Indiagames COO Samir Bangara On Games On Demand, Off-Deck Billing, MGs And More

From http://www.medianama.com/2009/08/223-indiagames-coo-samir-bangara-on-games-on-demand-off-deck-billing-mgs-and-more/ on Aug 25, 2009

By Nikhil Pahwa

Indian Mobile gaming company Indiagames, a subsidiary of BSE listed UTV Software, reported a turnover of Rs. 46.4 crores and a profit-after-tax of Rs. 22.4 lakhs for the year ending 31st March 2009. MediaNama spoke to Samir Bangara, COO, Indiagames on a number of issues: on whether the company is primarily an IP Creation business, or a syndication business, drivers of the growth in the mobile gaming business in India, billing (and margins) for games on-deck and off-deck, and on games for the low-ARPU market:

How was the last year for Indiagames?

We experienced good growth, mainly in the Indian market. It has become a bigger and bigger chunk of what we do. The International business, lately, has been about the iPhone and also expanding our market. We had few launches last year, so International wasn’t as strong as it has been in the past, but our biggest title Bioshock is going live in the US market over the next month or so.

Is a majority of your revenue coming in from Syndication business?

A big chunk of it does come from the aggregation business. The international business is an IP driven business – comprising of our own games and branded games. In case of the domestic business, we are working with everybody except Gameloft. The new additions (for syndication) are Disney, which is a 30-33 percent grandparent of Indiagames through UTV. We will work increasingly with Disney in the US and European market. For example, they will publish Bioshock for us in the US market.

Bioshock was the game of the year on the XBox in 2007, it’s a big IP. We’ve licensed it for the mobile. We’re doing development in 2D, 3D, Java, Brew…the works. It’s been one of our longest development cycles, and one of the most expensive products. The game development would have taken over 10-11 months, then with fine-tuning, and receiving approvals, it took around 14-15 months.

Do you see yourself more as an IP creation company, or a syndication company?

Different geographies have different objectives. We have a blend of the games on demand business also coming into play in India. So, in the Indian market, it is a syndication driven business, and in months when we have massive big hits of our own…for example, 20:20 Cricket was a massive hit, embedded on a few million Nokia devices. If you include revenues from those items also, syndication will look slightly smaller in percentage.

Cricket is a big genre and we are doing multiple products. Our Cricket game for England vs Australia which was featured on the UK App store as a new and upcoming featured app. Last year, in December, our T20 Cricket Championship was the number one game on the Telstra deck in Australia. And then we do games like Ghajini which reduce our Syndication percentage. We don’t start the year saying Syndication should be X percentage. It could be as little as 45-50% and as high as 75-80%, depending on the original IP we’re launching and its success. For the last year, the Indian revenues contributed significantly.

The business leaders for development and syndication internally are different. We have a studio that is International focused and a studio that is Indian focused. The studios create a product, delivers it to the India publishing team for distribution in India and IG Fun for international publishing.

Which games are you releasing?

On the International side, the upcoming releases are Bioshock, Pentago, Mercury Meltdown (from sister company Ignition). We’re also doing an interesting version of our old faithful Bruce Lee in Q1 next year. This is around four generations ahead of what we’ve had so far. On the Indian side, we have the entire UTV portfolio, like Aage Se Right, What’s Your Raashi. We’ve launched Kaminey, which doing quite well, and will be doing Wake Up Sid, basically the entire portfolio from UTV.

How do you book revenues from your IP?

We book them as and when we get the information on downloads. The Indian market has become better in terms of data sharing and download reports – it is still not optimum, but significantly better than the past. We have live data for our off-deck business.

How do you explain Rs. 46 crores in revenues and a PAT of just Rs. 22 lakhs?

There are business that are in triple digit crores and not profitable. Mobile makes money, but the Games on Demand business is clearly in investment mode, it is loss making. We were running a 250-300 man call center at peak last year. We’ve been working at pretty fragmented levels with large operators like BSNL. The model that Hungama has launched is a nice compliment to us. Some big things have happened with GoD: Airtel is now bundling the GoD offering with their other services. Those kinds of things obviously give a boost to GoD, but they also come with certain costs.

You’re probably distributing the largest number of games in India, and we’ve heard the mobile games business in India has grown in the last year. What changed?

A big thrust has been the fact that the nuts and bolts are different. There are cheaper and more GPRS handsets, and no GPRS subscription charges with a pay as you go data download model. Operators make as much money through data traffic as they do through downloads – at least the top operators. They’ve opened up the walled garden, and mobile Internet is really taking off. The leading operators have 30-33 percent data capable handset penetration; of those, 25 percent go to the operator decks. Of that a fairly healthy number have played a game – sometimes 12-15 percent, or in some cases 25 percent.

Of the capable and live, we have a high gamer penetration number, but of the total instance, that is below 1-1.5 percent. What we see going forward is that the data capable handsets will increase. Also with operator decks opening up and we’re not only dependent on on-deck business.

But the billing is still through the operator even in case of off-deck?

You can use other options, but there’s nothing else of scale as of today.

Do you have better margins off-deck than on-deck, since you’re only using telecom operator billing, and not marketing?

Some operators do offer deltas for off deck, but not all. It varies from operator to operator. Logically speaking, you should have better margins, because that’s traffic you’re originating. Some of the operators have been more reasonable about it, and shared a slightly higher margin. It’s still not in the range that allows people to make that business blossom. In other cases, we’ll just take what we can. We have a fair amount of organic traffic on mobile, and remember that not everything that Indiagames does is not around gaming. A significant chuck of our business – around 30 percent odd – has nothing to do with gaming. We do wallpapers, tones, music, RBT. Effectively as a company, we have people in charge of different product lines. When we do movies, we do game rights and imagery rights.

In case of Ghajini, Imagery rights were a big contributor to our revenues. There’s a lot of music, as well as rights across all platforms.

Are Minimum Guarantee businesses viable?

We don’t have the money to throw around in senseless deals: when the MG is ridiculous, In the game business, we’re a lot more risk savvy, and we know how we can leverage that. The ARPUs are better, and we can use marketing to sell a game. Ghajini was an excellent deal for us, and we’ve since done deals at a rational MGs, and turned down those that weren’t rational. In Ghajini, we made around 3 times the MG in recoupment. If we’d done a traditional deal, paying them a packaged MG and then scrounging for recovering our money, we walk away feeling screwed, no one wins because the producers dont get the visibility. In our  syndication deals the money that the partners are making is on the top-ups, not on the MG.

What’s the outlook for this year with operator ARPUs declining and new users having lower balance on pre-paid?

This year we see ARPUs being a bit challenged because because the bulk of the subscriber growth is really coming from the lower end segments. We’re finding a challenge to find people with even Rs. 10 balance in their handsets. In FY10, we’ll see that that challenge is far more serious.

What about subscription based models like Airtel’s GamesClub and Reliance’s pay-per-play model?

There will have to be other such offerings with different tactics to be able to mine this segment of the user game. We’ve to figure out a way that they can afford the game. Subscription is the obvious one. As far as language barriers are concerned, games are close to being language agnostic.What we create in India, we can make multilingual.

Indian mobile users to hit 771 mn by 2013: Gartner – The Financial Express

via Indian mobile users to hit 771 mn by 2013: Gartner – The Financial Express on June 18, 2009

Bangalore: Indian mobile users will jump more than 90 per cent to 771 million by 2013 as companies expand networks to rural areas in the world’s fastest growing wireless market, research firm Gartner said.

India had 403.66 million wireless users at the end of April, Telecom Regulatory Authority of India figures showed earlier this month, second only to China that has more than 600 million wireless subscribers.

Cheap call tariffs and handsets are driving demand in India, where operators such as Bharti Airtel and Reliance Communications are now building telecom towers and networks to cover smaller towns and villages to hook new users.

Gartner, the world’s biggest technology research firm, sees mobile subscriber base growing at a compound annual growth rate of 14.3 per cent in the four years to 2013, up from an estimated 452 million by the end of 2009.

Revenues of Indian mobile phone companies will exceed $30 billion in 2013, rising at a compound annual growth rate of 12.5 per cent over the same period, it said.

“The Indian mobile industry has now moved out of its hyper growth mode, but it will continue to grow at double-digit rates … as operators focus on rural parts of the country, said Madhusudan Gupta, senior research analyst at Gartner.

Gartner, however, predicted a “significant drop” in average revenue per user (ARPU) — a key gauge of performance — as the bulk of new subscribers from the hinterland usually talk less on phones and some use mobiles just to answer calls.

Bharti, which is in talks with South Africa’s telecoms firm MTN Group to create the world’s No.3 wireless group, saw a drop of 15 per cent in its March quarter ARPU as it won more new users in rural areas. The research firm said voice tariffs would fall substantially in 2009 as new operators join the market.

The telecoms unit of Indian developer Unitech Ltd will launch mobile services with Norway’s Telenor in the December quarter this year, a top company official said on Tuesday.

Bharti’s rivals such as Reliance Communications, Vodafone Essar and Idea Cellular are also rapidly expanding their services across the country.

Related stories at

• http://www.ciol.com/technology/mobility/news-reports/indian-mobile-users-to-hit-771-mln-by-2013-gartner/18609121197/0/
• http://efytimes.com/efytimes/fullnewsxml.asp?edid=35243
• http://economictimes.indiatimes.com/Indian-mobile-users-to-hit-771-mln-by-2013-Gartner-/articleshow/4671022.cms

Revenue, not user base, to set telecom pecking order

17 Jun 2009, 0305 hrs IST, Rashmi Pratap, ET Bureau

MUMBAI: Subscriber numbers in India’s wireless story are losing their relevance today as far as determining the industry position of a service provider is concerned. t will be revenues and not subscriber numbers that could decide the pecking order in the world’s fastest-growing telecom market.

This is reflected in the latest revenue figures released by the industry regulator, Trai. Going by this, the top three operators in India are Bharti Airtel, Vodafone Essar and Bharat Sanchar Nigam (BSNL).

Airtel’s adjusted gross revenue (AGR) from wireless and wireline operations was Rs 7,998 crore for the March quarter. Vodafone Essar, which offers only mobile services, had revenues of Rs 4,456 crore during January-March 2009 on a subscriber base of 68.7 million. Reliance Communications (RCOM), which has the second largest customer base, reported an AGR of only Rs 2,998 crore on 72.6 million users during the quarter, making it the fourth largest in terms of revenues.

The revenues for the state-owned BSNL stood at Rs 3,943 crore making it the third largest. BSNL offers mobile services on GSM apart from fixed line services. Besides showing the revenue capabilities of an operator, AGR is significant, as it is the basis on which service providers pay licence fee and spectrum charges. Operators pay a revenue share licence fee to the government ranging from 6% to 10% of their AGR. Increasingly, operators are targeting revenue growth instead of a larger user base.

According to Bharti Airtel’s vision statement, the company’s aim is 20% increase in revenue margin per subscriber in the next few years.

Analysts contend that with more and more low-end users signing up for services, it is becoming difficult for operators to maintain margins and improve ARPUs (average revenue per user per month). In such a scenario, those who continue to grow revenues along with subscriber base will be the clear winners.

“As the new subscriber base is primarily drawn from tier III towns and rural markets, the incremental subscriber addition is not leading to a commensurate revenue upside for telcos. The catchphrase to evaluate a telco’s performance will be quality of subscribers rather than the number of new subscribers,” Acsendia Consulting principal analyst, Alok Shende told ET.

A smaller player like Idea Cellular, which operates in 13 circles, had AGR of Rs 2,389 crore on a subscriber base of 39 million. This is just about Rs 600 crore less than RCOM on a base which is almost half of that company.

KPMG director (telecom) Romal Shetty said, “Initially, everyone was going after subscriber numbers. Now, they are looking at quality of subscribers. This explains the emphasis on value added services (VAS), which bring in higher revenues.” He pointed out that low-end pre-paid users are now bringing in monthly revenues of as low as Rs 70 per month.

Tata Teleservices reported revenues of Rs 1,889 crore during the quarter placing it at sixth followed by state-owned Mahanagar Telephone Nigam (MTNL). Aircel, a relatively new entrant, is at the eight position, which had AGR of Rs 721 crore during the quarter.

Telcos dial Africa for new pastures

Manoj Gairola, Hindustan Times on June 7, 2009

After tasting success in domestic markets, it’s ‘Dial Africa’ for Indian telecommunication companies. And it’s not the high-profile, twice-rejected MTN alone that’s attracting Indian firms.

While the government-owned Mahanagar Telephone Nigam Ltd (MTNL) is in advanced discussions for telecom licences in four countries, Bharat Sanchar Nigam Ltd (BSNL) is formulating its strategy to enter the continent.

Adding their bit are the Essar group, Tata Communications and Reliance Communications, all of which have licences for telecom services in African countries and are looking to expand their operations.

Bharti Airtel is negotiating with South Africa-based MTN for a “two way deal” that would allow it to own 49 per cent equity in South African giant MTN.

“We are evaluating a proposal to acquire a company that has licences in four to five countries,” said R.S.P. Sinha, chairman and managing director (CMD), MTNL. “Africa is a lucrative market and we would like to acquire a licence through auction if there is an opportunity.” However, in most countries, licences have been auctioned.

“Funding is not an issue for our Africa expansions,” Sinha said. “We have done all the ground work.” MTNL is presently a service provider in partnership with Tata Communications (formerly VSNL) and Telecommunications Consultants India Ltd (TCIL). “We will enter into Africa on our own,” said Sinha.

MTNL not the only government-owned company eyeing the African market. “We are looking at an expansion in Africa,” said Kuldeep Goyal, CMD, BSNL. “Whenever we find right opportunity we will grab it.”

Essar group has acquired a telecom licence in Uganda. “Africa is an important market for Essar’s telecom business and we are working towards building a strong brand in this market,” said Srinivas iyengar, CEO, Essar Telecom Kenya. “We would be looking at opportunities to establish a pan Africa footprint in future.”

The company plans to offer services in a joint venture with a local company, Kenya Telecom Uganda Ltd. It already has a licence in Kenya and plans to expand in other countries.

“We find African markets promising and have recently hiked our stake in Neotel (of South Africa) to 56 per cent from 26 per cent,” a senior Tata Communications official said. “We view this as a beach head to the rest of the African markets as and when right opportunities arise.”

Why Africa?

“African countries have just started moving on the development path,” said RK Upadhyay, CMD, TCIL. The company has been executing telecom infrastructure projects in Africa for past 20 years and is present in 30 countries. “There is expected to be enormous growth in telecommunications in next five years. Whenever, development takes place in a developing economy, the need for telecom services increases,” Upadhyay said.

“Africa has a low teledensity and high average revenue per user,” said Goyal. This explains why Indian providers want to go to. India has a teledensity (number of telephones for a population of 100) of about 40 per cent. In many African countries the teledensity is below 20 per cent (See table).

Besides, the continent’s average revenue per user is high. Against Rs 250 per month in India, the number in some African countries including is about three times as much.

Reliance has a licence in Uganda for offering mobile, fixed line, Internet, national and international long distance services, in addition to WiMax and Wifi services. It plans to acquire licences in other countries, a senior official said.

Telephone tariff will drastically come down: Raja

From Financial Express; ANI dated Jun 02, 2009 at 1539 hrs IST

New Delhi: Union Minister of Communications and Information Technology, A Raja has said that the prospects of the further lowering of telephone tariff in India are imminent in the future.

He said this while assuming his charge of the ministry here on Monday.

He also said that as a result of a drastic tariff cut, the telecommunication facility will be available to people living in the lowest edge of the social strata.

“In the telecom side already we brought healthy competition. More operators were permitted as per the TRAI recommendations. I do believe once the new operators start their operations the tariff will drastically come down and the telecommunication facility will be available to persons living in the lowest edge of the social strata,” he added.

He also said that India would auction third-generation wireless radio (3G) spectrum by the end of this year.

Raja declined to say how much the government expected to mobilise through the sale. India was to auction the 3G telecommunications spectrum in January, but the sale was delayed.

The telecommunication ministry had earlier expected the auction to raise 300 to 400 billion rupees but the Ministry of Finance in February estimated the sale could bring just half of that.

Third-generation services allow voice, data and video to be transmitted at high speeds to wireless devices, and are seen as the next growth driver for telecom firms in India.

RedChery to ‘push’ mail and pull Blackberry clientele

28 May 2009, 1909 hrs IST, ET Bureau

CHENNAI: US headquartered ICT company AJ Square Consultancy Services, with its global development center at Madurai, Tamil Nadu, launched a patented ‘push’ mail product called Redchery for the global as well as Indian markets on Thursday.

The Rs.15-crore fully owned subsidiary of the manufacturing group – Madurai based Lords group of Companies, is planning to price its product at one tenth the rate charged by its competitors, thereby acquiring about 20 lakh subscribers in a year. “We are aiming at an ARPU (average revenue per user) of Rs.110 per annum, and so, an annual turnover of Rs.22 crore for this fiscal,” said AJ Square MD Boaz Augustine.

Redchery is an application that enables mobile users to receive their emails on their handsets via GPRS. It receives emails from free e-mail accounts like Yahoo, Gmail, Hotmail and Rediffmail, and corporate email accounts like MS Exchange and IBM Lotus servers. 95% of the product development was done in the 200-strong global development centre of the company located in Madurai.

Developed on a Java platform, it differentiates itself from the market leader in the field – Blackberry – by being network, operating system and handset independent. “However, the company is in talks with various handset manufacturers and mobile service providers in India for marketing partnerships during the commercial launch of its product sixty to ninety days away.

The company’s focus will be on corporate customers, who currently comprise majority of the close to 1 million ‘push’ mail or Blackberry market in the country. It will foray into the Singapore and European markets once it attains its targets in India. “We are looking at drawing venture capital up to $ 25 million and are open to dilution of up to 45 percent stake,” Mr. Augustine said.

(Valuation Process) Does Bharti-MTN deal signal a recovery?

From The Hindu Business line on 28 May 2009

(The Indian market does not offer very much in terms of future growth. Fundamentally, the telecom story seems to have played out to a large extent)

Interview with VIVEK GUPTA, PARTNER, M&A PRACTICE, BMR ADVISORS

D. Murali

The first developing-nation foray into the ‘Big 5’ of the telecom world encompassing two fast-growing emerging wireless markets, India and Africa; consolidated post-deal financials, north of 200 million subscribers and revenues of $20 billion; one of India’s biggest cross-border deals, even relative to Tata-Corus or Hutch-Vodafone… These are some of the opening observations about the Bharti-MTN deal that Mr Vivek Gupta, Partner, M &A practice, BMR Advisors, New Delhi, shares with Business Line, during a quick email interaction shortly after the mega merger was in the news. “And the deal is slated to happen this time at fair sensible valuations – in a sense; it is good that the deal was not consummated last year,” adds Mr Gupta. Since May 2008, ignoring the last two days, Bharti’s capitalisation has declined over 5 per cent, while MTN fell over 32 per cent, he notes. “Given the deal terms that have emerged, it seems that the financial side is more or less stitched up, and thus, we believe the deal will likely go through this time.”

Excerpts from the interview:

What are the quantitative parameters of the valuation process, apart from the telecom companies’ subscriber base?

The deal envisages Bharti giving up 36 per cent equity — 25 per cent to MTN and 11 per cent to its shareholders — and $4.1 billion, in return for a controlling 49 per cent stake in MTN. MTN will become Bharti’s “subsidiary by governance structure.” I guess that Bharti may not have immediately pushed for a 50 per cent plus stake, due to regulatory issues around licences, but it does seem apparent that Bharti will be the controlling party.

A number of factors would have gone into the valuation discussions:

Bharti’s revenues of $7.5 billion vs MTN’s $12 billion.

EBIDTA (earnings before interest, taxes, depreciation and amortisation) margins around 40 per cent for both entities but finally, similar net profit numbers.

Bharti’s ARPU (average revenue per user) at around $6.5, with MTN at around $13.

Growth projections for both markets – Africa having relatively higher potential than India.

Relative market capitalisations of both listed entities, with Bharti carrying more generous market multiples.

Finally, the end result of all of these factors is a 30 per cent premium to MTN’s current market capitalisation — an EV/ EBIDTA in the region of sub 6 — a valuation that seems defensible, considering the large 49 per cent block of equity with a “governance structure” in Bharti’s favour.

India and Africa, are there similarities and differences of significance, from a telecom perspective?

Both are developing country markets and thus, have inherent similarities — number of subscribers, contribution of mobile subscribers to the overall telecommunication industry, etc. At the same time, they seem to be at different stages of their growth cycles. The African telecommunication market is estimated to grow at roughly 40 per cent. It is estimated that India will grow for the next couple of years and then will start stagnating, while Africa will potentially continue to show higher growth for four to five years.

On the ARPU front, Africa ranks better than India, at roughly $12 per subscriber as compared to $6 per subscriber in India. Also, as compared to India, in Africa, per-minute prices are higher, demand for SMS over voice is limited because of low literacy levels, and bottlenecks exist in sharing platforms between local operations on account of small populations in some countries, political issues, language barriers and lack of affordable cross-border connectivity.

By 2012-13, convergence is expected. The known factors should take over — increasing competition, price reductions and another wave of low-income customers should drive the ARPU levels down in Africa too. And Indian operators understand this game well — the game of working on high volumes, low margins, the game of building economies of scale, higher affordability and tight management of extensive outsourcing contracts.

Post meltdown, the deal space was barren for quite some time. Does the Bharti-MTN deal signal a recovery trajectory, leading to many more mega deals in other sectors, too?

One way to think about this deal is to really peg it as being independent of market conditions. The fundamental drivers have been there for a while. The lower markets and efflux of time may have helped the deal talks this time from the point of view of more flexibility on both sides to make the deal happen. And thus, we are hopefully in a situation where deal talks have progressed. For this reason, we do not necessarily believe that the announcement of this specific Bharti-MTN deal indicates a strong recovery trajectory in the deal space per se.

As an emerging market merger, does the Bharti-MTN deal have characteristics that may not be found in the developed markets?

The telecom industry has seen lot of transactions globally in the past. They have had different drivers. For example, in December 2006, AT&T acquired BellSouth. It was then estimated that the NPV of the expected synergies would be as high as $18 billion. In two other transactions which took place in 2005, SBC buying AT&T and Verizon buying MCI, the target was to save 20-50 per cent of their total operating costs by reducing the number of networks, thereby eliminating redundant switches, devices, people and buildings. Bharti-MTN is not entirely similar. The fundamental driver seems to be geographical expansion and along the way come benefits of scale and bargaining power.

The two companies could look to each other to add value to their operations and by sharing each other’s best practices. MTN should be able to use Bharti’s technology and techniques for rolling out networks inexpensively and quickly. Bharti will be able to diversify beyond India’s borders, where expanding its base means having to reach out to poorer consumers.

Put differently, from Bharti’s point of view, the Indian market does not offer very much in terms of future growth – 3G and some value-added services may carry some kickers but fundamentally, the telecom story has played out to a large extent. This foray probably is thus an attempt to carry the “telecom story” for the company further by expanding into another potentially high-growth market.

Any other points of interest?

This is the first really large deal that takes advantage of the recent change the Government has announced in what it considers foreign and domestic holding. Now, foreign shareholding in a majority Indian-owned and controlled company is not considered foreign for downstream investments and that offers much greater flexibility in opening up headroom for MTN and its shareholders to acquire stakes in Bharti.

Also, it’s interesting to see that the deal is structured in a way not to have to look at an open offer in India. That would have been a significant cost leakage, given that MTN was picking up more than the 15 per cent trigger limit. The Bharti release seems to indicate that the deal will happen through a Scheme of Arrangement, which means it will be taken to the High Court under Sections 391 to 394 of the Companies Act, 1956 and will thus, enjoy exemption from the Takeover Code. To a large extent, the deal’s success will be predicated on its being piloted successfully through the myriad regulatory and structuring issues governing a deal of this nature.

Bio:

Mr Vivek Gupta, who has worked in the M&A group of the tax practice at Ernst & Young for three years and Arthur Andersen for three and a half years, prior to joining BMR, has experience in mergers, acquisitions and business reorganisations, domestic as well as multi-jurisdictional, having participated in many cross-border and domestic transactions across diverse industries. He has advised a number of domestic and multinational companies on complex transactions which involve acquisitions, mergers, divestments and other business reorganisations and brings a blend of strategic, financial, tax, regulatory and commercial skills to such engagements. Mr Gupta, a Commerce graduate from the Delhi University and a Chartered Accountant, finds mention in the International Tax Review 2004, as a leading advisor on M&A transactions in India.

For telecom minister, 3G top priority

28 May 2009, 0724 hrs IST, Shalini Singh, ET Bureau

NEW DELHI: The Department of Telecom (DoT) has made 3G auctions a top priority item for the telecom ministry as soon as the new telecom minister takes office by next week.

A senior DoT official told TOI that this matter will be discussed with the new minister immediately on his taking charge. “3G auctions will definitely be held this year and sooner rather than later”, he said. Confirming this, DoT secretary Siddharth Behura told TOI, “3G auctions also carry the all round support of policy makers, including the finance ministry which needs to bridge the fiscal deficit, one of the biggest drawbacks in India’s balance sheet”.

Since the government can’t raise taxes sharply during the slowdown or cut expenditures it is highly likely that the finance ministry will push for an early and global 3G auction to be held within the next few months. The interim budget has already factored in revenues of Rs 20,000 crore from 3G auctions, just half telecom minister A Raja’s projections of Rs 40,000 crore in August 2008.

Average pan-India 3G spectrum is expected to rake in over Rs 4,000 crore. The government plans to auction 2×5 MHz of spectrum in varying proportions except Rajasthan and North East (see chart).

This time, 3G auctions also carry wide-ranging support from the industry. T V Ramachandran, director general, COAI, said, “3G auctions will definitely take place this year. It is a strong way of alleviating the spectrum crunch faced by GSM operators”.

“It is clear that 3G will be a priority for the new government as the auction framework is already in place and there is increasing interest from the mass market with 3G phones at less than $100/set hitting the market by 2010,” said Manoj Kohli, chief executive office & Jt managing director, Bharti Airtel. At present only 6% of mobile phones in India are 3G capable.

Also 3G will also contribute significantly to mobile valueadded services (VAS), which has been growing at nearly 40% every year as against the overall annual telecom revenue growth of 20%. This will prop up the rapidly declining average revenues per user (Arpu) of telcos.

“It is critical for operators that 3G auctions are held quickly as with mobile number portability and new operators, better quality 3G networks offering both better voice quality and VAS will be the only differentiator to prevent high end customers from switching to competing networks”, says Kunal Bajaj, managing director of consulting firm BDA India.

3G is an attractive policy move even for rural development by being a strong potential catalyst for e-Education, remote health care and m-Banking. RBI is currently reviewing the regulations for m- Banking, especially keeping in mind the needs of rural India. The success of the 3G auctions will depend upon the speed, transparency of process as well as the government’s ability to put out non-discriminatory auction terms for the existing 14 and potential new global operators.

Earlier in the year, the government released an information memorandum, appointed auctioneers and held pre-bid conference in the run up to the proposed 3G auction in January 2009. However, since neither industry nor the political environment favoured 3G auctions, India had to miss its date with what is perhaps the most high profile auction of a scarce national resource in this decade.

Merger move reflects telcos’ need to look beyond India

Adith Charlie on The Hindu Business Line on 26 May 2009

Mumbai, May 25 Indian telecom operators are venturing into emerging geographies such as Africa to arrest falling subscriber revenues and counter long-term fears of a slowdown in the home market.

This explains why Bharti Airtel is trying to woo over MTN all over again, exactly a year after the two fell short of a potential business arrangement, analysts and industry observers say.

Dip in ARPU
In India, telcos have been largely unable to arrest the dip in the average revenue per user (ARPU) which currently hovers around $4. Given the spate of new operators that have flooded the market, both average revenue per user and revenue per minute are expected to further decline. Nomura Securities analysts, Mr Sachin Gupta and Mr B. Roshan, expect the ARPU dip to continue on an average 6-8 per cent over the next three years for Bharti Airtel and Reliance Communications.

On the other hand, the ARPU in African countries (as a whole) and other emerging geographies is around $9-11, according to Mr Raman K., Practice Head (Telecom Media & Technology) at Tata Strategic Management Group.

“In regions such as Cyprus (Eurasia), the ARPU is close to $30 while in countries like Zambia, it is around $10,” he said. The overall tele-density in Africa could be around 30 per cent while it is around 36 per cent in India. Key markets such as Mali and Tanzania have a tele-density of less than 30 per cent, said Mr Raman.

Mr Madhusudan Gupta, senior research analyst with Gartner, believes that the telecom industry in India has passed the stage of hyper-growth and hence focusing on under-penetrated, yet profitable markets of Africa makes sense.

“The Indian telecom story is still very much intact. However, 4-5 years down the line, one expects the industry to still grow but at a slower pace,” said Mr Kunal Bajaj, Managing Director of advisory firm BDA Connect.

Greatest advantage
Achieving critical scale would be the greatest advantage for both Bharti Airtel and MTN if the deal were to go through.

“We are talking about creating a telecom entity which would be the sixth largest in the world. Moreover, it would have a footprint across 24 countries and hence be able to compete with the big boys of telecom world globally,” said Mr Mohd Saif, Deputy Director, Consulting, ICT Practice, Frost & Sullivan.

Considerable business synergies for Bharti

On The Hindu Business Line on 26 May 26, 2009
BL Research Bureau

Chennai, May 25 Indian telecom players are once again back to wooing MTN, the pan-African telecom operator. After talks with Bharti Airtel (Bharti) and subsequently Reliance Communications failed to produce a partnership last year, Bharti is once again looking to pick up a substantial stake in MTN. The terms of the deal, as discussed till now, suggest that it may involve Bharti having to fork out up to $4 billion in cash net of what it receives for its own shares, to MTN.

Bharti is looking to acquire a 49 per cent stake in MTN, while the latter may pick up a 36 per cent stake in the former. This transaction would entail Bharti receiving $2.9 billion in cash from MTN. But Bharti, in turn, may have to pay out $6.9 billion for a 36 per cent stake, as it involves paying out MTN investors ZAR 86 per share (1 ZAR=$0.12) and 0.5 of freshly issued shares in the form of global depositary receipts for every MTN share acquired.

As of March 31, 2009, the company’s liquid investments: Cash/equivalents and short-term investments totalled around $1 billion. With fresh issue of GDRs, there would be equity dilution for Bharti as well. One positive for the Indian telecom player is that the recovery in its stock price from its low has tilted the valuation in its favour. Bharti’s market capitalisation is now around $32.7 billion, while that of MTN is $28 billion. When the two companies were in talks last May, their market capitalisations were almost the same, at about $40 billion.

Operational gains
From a business perspective, the addition of MTN’s operations appears to be a positive for Bharti. The EBITDA (earnings before interest, tax, depreciation and amortisation) margin for Bharti is around 41 per cent, while that of MTN is 42.2 per cent, according to their latest results.

MTN operates in 21 countries across Africa and parts of West Asia. In many of these countries such as South Africa, Nigeria, Congo, Syria and Cyprus, the average revenue per user (ARPU) hovers at $13-36, much higher that the $6-7 levels in India.

The other key positive is that 99 per cent of MTN’s subscribers are prepaid customers, which means there is very limited possibility of bad debts. MTN delivers 3G services in most of these countries. This knowledge may be invaluable given the imminent 3G rollout in India, with Bharti looking to augment its ARPU by delivering such services as much of India too runs on prepaid basis. The complicated terms of the deal, however, did not go down well in the stock market, with the Bharti Airtel stock falling 5.4 per cent in Monday’s trade.

Telcos go creative on VAS

From www.businesss-standard.com/India by Seema Sindhu / New Delhi May 21, 2009, 0:01 IST

The value-added services sector is expected to touch Rs 9,760 cr by end June. Telecom operators in India appear to be gung-ho over the prospects of value-added services (VAS) which help them to differentiate, add substantially to their margins while simultaneously be a precusor to third generation or 3G regime. The recent creative campaigns of majors like Vodafone (ZooZoos), Airtel (R Madhavan and Vidya Balan), Virgin Mobile (music download) and Aircel’s (Internet applications) are a case in point.

VAS offerings provide telcos with a wider platform for communication. Sunzay Passari, VAS & devices head at Loop Mobile, says: “If you look at the current campaigns of telcos, there’s focus on VAS. Strategically, it’s VAS where telcos can differentiate themselves. Our advertising is more VAS-oriented. Around 60-70 per cent of our total ad budget goes into VAS advertising,” says Passari. This year, VAS comprised 12.5 per cent of Loop’s total revenue, and over 8 per cent came from non-SMS services. Passari says the share of VAS is increasing significantly.

The Internet and Mobile Association of India (IAMAI) predicts that the VAS industry will touch Rs 9,760 crore by end of June 2009, growing at 70 per cent. Music, caller ring back tones and wallpapers are the most consumed services. Over half of the music industry’s Intellectual Property Rights (IPRs) comes from the mobile space. Moreover, given the declining average revenue per user (Arpu) and increasing competition among operators as new players join in, there will be more focus on VAS.

For India’s largest private telco, for instance, VAS will play an important role as Bharti Airtel moves towards achieving its target of adding another 100 million in just three years. The company has already crossed the 100-million subscriber mark. VAS accounts for around 10 per cent of Airtel’s revenues (non-SMS would be around 6 per cent). “As we move from plain generic communication to entertainment, VAS plays an important role. It acts as a productivity-enhancement and livelihood-enhancement tool. For instance, we have mandi prices for rural people on their mobiles, we give them weather information and also provide local job search facility on mobiles. As SMS moves from English to vernacular languages, VAS revenue (both from SMS and non-SMS services) will only increase,” says Raghunath Mandava, chief marketing officer, Airtel.

Harit Nagpal, director, new business and marketing at Vodafone Essar, has a slightly different take on this subject. “We can’t go away from our core, network promotion. ZooZoos was to offer some variety. You have to have some variety in your campaign,” he says. VAS comprises around 10 per cent of its total revenue, and more than half of it comes from non-SMS services. For Vodafone, while there is no significant increase in VAS revenue share compared to the near-past, it has increased in value terms.

Prashant Singhal, telecom head at Ernst & Young, opines, “Though voice is the killer application, operators don’t have to induce customers to use voice. That’s why there’s this focus on VAS. Moreover for new operators, VAS gives better revenue margins too.” A new operator will end up paying 60-75 paisa (20 paisa termination charge and 45-55 paisa carriage fee) on a national call while charging the customer only 1.50 paise. On the other hand, chances are that an old operator’s call will terminate on its own subscriber (on account of penetration), which will save him both the charges. VAS gives telcos a margin of 60-80 per cent.

Aircel, which since its inception has used VAS as its strategy, says VAS has helped it project its brand as fresh. Gurdeep Singh, COO of Aircel, adds: “Last decade had seen enough of roll-out and affordability in telephony. Future of telephony is VAS. Thus we have put VAS at the core of our strategy. VAS contributes 10 per cent of total revenue of Indian telcos, whereas in other countries it contributes between 15-30 per cent of total revenue. It’s an underexploited area we are looking to tap.” Singh refuses that margins are better in VAS.Also the VAS shift is a precursor to 3G. On asking if it’s a preparation in account to 3G, Passari responds, “As you add more and more subscribers and take into account the number of players entering the market, moving towards VAS is the only way. When 3G comes, definitely it will give immediate boost to those telcos which are well positioned in VAS. So, it’s a mix of both.” Singh of Aircel holds the same view.

Aircel investing $10 bn in a bid to grab a chunk of wireless market

15 May 2009, 0609 hrs IST, Krishna Gopalan, ET Bureau

Over the last few weeks, it has been hard to miss the sight of Mahendra Singh Dhoni making travel plans with a couple of look-alikes of Indian cricketers. The advertisement has been ubiquitous and is certain to have met you in the face in newspapers, television channels and outdoor hoardings. This is the young and successful Indian captain speaking the voice of Aircel.

Like its brand ambassador Dhoni, Aircel has lofty ambitions. “In the next 24-36 months, we are targeting a subscriber base of 50 million. In 4-5 years, that number should hit 100 million,” says Sandip Das, CEO of Malaysia-based Maxis Communications, which owns a 74% stake in Aircel, with Apollo Hospitals owning the rest.

CROWDED MARKET
On the face of it, there is no better wireless market to be in than India. The country has close to 400 million subscribers and brings in at least nine million new ones each month. With that comes the bigger challenge. There are at least eight operators in any cellular circle and with tariffs already hitting rock-bottom, the battle is intensely competitive.

It is not as if Aircel has not taken note of this rather difficult situation. “It is hard to be the seventh or the eight operator. We have conceded almost a decade,” says Das, quite candidly. It was way back in 1999 when Aircel commenced its operations with a foray into the Tamil Nadu circle. The company was then owned by maverick businessman C Sivasankaran, who in a couple of years would acquire RPG Cellular’s Chennai operations.

Maxis of Malaysia entered the picture in 2006, by buying out Aircel from Sivasankaran for $1.08 billion. At that point, Aircel, apart from Chennai and Tamil Nadu, had licenses to provide services in 12 out of a maximum of 23 cellular circles.

If Chennai and Tamil Nadu were high-quality operations, there was really nothing beyond that barring a small presence in a handful of circles like West Bengal, Orissa and the North-East . From that rather insignificant position, Aircel has grown to being present in 17 circles. When operations were launched in Mumbai in April, it completed its footprint across the four large metros. No small achievement this, given that a much older player like Idea Cellular operates only in Delhi and Mumbai out of the four.

The team at Aircel does not see too much merit in the theory that the Indian wireless market is saturated. “We think there’s room for a brand to come from behind ,” says Aircel’s Chief Operating Officer , Gurdeep Singh. “We are the second largest operator in J&K and have moved up the rankings in several places. We have tailor made products for all our markets,” he says. A case in point is a tariff plan for price-sensitive markets where the user pays Rs 1,000 and gets 1,000 free SMS’, 1,000 minutes of free local calls as well as an equal number for STD calls.

That line of thinking seems to have worked. March 2009 has been the best ever for the GSM segment in terms of net additions, and the market grew by 10.84 million subscribers, with Aircel alone bringing in over a million subscribers. “We believe Aircel will be fairly successful, despite being a relatively late entrant in the metro, A and B circles. We estimate a 34.2% Compound Annual Growth Rate in subscribers for Aircel over the next three years,” says Subhabrata Majumder, Associate Director – Research at Macquarie Capital Securities.

THE WAY FORWARD
Telecom is an investment-guzzling business with long payback periods, where the key is having quality infrastructure and figuring out innovative ways to manage costs. In terms of infrastructure, Aircel has 20,000 telecom towers — a combination of towers that are owned and shared — and is looking at making the best use of these assets.

“Out of this, around 12,000 are owned by us. Next year, we will own close to 25,000 towers,” says Das. Like most other operators, Aircel too is looking at making the best use of its tower assets. “Yes , we will use our tower business to bring in some cash into our business. It is useful to arbitrage value for reinvestment in capex for our network rollout,” is how he describes the plan for the tower business.

Out of Aircel’s $10 billion investment plan, it has already committed close to $6 billion. That has come from a combination of equity and debt. Aircel’s parent Maxis is the biggest operator in Malaysia apart from having a presence in Indonesia and India is its most sizeable investment to date. According to Das, most of Aircel’s mature business — circles where they have been around for a while — have broken even. “In 3-4 years, we will be EBITDA positive in our new circles,” he says.

In the midst of all this, the bane for the operators in India relates to falling levels of Average Revenue Per User (ARPU). Operators need to look for ways to maintain ARPUs, which have a bearing on margins. Maxis is a big player in the value-added services (VAS) and Aircel, over time, will launch these in the Indian market. “Aircel’s pricing philosophy is to maintain ARPU by giving more to subscribers rather than to drop ARPU. The company is targeting a sharp increase in its VAS share from 9% of ARPU to 15% by 2011,” says Majumder.

India has never really been the easiest market for the best of marketers, and telecom is certainly no exception to that. For Aircel, the strategy has been to stay away from the price war which seems to have worked pretty well so far. How the game will unfold for this Johnny-come-lately in the time to come will be worth watching.

Telecom Sector Watch

Excerpt from article published on BS Reporter / Mumbai April 11, 2009, 0:56 IST

Bharti Airtel is expected to outperform Reliance Communications (RCom) due to a stronger revenue and a better growth in profit. A KRC analyst expects Bharti’s revenue to grow by over 50 per cent, while analysts at Edelweiss and MOSL expect it to grow by 28-29 per cent.

The Sunil Mittal-led firm is expected to benefit from lower forex losses due to a sharp depreciation in the yen’s value during the quarter as half of Bharti’s loans are denominated in the Japanese currency.

RCom, despite having witnessed a strong q-o-q subscriber growth of 10-14 per cent, is expected to post a revenue growth of around 14-17 per cent only. Also, the company is expected to see a drop of 4-6 per cent in revenue per minute (RPM) despite a strong growth in traffic. This weakness in RPM along with launch expenses and other associated costs is also likely to push down y-o-y margin by 390 bps. This may result either in a single-digit growth or even a decline in y-o-y net profit.

MOSL expects Bharti’s revenue to grow 28.1 per cent y-o-y and 4 per cent q-o-q due to a 10 per cent increase in q-o-q mobile services. Mobility revenues are expected to grow 3.3 per cent q-o-q, implying an ARPU (average revenue per user) of Rs 305. The margin is expected to decline by 80 bps y-o-y and 20 bps q-o-q to 40.7 per cent. But Edelweiss estimates Bharti’s mobility ARPU to decline by 2.6 per cent q-o-q on lower usage.

MOSL expects RCom’s revenue to grow 13 per cent y-o-y and 2.6 per cent q-o-q due to strong subscriber momentum. The ARPUs are expected to go down by 5-10 per cent on lower quality of incremental subscribers and free promotional minutes in GSM. The margin is expected to decline by 420 bps y-o-y due to an aggressive network expansion. The net profit is expected to fall by 10 per cent y-o-y and 5 per cent q-o-q.Edelweiss estimates mobility ARPU of RCom to decline by 9.5 per cent q-o-q owing to aggressive promotional schemes offered at the launch of its GSM services. Uncertainty in derivative income is a risk and, hence, Edelweiss expects a 9 per cent decline in RCom’s net profit.

ICT Statistics Newslog – Mobile tariffs to plunge by 20-25% in 2009 (India)

Mobile tariffs to plunge by 20-25% in 2009 (India)

via ICT Statistics Newslog – Mobile tariffs to plunge by 20-25% in 2009 (India) on May 12, 2009

In India, mobile tariffs in comparison to other countries are lowest and are anticipated to further decline by 20-25% during 2009. The decline in tariffs will triggered by the new entrants and rapid expansion of the existing telecom players. “Whenever new entrants commence operations in the country, there is a high chance of reduction in tariffs as they come in with innovative strategies and prices, including freebies. Apart from tariffs, the price reduction would also be extended to handsets,” European handset major Meridian India CEO Rajiv Khanna, reportedly said. The Telecom Regulatory Authority of India (TRAI) estimates that the country needs around 300,000 towers by 2010 to support the massive 10 million monthly subscriber additions.

In recent, the termination charges have been brought to 20 paise from 30 for domestic calls, which the operators have begun passing on to the subscribers, is also pulling tariffs down. Though, few firms are not in favour of lowering tariffs to be an apt option for competing in the telecom space. “Indian companies are rolling our predatory prices without conducting proper studies, unlike in the U.S. or developed countries. Price reductions coming in from desperate companies are anti-competition and these are not based on economic sense, and in the long run this would be anti-consumer and anti-industry,” said Idea Cellular Managing Director Sanjeev Aga.

Source: Wireless Federation.

The best is over (On how the future might be for Airtel)

Shobhana Subramanian / Mumbai May 11, 2009, 0:46 IST on Business Standard

It’s one of the best moves Bharti Airtel ever made. When peer Reliance Communications (RCom) rolled out its GSM network in January this year, it was dishing out free minutes to anyone who bought a connection. One might have expected Bharti to retaliate. But it refused to join the price war and didn’t even tweak its tariffs, let alone offer free minutes.

In fact, Bharti hasn’t touched its key rates for quite a while now, almost 18 months. That’s despite the fact that both Vodafone and Idea Cellular have been rolling out networks in new circles. Subscribers seem to be willing to pay up—the telco commands a revenue market share of an enviable 32 per cent. And the high base doesn’t seem to be coming in the way of growth.
In 2008-09, the Rs 36,962 crore firm added nearly 32 million subscribers, close to a fifth of the net additions during that period, so that its subscriber base is now nudging 94 million.

MOUs trend down

Indeed not tinkering with call tariffs seems to be paying off: in the March 2009 quarter, Bharti’s average revenue per user (arpu) fell by a less than expected 6 per cent sequentially.

Also, while the minutes of usage (mou) per subscriber dropped by 20 minutes (or 4 per cent) sequentially to Rs 485, eleven minutes were lost because of the fewer number of days in the quarter. Of the rest, some minutes were yielded to the competition and some lost because more connections are being sold in rural markets.

However, it’s evident that elasticity trends aren’t showing an uptick—people don’t seem to be talking more just because it costs less to do so. In fact, the drop in mou for RCom during the quarter was a sharper 9 per cent.

Also, since Bharti will continue to expand in the rural areas—currently over 50 per cent of new subscribers are from the hinterland— the growth in traffic can’t but slow down. It’s happening already: Bharti’s total wireless minutes grew by just 5.7 per cent sequentially in the March 2009 quarter lagging the 9.7 per cent growth in subscribers—the trend was similar in the December 2008 quarter.

Calling rural India

The rural spread could hurt arpus too. But that’s the only way forward for the telco, which now reaches 81 per cent of the population compared with 71 per cent at the end of 2007-08.
Given that roughly 70 per cent of India’s population is rural and urban-teledensity has already hit a high 75 per cent—90 per cent plus in the metros—it’s rural subscribers who will come into the fold and drive the industry for the next few years. Industry watchers say there’s an opportunity here for Bharti which it is well-positioned to exploit; that’s because it has 900MHz of spectrum in 13 service areas.

But a rural franchise can also mean lower arpus. So far though, the revenue per minute (rpm) has held up pretty well, coming off by just 2 per cent sequentially in the March 2009 quarter, a factor that helped the support margins for the wireless business at 31.5 per cent. As analysts point out, the ebitda (earnings before interest depreciation and tax) per minute at 20 paise has stayed more or less flat now for four quarters.

However, although the management has indicated that most of the capital expenditure is behind it and that some channel costs are lower in rural areas, that may not be enough to cushion a fall in the margins which could result from lower growth in revenues.

Top line to taper off

Indeed, the days of an annual 35-40 per cent growth in revenues are over. The sequential revenue growth in the March 2009 quarter was a rather disappointing 2 per cent betraying the severity of the competition.

Typically, revenues have grown at around 5-6 per cent and on occasions, even faster. So it’s not surprising that even for the current year, analysts are pencilling in a sales growth of just 16-17 per cent: compare that with the 37 per cent rise in revenues in 2008-09 to Rs 36,962 crore.
The growth for 2010-11 is a far more subdued sub-15 per cent. Even if the RCom threat has subsided after it withdrew the free minutes scheme, the competition from both incumbents and new entrants—who are also expanding their network—will continue to hurt.

Vodafone, for instance, is already netting 2 million subscribers a month and by the end of the year will have a pan-India footprint. The multinational has been gaining market share in many of the new circles where it has launched.

Idea Cellular too has become a stronger player after the acquisition of Spice and although it operates only in 16 circles now will have a pan-India presence by end 2009.

In January this year, despite RCom’s GSM launch, Idea trebled its share in the Mumbai market, albeit on a low base. Also, while churn for Bharti, both in the pre-paid and post-paid segments, had fallen to an all-time low in the December 2008 quarter, it went up again in the March 2009 quarter.

THE TONE GETS LOUDER

Source: CLSA Asia-Pacific Markets, E-Estimate
The arrival of Mobile Number Portability (MNP) too could result in some churn though it’s unlikely Bharti will lose too many customers given its strong brand equity, reach and value-added services.

The 3G kicker

Where Bharti scores over its rivals is in the scale that it has built—the telco is in a far better position than its rivals to absorb costs. Moreover, its strong balance sheet will allow it to bid for and offer 3G services without taking on too much debt. That’s why the sooner 3G spectrum auctions are held, the better for Bharti.

Analysts point out that since the lack of 2G spectrum remains an issue, 3G will probably be used mainly for voice services initially, but add that Bharti can always offer value-added services at higher charges which could offset some of the fall in the 2G arpus.

The company has said it would spend $2-2.2 billion on capex this year and finance this from internal accruals since it now generates free cash flows on a stand-alone basis; also it needs to make much smaller investments from here on since it already has a huge reach.

Peer RCom, on the other hand, has decided on a smaller outlay of Rs 10,000 crore for expanding its network in the current year, possibly because it is far more leveraged. That’s surprising given that RCom needs to expand its GSM network. Bharti’s other initiatives such as mobile commerce and mobile banking revenues will start paying off though how soon they will contribute meaningfully to the bottom line is hard to tell.

The top line for non-mobile segments, in the March 2009 quarter, was nothing to call home about—the wholesale carrier business, in fact, saw a sequential fall in revenues.

Industry watchers believe that with Idea Cellular and Vodafone putting up their own fibre networks, Bharti’s revenues in the carrier segment will be driven largely by captive usage, which in turn will be a function of how well the the wireless business does. Bharti holds a 42 per cent stake in Indus Towers and while the investment is currently a drag on profits, analysts believe the venture should make money this year.

The best bet in telecom

Of course, earnings growth for Bharti will taper off in the next couple of years –analysts are estimating a compounded 16 per cent growth in net profits between 2009-2011. In 2008-09, net profits grew 26 per cent to Rs 8,470 crore.

Concerns on over-ownership by foreign investors, RCom’s GSM rollout, company executives selling shares and the cut in termination fees have left the stock subdued in recent months. The stock is currently valued at just around 7.8 times 2009-10 EV/ebitda (enterprise value to ebitda).

Surprisingly, RCom trades at just a 14 per cent discount to Bharti–an EV/ebitda of 6.7 times, which is much too small given that Bharti has a much stronger balance sheet with a net debt to equity ratio of just 0.23 times whereas RCom’s net debt to estimated ebitda for 2009-10 is expected to be just under three times.What’s even harder to understand is why Idea Cellular trades at an even smaller discount. Although Idea has a strong balance sheet with close to Rs 5,000 crore of cash, it has neither the reach nor the scale that Bharti has and makes losses in several circles. So it’s Bharti for those who want to play telecom in India

Bright Prospects for OnMobile Global

This article on OnMobile Global appeared at http://deadpresident.blogspot.com/ on Sunday 10 May, 2009.

Caller ringback tones and IVR-based solutions, where OnMobile’s key presence lies, are set to dominate non-voice revenues, hitherto dominated by messaging alone.Benefitting from ringtone downloads. Investors can continue to hold the shares of OnMobile Global, primarily a mobile value-added services (VAS) player, given the growth prospects for such services in India and other emerging markets. At Rs 325, the stock trades at 19 times its likely 2009-10 per share earnings, a premium to the broad market. In the absence of listed peers and increasingly successful relationships in the form of strong deal wins with most Indian mobile operators and select international ones, there may yet be scope for capital appreciation in the stock.The company has won a large multi-country, multi-year deal with Vodafone to deploy its VAS products in many emerging markets such as Eastern Europe, Africa and Latin America. OnMobile’s ability to mine existing client base and synergies from overseas acquisitions (such as Telsima and Vox Mobili) that it made over the last couple of years may support earnings growth over the medium term.In FY-09, OnMobile revenues grew by 55.2 per cent to Rs 406.3 crore, while net profits grew by 41.3 per cent to Rs 85.2 crore over FY-08.OnMobile works with mobile operators for providing services such as caller ring-back tones, ringtone downloads and IVR-based services. Top Indian mobile operators such as Vodafone Essar, BSNL, Bharti Airtel, Reliance Communications and Idea Cellular feature among its clients. The revenue share for any VAS product ranges between 20 per cent and 25 per cent of the revenues that an operator normally generates from delivering such services to customers. Most of these operators are witnessing rapid subscriber additions and looking to augment non-voice revenues. OnMobile appears well-placed to benefit from the opportunity. Caller ringback tones and IVR-based solutions, where the company’s key presence lies, are set to dominate non-voice revenues, hitherto dominated by messaging alone.In fact, Bharti Airtel and Reliance Communications have seen SMS revenues (till recently a major portion of VAS revenues) as a percentage of non-voice revenues fall, indicating subscriber interest in other services. A study by IMRB shows that VAS revenues for Indian operators are expected to grow at 70 per cent yearly to Rs 16,520 crore by 2010, with the proportion of SMS revenues coming down and other VAS products enhancing contributions. The IVR-based solutions cater to a rural audience (where a bulk of subscriber additions are happening), wherein cumbersome dialling of codes may be overcome by the local language voice-based prompts for their VAS requirements.Vodafone deal rings revenue visibilityVodafone India had been working with OnMobile for the past eight years. According to the company, Vodafone generates Rs 1,000 crore per year from delivering VAS services powered by OnMobile. Vodafone has now awarded its emerging markets VAS delivery responsibility to OnMobile. This deal is significant on several counts. Over the next three years, revenues from this deal are expected to contribute 25-30 per cent of OnMobile’s overall revenues.It is important to note that Vodafone in Eastern Europe and African countries generates ARPUs in the range of $7.5-13.3, much higher than the $6 that the Indian subscribers generate. This means that the scope of generating VAS revenues is that much higher.The other key aspect is that the software development expenses for delivering these services from a platform have already been incurred. This means that this deal will be a margin enhancing one for OnMobile. OnMobile, through a series of acquisi tions, has managed to upsell and cross-sell services to operators in Europe. International revenues account for 23 per cent of the company’s revenues, up from 15 per cent in 2007-08. It has managed to win customers in Asia-Pacific and Latin America as well. This creates a healthy geographic mix for the company, which after the Vodafone deal is set to become even more enhanced.Client concentration, with top five clients contributing 70 per cent of revenues, though still high has come down substantially from 77 per cent in FY-08.One critical aspect that gives OnMobile the edge in winning deals is that it is technology-agnostic and has the capability to delivers all its services from a single platform. This becomes relevant as rollouts can happen quickly in overseas geographies and integration can happen seamlessly.RisksA recent TRAI order that requires prior subscriber permission through SMS, email or fax, may delay offtake for VAS services. Competition from other VAS players such as Bharti Telesoft, IMI Mobile and One 97 may pose pricing pressure.

Telcos to face margin pressure

8 Apr, 2009, 0943 hrs IST,TNN

The intensely competitive telecom sector is expected to report a double-digit growth rate in its topline during the March 2009 quarter on the back of a strong subscriber addition.
However, unlike previous quarters, most broking houses estimate that profit margins of these companies would be under pressure on account of a falling average revenue per user (ARPU). That apart, high costs incurred in the launch of operations in new circles too will have an impact.
According to the average estimates of six broking houses and ET Intelligence Group (ETIG), the top three listed players — Bharti Airtel, Reliance Communications (RCOM), and Idea Cellular — are likely to record a 23% growth in aggregate sales. Net profit (PAT) is expected to increase by just over 9% on a year-on-year basis. On a sequential basis, aggregate net sales and net profit could rise by just 3% and 1%, respectively. Operators like RCOM and Idea launched their GSM services in various new circles in the recent past. This is likely to result in substantial acceleration in subscriber additions for the March quarter. “We expect a record growth in the industry’s wireless subscriber additions of over 42.5 million in Q4 FY09 and subscriber base at 389 million. The subscriber base is 12% higher from that of the previous quarter,” said Edelweiss Securties in a recent report. Average estimates suggest that among the top three players, Idea Cellular is likely to see the sharpest growth in revenue at over 46% followed by 30.5% rise in Bharti’s revenue. However, the strong subscriber addition is likely to drag ARPUs down. Companies have offered lower tariffs to bring in more users. For instance, RCOM’s initial offer in different circles was on the lines of free talktime to the extent of Rs 5 or Rs 10. This kind of aggressive promos is likely to have an impact on the revenue per minute of RCOM and minutes of usage of other operators who have chosen to maintain their current tariff rates. All this would significantly offset the growth in subscriber base of these companies. “We expect a muted Q4 FY09 operating performance from the listed telecom majors despite strong subscriber growth” , said a recent Motilal Oswal earning preview report. A lower ARPU, higher launch costs and more selling and marketing expenses is expected to hurt the operating margins of the telecom operators. “We expect the three telcos (Bharti, RCOM and Idea) to record a combined 313 basis points year-on-year fall in EBITDA (earning before interest, taxes, depreciation and amortization) margins in Q4 FY09”, said an Angel Broking report. However, the impact on operating margins would vary with each company. For Bharti, which has stable operations, the margin could contract by 40-100 basis points compared to levels a year ago. For RCom and Idea, which have incurred huge network expansion cost and higher marketing expenses, the operating margin is expected to contract by around 400 and 1,000 basis points, respectively. The positive factor during this quarter is the relatively lower depreciation of the Indian rupee against other currencies like the US Dollar and Japanese Yen. This would restrict the forex losses incurred by these companies.

RCom Net Down 3% in Q4, Plans Rs.100 Billion Capex for Current Year

Published on 4/30/2009 9:50:22 PM
A sharp decline in Average Revenue Per User (ARPU) and promotional offers that drove down tariffs to the lowest levels in the industry weighed on Reliance Communications (RCom) as it posted a a 3.3% fall in fourth-quarter consolidated net profit. Net profit fell to Rs 14.54 billion during the quarter from Rs 15.03 billion a year earlier. The company’s revenue from its wireless business grew 2% quarter on quarter from Rs 44.11 billion to Rs 45.01 billion or 8% higher than the same quarter in the previous year.
Monthly ARPU dropped 11% from the previous quarter to Rs 221 during January-March quarter. Interestingly, despite a promotion offering free minutes of usage for 90 days, RCOM’s minutes of use per subscriber per month slipped to 372 minutes from 410 (Character emphasis mine).
RCOM added over 11.3 mn wireless subscribers during the quarter inlcuding 5 million that were added on its GSM network rolled out in January. During this period, India added close to 44 million mobile subscribers. At the end of March 2009, RCom had 72.6 million subscribers.
The company’s capex stood at around Rs 190 billion, which was spent mainly on rolling out its GSM network. This was 35% lesser than previous estimates. Company chairman Anil Ambani attributed the lower capex to “very competitive cost”. During the January-March quarter, the company added 5,000 telecom towers to its network, taking the total to 48,000 towers. Reliance is expected to spend 33% lesser than the earlier announced Rs. 300 billion capex in 2009-10 suggesting that the major part of its expansions are over and the operator’s infrastructure has now stabilized at operational level. The company will now spend Rs. 100 billion excluding any 3G license related expenses.

Reliance GSM goes post-paid in Mum

23 Apr, 2009, 1319 hrs IST

MUMBAI: Mobile GSM Service has commenced the commercial roll-out of its post-paid services in Mumbai.
The roll-out of its post paid services is the second phase of Reliance Mobile’s GSM foray. The launch of post-paid services follows the pre-paid launch early this year. Reliance Mobile has launched its GSM post paid services with a plan of Rs 375. The company has bundled numerous benefits as part of its effort to target post-paid high ARPU customers. In line with its value proposition, Reliance Mobile is offering 750 free local minutes as part of this plan during the post-paid roll-out. The company is also offering tariff benefits to its new post-paid subscribers by offering a flat Local call rate of Rs 0.50/minute to any network as well as fixed line phone. The company is also offering a flat STD call rate of Rs 1 to any network across India. “The Reliance Mobile GSM post paid service entails offering a unique value proposition fine-tuned as per the needs of nearly 14 Million GSM customers in Mumbai circle. This Customer Experience Programme is in line with Reliance Communications’ Philosophy of making world-class telephony services accessible and affordable to the masses,” said Akshay Kumar, Regional Head, West, Reliance Communications. Reliance Mobile GSM Service is also rolling out special SMS packs in the Mumbai market. Currently, the company is rolling out two SMS packs. For light SMS users, the company is offering free 100 local and national SMS bundle at a monthly charge of Rs 25. For mega SMS users, Reliance Mobile is offering free 1,000 local and national SMS bundle for a monthly charge of Rs 60 only. This unique SMS packs are part of the company’s focus to drive SMS traffic in Mumbai circle. “The GSM customers in Mumbai can now avail of state-of-the-art, next generation, EDGE ready Reliance Mobile GSM Network – the only network that offers Digital Voice clarity and intrinsic value benefits for our subscribers,” Mr Akshay Kumar added. For low-usage subscribers, Reliance Mobile is offering Rs 199 plan as part of its GSM post-paid launch in Mumbai. The company has bundled a local usage discount of Rs 150 with this plan. Recently, Reliance Mobile became the first company in the world to add over 11 million new subscribers in a span of three months. Reliance Mobile added these subscribers post the launch of its GSM services in India. With an addition of 3 million new subscribers during March 2009, Reliance has added the highest number of new subscribers in the Industry for the 3rd consecutive month.

Will the rural-urban telecom divide widen?

Rajat Kathuria and Mahesh Uppal in New Delhi , March 09 New Delhi

The recent extraordinary growth in telecommunication connections in India, which topped 15 million per month in January 2009, has understandably grabbed the headlines. These huge numbers, however, disguise a disturbing reality which is the enormous variation within India. Many of the less developed states have state-wide average penetration rates of well below 20 per cent, including Bihar, Uttar Pradesh, Orissa, Madhya Pradesh and Assam.
More perilous, however, is the inequality between rural and urban India. Despite several policy initiatives to promote rural penetration, growth in teledensity continues to be skewed in favour of urban India. In fact, the rural population is much worse off than it was a few years ago compared to its urban counterpart.
In March 1998, the difference between urban and rural teledensity was 5.4. In September 2008, the corresponding number had grown to 56.6, which means the divide has worsened almost 12 times in the last 10 years. Since number of fixed phones is declining, the entire change can be attributed to mobile telephony.
A recent report by ICRIER on the impact of mobile phones shows there is a causal relationship between higher mobile teledensity in Indian states and higher economic growth. States with high mobile penetration can be expected to grow faster than those states with lower mobile penetration rates, and by 1.2 percentage points for every 10 per cent increase in the penetration rate.
This finding underlines the urgency of increasing teledensity across all states and especially in those numerous many areas that are yet to reach threshold levels. Indeed, the Telecom Regulatory Authority of India has also recently expressed concern over the growing disparity in two of its recent documents. One is specifically devoted to rural penetration issues and the other relates to the regulatory regime for charges that an operator needs to pay for the use of a competitor’s network, the so-called interconnect usage charge regime.
Regrettably, the line of attack in the latter might well worsen rather than reduce the digital divide. At a time when the world economic crisis threatens to shrink resources available for investment, Trai’s proposed interconnection regime will hurt the business cases of incumbent operators who having covered urban areas are now already deploying networks in rural areas. It will, instead, help new entrants, keen to exploit regulatory anomalies in India, to eat into the urban revenues rather than aid growth in rural areas.
Here is the argument.
Interconnection charges include payments for origination, carriage, transit and termination of calls on competing networks. Trai, which has complete jurisdiction in interconnection issues and need not involve the government in these deliberations, set the termination rate at Rs 0.30 per minute for all calls whether fixed or mobile. It leaves origination charges to operators and limits carriage and transit to Rs 0.65 and Rs 0.20 per minute.
Recent consultation held by the authority in Delhi and Hyderabad on the IUC regime, revealed an inclination to reduce the termination charges by about 50 per cent on the ground that the actual incremental costs of interconnection incurred by operators are now lower.
In this approach, an operator’s capital costs are excluded from calculations of interconnection charges and are to be recovered from charges levied on its own subscribers. Many regulatory authorities around the world subscribe to this scheme since it favours new competitors, especially when they seek to take on incumbent monopolies with almost ubiquitous networks, like in developed countries.
This is just not the scenario in India where large parts — especially rural areas — have no connectivity at all. With a termination charge of Rs 0.30 per minute, the IUC regime in India is already amongst the most favourable to operators seeking interconnection.
The current IUC can hardly be seen as a barrier to competition in the present state of network development. It seems implausible that India’s incumbent operators can recover capital costs as they did traditionally through rental charges or through call charges, already among the lowest in the world. It is worth recalling that prepaid users, that are around 80 per cent of India’s total subscriber base, do not pay a recurring monthly charge or significant connection fees.
Given this situation, a further reduction in termination rates, the so-called mobile termination charge, would seriously impact mobile operator plans to expand in rural areas. Rural subscribers typically receive more calls than they make and a reduction in MTC revenue to operators will further reduce their revenue realisation and consequently their incentive to expand in rural areas. More so, if the new MTC hurts urban revenues as well.
Currently, mobile operators realise a large component of their revenue in the form of MTC for low ARPU subscribers. A lower MTC would further reduce the incentive to acquire rural subscribers. The new measures would make sense if Trai had demonstrated that operators were reluctant to expand rural networks in spite of the surplus from interconnection charges. It has not.
It is also important to debunk another argument that reducing interconnection charges will facilitate competition and thereby benefit customers. This argument seems disingenuous given that on an average existing subscribers can access seven or eight mobile operators, which is unprecedented in any mobile market in the world.
It is increasingly argued that the fragmentation of Indian telecom market has already led to inefficient utilisation of scarce spectrum. That the new entrants in India’s crowded telecom market were attracted primarily by the chance of acquiring precious spectrum at bargain prices has been amply demonstrated by recent transactions in mobile licences.
If, in the name of increasing competition, Trai were to reduce the already low interconnection charges, we fear it will hurt rural users even before networks can be rolled out for them. It has been shown that access to telecommunications can help improve productivity and efficiency, and enable benefits of economic growth to be shared. The rural population, therefore, at least deserves a chance. If, say, in one year, the urban-rural disparity shows no signs of abating, Trai may well be justified in considering a tougher IUC regime to reduce the unearned profits of mobile operators.