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Archive for the ‘India’ Category

Indian telecom industry has not been impacted much by global economic slowdown and many new vendors see this as opportunity to enter Indian telecom space. With the 3G auction around the corner, 27 new handset vendors have entered the market in just one quarter, according to Economic Times.

These new mobile companies are coming up with dual SIM cards, full Qwerty keyboard and at a cheaper price to attract more customers. Mobile handset sales in India recorded a 6.7 percent increase to 100.9 million in the year ended June 30, as compared to 94.6 million in the year before. Even Mindtree has entered the telecom space through its acquired company Kyocera Wireless. China Wireless Technologies’ Indian subsidiary, Coolpad Communications, is targeting Rs. 800 crore revenue in next five years in India. The company is set to invest Rs. 400 crore as capex and opex over the next three years.

According to a new research study by IDC India, the new vendors have ensured that the overall mobile handset shipments touched 6.3 percent as compared to 1.2 percent during the June 2008 quarter, when the new vendors totaled 11 percent. “The shipments from such new players who have entered the Indian market in the last 12 to 18 months grew six-fold with 6.41 million unit sales,” said Deepak Kumar, Associate Vice-President (Research) of IDC, India.

In terms of shipment, Nokia still leads the market share in India with 56.8 percent followed by Samsung with a 7.7 percent share and LG with 5.4 percent share in the 12-month period ended June 30, according to the report. ‘With the mobile handsets market in India growing in volumes , device manufacturers have started focusing on niche and emerging segments based on lifestyle profiling of buyers ,” said Naveen Mishra, an Analyst at IDC India.

“We see the market getting further crowded. At the same time, an accelerated evolution of the market is at work, as rising competition forces vendors to offer a combo of volume and value,” said Kumar.

Source: SI

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Debt ratings agency, Fitch says that it expects the recent tariff war by new telecom entrants in India and the likely retaliation by incumbent operators, will have a significant impact on industry revenues and profitability.

The reduced tariffs will lower the ARPUs and operating margins for all industry players. In a recent report, Fitch stated that EBITDA margins of existing operators will fall on lower ARPUs in the near term. The exaggerated tariff reduction and competitive intensity will likely reduce ARPUs by 10%-15%, which is lower than expected.

The Indian telecom industry is witnessing price wars with the entry of the new telecom operators, which were allotted universal access service licenses (UASLs) in February 2008 by the Department of Telecommunication (DoT).

The new entrants (Aircel, Sistema Shyam Teleservices (SSTL) and Tata Docomo (GSM)) have launched aggressive tariff plans in an effort to garner subscriber market share. These new entrants have launched per second billing, either selectively or throughout their networks, while Tata CDMA has launched tariffs on a per call basis, irrespective of duration (Re 1 and Re 3 per call on local and STD, respectively). Following this trend, Reliance communication (Rcom) has reduced the tariff to 50 paise per minute for local, STD, roaming and SMS, for both off-net and on-net calls. BSNL has also launched per second billing plan in Karnataka, Andhra Pradesh and Orissa.

Fitch expects other incumbent operators to eventually match the reduced tariff plans, considering the adoption of mobile number portability in the near future.

Nevertheless, Fitch expects the Stable Outlook of the sector to continue, given the net monthly subscriber additions. However, the impending 3G and BWA auctions remain an event risk.

Fitch expects subscriber growth to be at a CAGR of 25%-30% over the next three years up to FY12, as compared to a CAGR of 44% in the last three years (FY07- FY09). The incumbent operators with strong balance sheets and strong portfolio of high-end customers in metro areas are expected to maintain their credit profile. However, Fitch expects new entrants to face increasing difficulties in garnering any meaningful market share, with already low tariffs leading to lower ARPUs, a lack of adequate spectrum quality and restrictions on spectrum sharing.

The telecom industry has yet to see service launch of other UASL holders like Etisalat DB Telecom India, Datacom, Telenor – Unitech wireless, Loop Telecom and S-tel. Fitch believes that the reduced industry profitability will likely expedite industry consolidation in the medium to long term.

Source: Fitch Ratings

“Politics of national pride derailed the deal?”

Sunil Mittal’s dreams of forging a transnational alliance with Africa’s largest telco MTN were shattered for the second time in less than two years, with Bharti Airtel and the South African company calling off talks a few hours before the expiry of the September 30 deadline after the South African government refused to soften its stance on the proposed deal structure.

“Bharti and MTN have decided to disengage from their discussions when the exclusivity period ends on September 30, 2009. This (deal) structure needed an approval from the government of South Africa, which has expressed its inability to accept it in the current form. In view of this, both companies have taken the decision to disengage from discussions,” Bharti Airtel said in a statement on Wednesday evening.

The statement was issued in India even as the top management team of Bharti—chairman Sunil Mittal along with top executives Manoj Kohli and Akhil Gupta—was at an offsite in Thailand. The deal fell through, say sources, after two crucial meetings in South Africa on Wednesday—one where the key representatives of the government expressed reservations about the deal and refused to budge from its earlier stance on dual listing of companies, or DLC. Thereafter, the MTN board met and formally called off the deal.

The announcement pulled down MTN’s shares by 5.5 percent on the Johannesburg Stock Exchange (JSE) before the South African company requested a suspension of trade in the stock for the rest of the day.

In the end, the politics of national pride derailed the deal as South Africa did not want MTN to lose its independent identity. It wanted an assurance from the Indian government that it would amend laws to allow DLCs. While Prime Minister Manmohan Singh assured South African President Jacob Zuma that the Indian government would discuss all issues, this was evidently not enough for the South Africans.

This also marks the seventh attempt by MTN to enter into a merger or strategic alliance with global communication majors. The South African giant has in the past been in failed discussions with the likes of Vodafone, China Mobile and Reliance Communications.

Pallavi Ambekar, analyst, Coronation Fund Managers, Cape Town, a shareholder in MTN, is relieved that the deal has been called off. “We are shareholders of MTN and we are quite positive that the deal has been called off. We felt that the deal in its initial format was quite complicated and felt that the price being offered undervalued MTN itself. I can’t comment on any new deal because we haven’t seen any new deal that was being presented. The deal was complicated. Several things would have come in the way of actually concluding the deal, not necessarily just the SA government,” she said soon after the Bharti statement.

Ironically, the transaction under discussion did not involve any loss of national identity for MTN. It was a cash-cum-stock deal that would have resulted in Bharti Airtel getting a 49 percent stake in MTN and the South African telco and its shareholders getting a 36 percent economic interest in Bharti. But the South Africans wanted assurances for the future, which the Indian government was not in a position to give as it said allowing dual listing will need major amendments to key corporate laws and cannot be done in haste.

Following Bharti’s statement, the South African government said: “When companies structure their relationships outside the current exchange control regulatory framework for such transactions, they require the approval of the minister of finance. This was the case with the proposed MTN-Bharti merger, which required certain exchange control and other approvals.”

Despite the South African government’s failure to approve the deal, Bharti Airtel defended the proposed deal structure and said “the broad structure being discussed by the two sides had taken into account the sensibilities and sensitivities of both companies and both their countries”.

The Indian telco also said as both companies were the national champions in their respective countries, the proposed deal structure had taken into account their leadership in their respective geographies to ensure continuity of business—including listing, tax residencies, management, brand etc.

“This transaction would have been the single largest foreign direct investment into South Africa and one of the largest outbound FDIs from India. The deal would have been a significant step in promoting South-South cooperation—a vision of the two countries,” the Bharti Airtel statement added.

But the Indian company has not totally given up, if its statement is anything to go by. “We hope the South African government will review its position in the future and allow both companies an opportunity to re-engage.”

Bharti Airtel also added that it would “continue to explore international expansion opportunities that are consistent with its vision and bring value to its shareholders”.

The Indian telco even politely observed that it “enjoyed its engagement with the MTN management and its board and wished them continued success”.

Last month, Mittal, the Bharti Group chairman, told ET NOW that the company’s second attempt to forge an alliance with MTN was a well-thought-out move. “I would not call it an audacious move. This is our second attempt at forging a deep and meaningful alliance with MTN. It is a very well considered move and there is a very strong rationale. Our business model is ready to go out and that’s why I am exploring the MTN opportunity.”

Bharti also indicated its gratitude to the Indian government for its support: “Bharti is grateful to the various Indian government authorities, in particular the minister of finance, the minister of commerce and industry and the minister of corporate affairs. We express our profound gratitude to the honourable Prime Minister of India for his strong support to what could have been a transformational partnership.”

source: Economic Time

Beating forecasts by analysts, telecom major Bharti Airtel posted a 22.2 percent increase in net profit for the first quarter of 2009-10 at Rs.2,647.95 crore (Rs.26.48 billion / $547 million).

The company’s total income during the period under review rose 22 percent to Rs.10,448.69 crore from Rs.8,567.8 crore in the same period a year ago, it said in a regulatory statement. The increase in profits was also because of a Rs.250 crore gain as pay-outs on its foreign currency loans fell due to rupee appreciation.

“This good performance validates our rural thrust and investments in the past three years,” said chairman and managing director of Bharti Airtel, Sunil Bharti Mittal.

Bharti passed the 100 million subscriber milestone in its previous quarter, recording a highest-ever quarterly net addition of 8.55 million customers. Bharti now claims an overall customer base of 105.2 million as of end-June, a 47 percent year-on-year increase in its subscriber base. It has 102.4 million mobile subscribers, giving it a mobile market share of 24 percent.

Bharti did sound a note of caution regarding India’s challenging market due to stiff competition from existing players and new entrants. This has led to a drop in key parameters such as ARPU and minutes of usage, the company said. Meanwhile, the company said it is still in talks with South Africa’s MTN over a deal that could eventually lead to a merger. Both companies revived talks in May to create a leading global mobile group with more than 200 million subscribers and combined revenue of US$20 billion. The two are in exclusive talks till 31 July.

Source: SI& MBB

India’s telecom regulator Tuesday issued draft regulations for mobile number portability (MNP), highlighting the rights, obligations and duties of service providers. MNP allows users to switch operators without changing numbers.

“The draft regulations lay down the business process for implementing mobile number portability,” the Telecom Regulatory Authority of India (TRAI) said in a statement here. The guidelines have highlighted subscribers’ eligibility for porting – switching operators without changing number – as well as the rights, obligations and duties of operators – both donors and recipients. A donor is the operator from whose network the subscriber exits and the recipient is the user’s new service provider.

According to the draft, a subscriber would be “eligible” to make a request for “porting” only after using his network at least 90 days. The recipient operator, within five days of receiving a written request, has to carry out subscriber verification for acquiring the new user. Once verified, the request will be forwarded to the donor operator for seeking its clearance.

Upon receipt of the porting request, the donor operator will verify and in turn communicate the details to the MNP service provider within two working days. TRAI had first floated the consultation paper on MNP in July 2005 followed by the regulator submitting the recommendations in 2006 to the Department of Telecom (DoT).

Subsequently, DoT issued guidelines last August and envisaged geographical division of the country into two number portability zones, each consisting of 11 licensed service areas. In March, two MNP service providers were selected – one for each zone – Syniverse Technologies (in north and western India) and MNP Interconnection Telecom Solutions (for east and southern India). TRAI has sought comments from the stakeholders on these draft regulations by July 14.

Source: Silicon India

Move over credit cards, India is now preparing to use the mobile contactless payment method. Citibank has announced the launch of Citi Tap and Pay pilot service in Bangalore as an effort to make the mode of payment more convenient. Using the NFC or Near Field Communication technology, Citi along with Nokia, Vodafone, ViVOtech and MasterCard, is aiming to gain insight into a wide range of parameters including, assessing customer acceptance to making contactless transactions through mobile NFC. This technology allows the user to use the phone instead of a credit card to make purchases at the grocery store, bookstore or eating joint. If the technology becomes a success in India, it will be a big opportunity for other banks to tap into the market with Citi as pioneers in the field.

The technology has already been piloted across other parts of the world and may soon replace the traditional credit card system. In fact Visa launched the world’s first commercial mobile payments service using NFC in Malaysia, in April this year. In Japan, the technology has already been employed by wireless carrier NTT DoCoMo which allows customers to use cell phones as mobile wallets. Now NFC is making inroads into India.

A recent study by ABI Research shows that globally, 450 million mobile phones will be NFC-enabled by 2011, which represents about 30 percent of handsets shipped worldwide in that year. Moreover, Strategy Analytics predict that mobile phone-based contactless payments will facilitate over $36 billion of worldwide consumer spending by 2011. Now, the banks are eying to cash in the Indian mobile subscriber base that stands at 415 million in May 2009 to promote the contactless payment. Jeff Semenchuk, EVP and Head of Growth Ventures, Citi Innovation said, “Citi believes contactless mobile payment services will be a key lifestyle driver for our highly mobile, international and increasingly urban customer base.”

The mobile phone can be tapped on a contactless reader at the point of sale to pay for purchases eliminating the need for the traditional swipe of credit cards. With this, the need to send SMS or mobile data charges is also eliminated. One can avail of the service free of cost and all one has to do is register and have a Citibank account and MasterCard card. However the service will function only on NFC enabled Nokia 6212 phones which cost Rs 11, 560 but will be sold at an inaugural price of Rs 5000. The customer also needs to have a Vodafone connection and will be charged for the GPRS service to make contactless NFC mobile payment.

Michael Mullagh, CEO of ViVOtech, which will be providing the reader machines and the necessary software said, “This new technology promises to revolutionize the payment and shopping experience and bring enormous benefits to consumers and the payment, retail and mobile ecosystems.”

Although there are already a few startups like mChek and Cashnxt that are planning to launch similar pilots in other parts of India, it is the first time that an initiative like this is being taken up in India. Out of the four lakh Citibank customers in Bangalore, the project is targeting around 5000 for the pilot which will be six months long.

Gartner assessed the suitability of APAC countries as offshore locations and identified “10 Leading Locations for Offshore Services in Asia Pacific for 2009.” These included the undisputed leader in offshore services, India, and the greatest challenger in terms of potential scale (China). The rest are a mix of mature environments that offer limited cost-benefits (Australia, New Zealand and Singapore) and emerging countries with a variety of challenges, but attractive costs (Malaysia, Pakistan, Philippines, Thailand, and Vietnam).

Although India continues to grow in top-line revenue levels of IT services being exported, its share of the overall worldwide totals has declined as other countries are investing to gain more market share. Enterprises seek strategies to reduce risk, and India faces challenges. These include wage inflation, local attrition rates, geopolitical issues (including the Mumbai terrorist attacks) and the “Satyam Effect.”

Despite increases in investment, infrastructure remains India’s biggest weakness while strained power capacity and inadequate connectivity remain challenges. Some IT service categories such as application outsourcing have matured and the level of incremental growth is smaller.

What about China?

China is still attracting great interest. But it has challenges to buyer confidence including security, quality and intellectual property issues, relatively low English-language capabilities, and a scarcity of middle managers.

A large portion of the current market is geared to R&D-embedded engineering services, which differ significantly from commercial enterprise buyer requirements. Thus, there is a need to build strong process and quality maturity for delivery of IT services to commercial enterprises.

Marketing skills across the value chain of the outsourcing industry are still immature, which results in a lack of information access and authenticated, verified sources of data for decision-making. Given the immaturity of the market, organizations wishing to set up in China should plan and budget for more substantial levels of project management, change management and governance requirements.

Where else then?

The Philippines generates considerably more offshore revenue than China. The country has a history of providing services to the US and Asian markets. Some IT services have been exported for more than 15 years. It’s now a key outsourcing destination for call centers, finance and accounting.

English continues to be the predominant language in the country and the level of accent neutralization required is relatively low – significantly lower than in India and China. It has a good labor pool that’s scalable at low cost and its overall cost structure is lower than India’s. Wage inflation and attrition ratios are also lower.

When considering the Philippines as an offshore location, companies must be sure to establish adequate risk mitigation measures around intellectual property protection, security and privacy. They should also ensure they are comfortable with specific technology and industry knowledge before signing a deal.

Companies seeking to be pioneers in a large and untapped low-cost destination should investigate Vietnam. Opportunities exist, but rigorous due diligence is required. Salaries of IT and business process professionals are among the lowest in the world. Consequently, Ho Chi Minh City and Hanoi are attracting a good deal of interest from major IT companies. Both IBM and CSC have made substantive investments in setting up global delivery centers in the country.

Companies should think carefully before allowing the cost base to overly influence their choice of Vietnam as an offshore destination. Understand all the risks, including hidden costs, risks related to data security, ease-of-doing-business issues and relatively low-level English-language skills. 

Source: Jim Longwood, Gartner