco by both customers and revenues Bharti Airtel.

Consolidation has also started in the minds of customers," says Kapoor. "Even in this crowded market, six operators now account for almost the entire revenue market share, indicating that customers have learnt to recognise bigger, stronger and better brands," he says, adding that this along with the increase in minutes of usage for larger mobile companies is proof that only certain players are present in the minds of consumers.

Bharti’s average monthly minutes per customer has jumped 3% this quarter to 480 minutes, compared with the figure for the previous three months. Idea Cellular and Vodafone Essar have reported a 13% and 10% growth, respectively in minutes of usage during the period.

Japan’s NTT DoCoMo Inc, Norway’s Telenor ASA and Russia’s Sistema set off a savage tariff war last year when they entered the Indian market. This resulted in a fall in profits and revenues of all operators. But the rate of growth posted by these companies slowed substantially in the last quarter. Uninor, STel, Loop, Etisalat DB, Videocon, and Sistema together added less than 12% of 18 million customer additions in June, according to the data released by Trai.

This is in sharp contrast to last year’s numbers when Uninor added a million users within 30 days of launch. STel managed to clock one million subscribers in 90 days from three small circles. While Videocon added 1.39 million users in May, it could add only a third of that in June. The new entrants together account for less than 3% of India’s 600 million mobile users.

KPMG’s telecom Head Romal Shetty said new entrants had failed to come up with innovative offerings to sustain the initial blitz that accompanied their launch.

"The top six players have an unique advantage as they have a larger and longer brand recall. The new entrants did bet heavily on mobile number portability enabling them to get customers, but this facility has been delayed," adds Mr Shetty.

Even Uninor, the best performer amongst the new entrants, has been struggling to make an dent in the market, while also fighting an uphill battle to get second-generation spectrum, the airwaves on which all mobile services are currently offered. Recently, the company announced the resignation of Stein-Erik Vellan as India MD amidst reports that the parent company was not happy with its performance in India. Uninor has also brought in its head for the Asian region, Sigve Brekke to add momentum to its Indian operations.

The rollout of the new companies has been slower than expected. All new entrants – with the exception of Sistema - are under probe by both the Central Vigilance Commission as well as the Prime Minister’s office for delaying the rollout of their operations. While it has been close to three years since these firms bagged their license, Etisalat DB is yet to launch commercial services, Loop Mobile has started services only in Mumbai while Videocon has launched mobile services in only in five of the 22 circles. Even Uninor and S Tel, the other new entrants, have failed to meet all their rollout obligations.

Will the telecom competition ever end ? - A view.

When will cut throat competition end?

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Competition is second nature to humans. Since birth we are taught that life is a race and we need to get ahead of others. Most psycho analysts believe that competition is good. It is an integral part of our nature and therefore boosts our performance standards. After all, we always perform better when given a benchmark to compete against.

But we need to remember that ‘everything is good as long as it is in the right measures'. So how much competition is good? At some point, when it gets too intense, competitors start to bleed. This is what has happened to the Indian telecom sector. With 15 operators operating competing networks, they are willing to do anything to woo the subscriber. This started from offering ridiculously low tariffs and extended to offering free minutes; anything that would get the subscriber to come on their network. The intensity of competition is visible in the rate per minute (RPM) for the leading telecom operators in the country that has trended downwards.

Let us take the example of Indonesian telecoms to understand competition in telecom markets better. Indonesia has 3 major telecom operators - Telkom Indonesia, XL Axiata and Indosat. Telkom Indonesia has mobile operations through its 100% subsidiary Telkomsel. In FY07, XL started slashing tariffs to gain subscriber share. As a result, the other operators had to follow suit.


This led to a sharp decline in profitability for these operators. Their EBITDA (Earnings before Interest, Tax, Depreciation & Amortization) declined in line with the decline in tariffs.

However, due to the effect of elasticity, minutes of usage (MOU) started going up as prices came down and mobile phones became more affordable for the consumers.


As a result, the operators started experiencing network congestion wherein their networks could just not carry any incremental minutes. While they were expanding their network capacities, the rate of expansion was much slower than the rate of increase in usage. As a result, the operators were faced with the dilemma of either continuing with low tariffs or try and increase tariffs to stabilize usage. The tariffs then started to stabilize and have started to inch upwards since the past few quarters. Hence the cut throat competition came to an end.

Coming to the case of India, the situation is slightly different. While operators have slashed tariffs, there is no major capacity constraint as of now. This is because the new operators are rolling out their networks while the incumbents are expanding their networks. So the question that comes into mind is - Will this never end?

There is no clear answer, but it has become economically unviable for operators to slash their rates further. EBITDA margins for the incumbents (existing companies) have come down and the new operators are still bleeding.


The only solution in sight for competition in Indian telecoms to ease off appears to be consolidation in the sector. While TRAI has given some recommendations to boost mergers and acquisition activity in the sector, none of the players appear too keen on it at the moment. In time, this should ease but till then this competitive bloodshed is expected to continue.

rom here on, you will probably start seeing growth in the sector

Market Voice: Ganesh Duvvuri ?Healthy traffic growth came as a surprise? Sunaina Vasudev / Mumbai August 24, 2010, 0:55 IST Ganesh Duvvuri, telecom analyst, Edelweiss Securities, in an interview with Sunaina Vasudev, reviews the quarterly results of the telecom companies. Edited excerpts: How did you read results in the telecom sector? Were they in line with expectations? In terms of traffic minutes reported, results were better than expected. Except RCom, all operators reported 9-11 per cent growth in the volume of minutes, as customers came back to the incumbent operator networks. It is a healthy sign that came as a surprise.  Click here to visit SME Buzz   Also Read   Related Stories News Now - Markets down; breadth fairly negative - Prakash Steelage zooms 23% in early trade on debut - Australia's CBA opens India bank branch - Cardamom turns weak on profit taking - Chana falls on profit taking More Moreover, revenue per minute, average revenue per user, minutes of usage and margins were also in line with expectations.  Do you see any positive surprises, or negatives, for the sector? Negatives came from the operating margin perspective. Margins declined sequentially, even when volume posted such robust growth. This indicates that the operating leverage is still not kicking in. Realisations are still trending downward, although the rate of decline should come down from the 4.5 per cent seen this quarter. What is your sense of valuations at these levels? Do you believe that most of the issues with the sector are already priced in? From a valuation outlook, the telecom stocks are still trading at a premium to most of their regional and global peers. However, the sector looks attractively valued compared to the Indian market. The premium to global peers is because of expectations that most of the negatives in the business are factored in. From here on, you will probably start seeing growth in the sector.