DoT to lift S Tel ban

FIPB to take a call on S Tel stake hike application today

Bhaskar Hazarika & Sanjeev Sharma

New Delhi: The controversy over the lawful interception issue for new telecom operator S Tel could end in a couple of days.

A top official in the department of telecom (DoT) on condition of anonymity confirmed to Financial Chronicle that the issue had been resolved and the permission for unrestricted services would be granted to the company.

Lawful interception is a technological process through which security agencies can intercept voice as well as data signals transmitted across telecom networks.

"There have been issues over lawful interception in three circles, Himachal Pradesh, Orissa and Bihar, and for which DoT had sent a notice to S Tel. The matter has been now resolved and the clearance certificates will be issued within a couple of days," the official said.

According to him, the lawful interception permission is granted by security agencies and renewed from time to time.

The official said that the reason why S Tel was told to stop services in the three circles on March 5 was that the operator had failed to maintain the interception guidelines there. "Once the software for interception is installed or restored, as promised by the company, DoT will lift the ban," he added.

S Tel's chief executive officer, Shamik Das, told Financial Chronicle, "We have had talks with DoT and the matter is getting resolved. We are expecting a communication from the department." S Tel also met communications and minister A Raja to resolve the issue of lawful interception.

S Tel had earlier challenged in the Supreme Court the DoT decision to advance the cut-off date for applying for new 2G licences from October 1 to September 25 in 2007.

The company has licences to operate in six circles and has begun operations in three where it has 8,00,000 subscribers. Das said the company was waiting for spectrum to start services in the remaining three circles --North East, Assam and Jammu & Kashmir.

In January S Tel grabbed 20 per cent of all new subscribers. It added to its base 3,64,000 subscribers in that month.

S Tel is a joint venture between the Chennaibased Siva group and Bahrain Telecom Company (Batelco), which has 42.7 per cent in the telecom company. S Tel has sought approval from the foreign investment promotion board (FIPB) to hike the foreign direct investment in it to 49 per cent. The application will be taken up for consideration on Friday.

© Financial Chronicle

Zain board approves Bharti's bid for Africa

Bharti eyes high-growth markets to beat competition at home

Bhaskar Hazarika & Sanjeev Sharma

New Delhi, February 14: Kuwait-based Zain telecom could be the second major overseas expansion plan for the largest Indian telco, Bharti Airtel after it failed to ink the deal with South African telecom operator MTN. Zain board on Sunday unanimously accepted the bid from Bharti Airtel to buy Zain's African assets.

Kuwait Investment Authority (KIA), which has a 24.6 percent stake in Zain has put its stake on the block. Bharti has offered a bid of $10.7 billion to buy a stake in the company for its African assets excluding except for Sudan and Morocco.

When contacted Bharti Airtel spokesperson declined to comment. An email sent across to Zain failed to elicit any response.

Director telecom, KPMG, Romal Shetty said that Africa is one of the lucrative markets for operators. "In the next 3 to 4 years India will continue to be the most difficult market with 12 to 13 operators. For Bharti getting in Africa market, it could be the right time. As the company has pioneered the low cost concept, it can replicate the India success in Africa," Shetty said. He said that the compared to India the ARPUs in African market is around Rs 480 to Rs 500 ($8-10) compared to India, where ARPUs stand at sub- Rs 200.

According to Citigroup report, net debt for Bharti reduced by Rs 23 billion to Rs19 billion during the third quarter. "Overall net debt is down Rs 50 billion this fiscal, indicating strong free cash flow generation with lowering capital expenditure intensity. In the third quarter capital expenditure stood at Rs 17 billion," the report stated.

Managing director, Taurus mutual fund, RK Gupta said, "Costumer growth in India will be become stagnant in 3-4 years and Bharti has to look out for growth beyond Indian geography. African is an unexplored territory where growth can happen, compared to other geographies such as South East Asia, Europe where growth has declined. In case of Bharti, picking up a stake in Zain will add to the subscriber numbers and will boost the revenue. Only major area of growth in India is adoption of 3G."

An investment banker close to the development in condition of anonymity told Financial Chronicle, "Bharti had earlier said that it would continue to pursue international expansion. The company had clearly mentioned that Africa remains to be an important geography for expansion. Zain will offer Bharti access to one of the growth markets globally, with only three operators. This would also help Bharti to beat the pressure on their margins, which has witnessed a decline."

In December Bharti has picked up 70 per cent stake in Bangladesh telecom operator, Warid Telecom with an initial investment of $ 300 million.

Zain is the third-largest telecom operator in the Arab world. Last year a consortium n October halted talks to sell the African assets to appease potential buyers of a 46-percent stake in the parent company, Zain Group.

In October 2009, Indian telecom PSUs BSNL and MTNL joined the consortium with an Indian firm, Vavasi expressing their keenness to take a majority stake in a joint special purpose vehicle (SPV) to buy 46 per cent in Zain, along with Malaysian billionaire Al Bukhary.

Bard al-Khorafi, whose Khorafi Group holds 20 per cent in Zain, announced in September that they, along with other shareholders, were selling 46 per cent of Zain to a consortium made of Malaysia’s al-Bukhari Group, BSNL, MTNL and the Indian group called Vavasi.


© Time

Telcos EBITDA margins to fall further by 5 to 10 per cent: Analyst

Outlook grim as tariff war rages, 3G delayed

Bhaskar Hazarika


Competitive pricing is likely to result in muted top line growth for telecom operators over the next four to six quarters. With per-second billing being launched by telcos, analysts foresee a further decline in average revenue per minute (ARPM), which has been a constant challenge for the industry. Analysts estimate that the revenues of telcos are likely to be stagnant and the earnings before income tax depreciation and amortisation (Ebitda) margins would fall further by 5 to 10 per cent.

According to a Fitch Ratings report, incumbent operators with stronger balance sheets and comfortable liquidity profiles would be stable, while the outlook for new entrants and public sector telecom operators is negative. “The revision in the outlook from 2009 is primarily due to stiff competition and a faster-than-expected decline in tariffs, which has had an impact on revenue and profitability. However, the credit profiles of all operators are subject to the event risk of 3G and broadband wireless access (BWA) auctions,” the report says.

3G auctions and the implementation of mobile number portability (MNP) will be key themes in 2010.

Entry of new players in the telecom space saw the introduction of aggressive tariff plans from September 2009, forcing incumbents to introduce per-second billing plan. Analysts expect competitive pressure to continue in 2010, impacting revenue growth and putting pressure on Ebitda margins.

Director of telecom of KPMG Romal Shetty said 2010 would be one of the more difficult years for telecom operators and a positive year for customers. He said that there would be further correction in tariffs that are likely to come down further.

“Ebitda margins will go down by 5 to 10 per cent. Revenues for operators may remain stagnant. In the short term, it will be a difficult market but there is huge growth potential in the long term. Tariffs of high-end services such as international roaming, value- added services and data services are likely to come down further,” he said.

He said this year, some consolidation in this sector is likely. However, the mergers and acquisitions would be purely based on spectrum acquisition. “Due to the delay in the auction of 3G spectrum, some consolidation is likely to happen. We could see telecom biggies looking at smaller players for mergers. Thirteen telecom operators is a large number. Ideally, it should be six to eight operators,” Shetty said.

The increase in voice minutes is not proportionate to the decline in tariffs, putting margins under pressure. Shetty said that to combat falling Ebitda margins, operators would soon look at a change in the revenue contribution from voice and data segments. He said that once data revenues increase to 20 to 25 per cent, the revenues would start showing positive overall growth.

Principal analyst of Gartner Kamlesh Bhatia said, “Hyper competition on tariffs would have a pressure on both top line, as well as bottom line for operators. We see this is a difficult year for the telcos because tariffs have already reached the bottom, but there could be some corrections. Declining tariffs are eroding the margins of telcos and operators are going to have a competitive year ahead.”

Executive vice-president of Telenor group and head of Asia region Sigve Brekke said that going forward, if low tariffs are to continue, margins for operators would be under pressure. “It has always been a challenge for operators as the average revenue per user (ARPU) have been witnessing a steady decline. Operators offer low tariffs and are successful in increasing the minutes of usage, as such the pressure on margins could be rectified. However, the industry is likely to see such fluctuations in the future before the sector witnesses any consolidation,” Brekke said.

Price-led competition intensified in the third quarter 2009-10, with major operators cutting tariffs aggressively during the quarter (switching to per- second billing from the previous per-minute system). Consequently, ARPM declined at a faster pace of 5 per cent 6 per cent quarter-on-quarter in 2009. Voice ARPM declined from Rs 0.75-0.85 in the first quarter of financial year 2008 to Rs 0.45-0.55 in second quarter of financial year 2010. Fitch expects ARPM to continue to decline in 2010 due to the addition of mainly lower-end incremental subscribers and expected further pricing pressures due to the entry of new greenfield operators. However, the rate of decline will be lower than in 2009 due to growing data revenues.

Fitch states that capital expenditure, as a percentage of revenue remained high in financial year 2009-10 for private telcos (an average of 55 per cent), on the back of increased network coverage in smaller cities.

Capital expenditure for financial year 2010 is expected to be lower, however for financial year 2011, it will be higher for the 3G licence auction winners, assuming the 3G licence fees and its subsequent rollout in financial year 2011 is implemented. The free cash flow (FCF) of major private telcos has remained negative since inception due to higher capital expenditure and financing costs, and this trend is likely to continue, except for Bharti Airtel, which is expected to generate mildly positive FCF in financial year 2010 and financial year 2011, excluding the 3G licensing outlays.

According to a Macquarie report, the ongoing tariff war is likely to cap any meaningful re-rating of Indian telecom stocks in the next six to nine months. “Recent tariff actions are likely to result in muted top line growth for next four to six quarters for the Indian wireless operators. In addition to the slowdown in top line, intense competition leaves little cost cushion — hurting the margins of these players,” the report said.

However, mobile number portability is considered only a modest risk, and revenue from 3G services is not likely to be significant in 2010.

This is due to the fact that the Indian wireless market is already predominantly pre-paid and has a high annual churn rate of 40 to 48 per cent. Increased retention costs would mainly relate to the post-paid segment, which only accounts for around 5 per cent of overall subscribers in India.


© Financial Chronicle

Every second mobile sold is a dual-SIM handset

Micromax beats Motorola, Sony Ericsson, LG, reaches third slot

Bhaskar Hazarika & Sanjeev Sharma

New Delhi: Every second mobile sold in the Indian market is a dual-SIM handset. Around 50 per cent of the mobiles sold in the Indian market are in the dual-SIM card handset category.

The handset market in India is attracting a large number of new vendors, taking the number of vendors from 8 to 56.

Citigroup report states, “The total number of new handset sold in India are about 9-10 million per month and multi-SIM subscribers to be 40-50 per cent of reported addition.” The report states that Nokia is leading the market, followed by Samsung and Micromax.

Incumbent handset vendors such as LG and Sony Ericsson are in the league.

According to market estimates Nokia has a market share of around 58 per cent, Samsung at 13 per cent and Micromax at 10 per cent. The mobile handset market is pegged at Rs 35,000 crore in 2010 and with the availability of entry-level cheap phones in the market, the market is likely to escalade.

Business director of Micromax Mobile, Vikas Jain told Financial Chronicle that in January the company sold 1 million handsets and the numbers are increasing. “We are clearly the third largest handset vendor in the market today. In January we sold 1 million handsets and within this fiscal ending March we are planning to sell around 11 million units. If we look at the consumer buying pattern 40 per cent of our customers are first time users and 60 per cent are upgrades,” Jain said.

At present the around new entrants have a market share of more than 15 per cent. The new entrants into this space include Micromax, Lava Mobiles, Karbonn, Mobell, Videocon, Movil and also some know brands such as Usha, Salora, Onida and Orpat.

The Indian handset industry shipped around 130 million units in 2009 and the numbers are likely to escalate to 150 million in 2010.

With Indian telecom industry adding between 15 to 17 million subscribers every month, analysts see space for new players in the market. Analysts say that these new entrants forecast huge competition primarily in the tier two and three markets. From the average price of a handset from Rs 5500 it has come down to Rs 2300, encouraging customers to switch to new handsets. Usually a lifeline of a mobile handset is estimated to be around 18 months.

© Financial Chronicle

Stay on 10-digit mobile number, 'ENUM' the solution

E-numbering can help avoid 11-digit regime

Bhaskar Hazarika

New Delhi, December 23: India can adopt telephone number mapping to avoid migrating from 10-digit mobile number to an 11-digit number. The ever-increasing number of fresh subscribers every month has exhausted the allotment of new serial mobile numbers available with the department of telecom (DoT), forcing the industry to seek migration to the 11-digit solution.

The national numbering plan 2003 was formulated to meet the growing mobile subscriber base in the country. The 10-digit numbering pattern was projected to meet the industry growth figures for the next 50 years. However, the 10-digit number series has already got exhausted in six years.

The ENUM or electronic numbering is a technology adopted by some of the mobile-rich countries to meet the growing requirement of the mobile industry. The ENUM technology is being adopted by Malaysia and the UK to meet the increasing number of telecom subscribers.

Telephone number mapping is the process through which the telephone network (public-switched telephone network) is unified with the Internet address using the Internet protocol (IP). This technology will be similar to the model available in Internet connectivity whereby each Internet connection has a unique IP address.

According to telecom expert Satyen N Gupta, “The problem of a single universal personal identifier for multiple communication services can be resolved using this technology. Once adopted, the numbering pattern will not require migrating from 10 to 11 digit or more despite surge in the mobile subscriber base.”

A senior DoT official told Financial Chronicle, “So-me countries where there is unprecedented growth in mobile (subscribers) are adopting new technology to meet the number crunch. We are aware of ENUM or telephone number mapping, but have not taken up the project.”At present, technology companies such as Telcordia Technologies and Neustar Inc are offering the number mapping.

When contacted, secretary general of Association of Unified Service Providers of India (Auspi), S C Khanna said, “There are technologies that could be adopted to meet the growing demand but migration to 11 digit is an easier route. With more than 8 to 9 operators in a single circle and a couple of new operators likely to launch services, we need to meet the crunch.”

© Financial Chronicle

Mobile customers shying away from post-paid

Only 3 per cent of the subscriber base is in post-paid

Bhaskar Hazarika

New Delhi, Dec 16 2009

India is set to cross 500-million mobile phone users by the end of the year. But just about 3 per cent are still logged onto the post-paid story. This means a mere 15 million consumers actually pay regularly on a monthly basis for their connection. The rest, a staggering 485 million, are literally free birds who charge their phones with denominations they deem fit.

This explains the steep fall during the past five years in postpaid connections. The prepaid subscriber base has grown from 84 per cent five years ago to more than 97 per cent today. Majority of the 15 million existing postpaid connections fall in a particular socio-economic category that pre-supposes a mid to high-income level segment.

The 15 million figure is an interesting pointer to the actual size of the Indian middle income groups, especially viewed in context of the fact that India as of today has close to 35 million income tax payers (as on March 31, 2009), 10.2 million Demat account holders and 12 million registered passenger vehicles.

The shift from post-paid to prepaid has an explanation. T R Dua, director general of Cellular Operators Association of India, in an email communication, told Financial Chronicle, “There has been an increase in prepaid subscriber base as the service providers are increasingly expanding to the rural areas and are acquiring more and more subscribers from the bottom of the pyramid.”

He predicted the migration trend to continue arguing, “Prepaid would continue to be the preferred choice, as it is economical and enables the rural subscribers to control their costs. Prepaid also enables service providers to reduce their bad debts.” Easy availability and accessibility of prepaid mobile cards was also encouraging migration from the postpaid model to prepaid.

An analysis of the latest subscriber data suggests that the decline in the postpaid subscriber base is also evident from the fact that more and more new subscriber additions are in the prepaid segment.

Telecom operator Bharti Airtel has a prepaid customer base of 95.2 per cent as on quarter ended September 2009. The prepaid subscriber base for the company increased from 92.9 per cent in September 2008. At Reliance Communications, for the quarter ended September 2009 the prepaid subscriber base stood at 94.4 per cent. For that quarter the net subscriber additions in the prepaid was 99.2 per cent.

“In the past five years, the telecom subscriber pattern has witnessed a paradigm shift from postpaid to prepaid regime due to the competitive tariffs and innovative offers by operators, making universal rates for prepaid and postpaid,” director (telecom) of KPMG, Romal Shetty said. He added that the Indian telecom market, which started with a dominant postpaid subscriber base, is eventually witnessing the phenomenal growth of the prepaid category.

“Earlier prepaid call rates were higher compared with postpaid. However, as the market is maturing, the call rates have gone cheaper making it equivalent to post paid. There are three major reasons why the prepaid model is picking up in India-- quick availability, easy documentation and fast activation of service. At present, only a small per cent of the corporate employees are on the postpaid platform,” Shetty said.

©Financial Chronicle