Monday, July 30, 2012

Giving those numbers a break!

Amidst sluggish indicators of revenue, margins & subscriber additions, 3G and the promised data play were supposed to be major game changers. But evidently, it won’t be a moment too soon

If economist Adam Smith were alive today, he would have been overjoyed to see how competition shaped and nurtured the Indian telecom industry and took the mobile phone to the masses. From just over one million in 1998, Indian mobile subscribers numbered 851.7 million as of June 30, 2011 (TRAI), which means we have just crossed the 70% mark in terms of penetration.

Competition, the Adam Smith way, has a lot to do with this growth that has most of the world in awe and is to MNCs a telling promise of what is possible with the Indian market. Smith said that in a perfectly competitive market, there is a strong incentive for a consistently efficient track record that benefits customers greatly. The fact that high competition in India (as many as 6-8 players per circle) has led to much lower call rates and correspondingly higher penetration levels for telecom is well known, and so is the fact that declining ARPUs have been a lingering pain for players, particularly the early ones used to the good ol’ days.

It’s no surprise that they have been looking at ways to ensure that competition comes to relatively lower levels and come to what historian Alfred Chandler referred to as ‘managed capitalism’; where the market is not governed by perfect competition, but by the managers of a few of the large firms. The advent of 3G was expected to be a huge game changer to achieve this invaluable end. Even though, at a hugely expensive cost cumulatively (the all India license ended up making the government richer by Rs.677.19 billion), 3G does draw an important dividing line between the haves and the have nots. Additionally, it was a cue for players to build a powerful arsenal in the data services market and nudge those ARPU numbers higher. Well into 2011, B&E analyses how they are headed.

Bharti Chairman Sunil Mittal has expressed confidence that competition in the sector has abated. The operator earned revenues of Rs.126.31 billion in the India & South Asia region for the quarter ending June, a growth of 11.9% yoy, but PBT for the region was Rs.20.9 billion, a drop of 9.15% yoy. Alarmingly, ARPUs have continued to fall by 12% yoy to Rs.190, despite non-voice revenue growing to 14.6% in the quarter compared to 11.6% in the same quarter last year. Reliance Communications has seen a fall in consolidated net income by 6.04% yoy to Rs.47.12 billion for the quarter. Net profit stood at Rs.1.57 billion, a drastic drop of 37.2% yoy. Idea Cellular, on the other hand, delivered a robust revenue increase by 23.54% to Rs.44.84 billion, but net profit declined by 25.74% to Rs.1.49 billion (a great contribution to which came from the interest cost of Rs.2.06 billion compared to a much lower Rs.764.7 million for quarter ending June 2010). For Idea, ARPU was down by 0.6% qoq to reach Rs.160 per month. VAS share of revenue increased marginally to 12.1% from 12.6% in the same quarter last year. On a general basis, there is a clear and evident increase in data-related revenues. A. K. Bhargava, Executive Director – Wireless, MTNL, commented to B&E, “In the last one year, revenue form data services has gone up by 9 times. However, video calls, which was supposed to be a game changer for data services, are not doing as it was assumed before launch of 3G services.” From a performance-wise comparison, increase in ARPU has also not kicked in as it should have, and even contribution of VAS to revenue has improved marginally or not improved at all as compared to the previous year. One aspect that comes out more clearly is that the higher value customers with Bharti and Idea are helping them in a big way.

However, it has to reflect in the numbers, and fast! According to a COAI-PwC report, ARPU for the industry had fallen to Rs.100 for GSM and Rs.66 for CDMA by March 2011 compared to Rs.362 and Rs.256 respectively in December 2005. While Bharti has been relatively less affected in terms of PAT margins for FY 2011 at 20% (23% in FY 2007), RCOM has fallen drastically at -6% (21% in FY 2007) and so have Idea with 5% (11% in FY 2007) and Vodafone with 0.01% (17% in FY 2007). Net subscriber additions have also declined from 19 million in January 2011 to 11.4 million in June.


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posted by Editorial at 5:26 PM

Saturday, July 28, 2012

Are M&As back in Vogue?

The Total Global deal value for Q2 2011 stood at $499 billion, way ahead of The Same Period in 2010 and 2009, but down on the $580 billion that we saw in Q1 2011 and the $671 billion seen in Q1 2010. The message, then, is that Transactions are coming back, but if anyone thought that the recovery was going to be speedy, they would be greatly mistaken.

Private players are on a roll

PHBs in Brazil, Russia, India and China are among the most acquisitive in the world with around 44% of them considering an acquisition (an increase of some 17% on last year). Desire to access new markets, build scale and acquire new technology or established brands have been the principal driving force for these companies to focus on acquisitions. Interestingly, among the BRIC nations, Indian PHBs are the keenest to make cross border acquisitions, with as many as 40% expecting their acquisitions to be international. In fact, 40% of the Indian PHB deals are expected to be international. Considering that Indian companies are now well experienced in dealing with overseas M&A markets, soon we may get to see some big moves from India Inc.



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posted by Editorial at 2:12 PM

Friday, July 27, 2012

Now Pay for The Peace

Afghanistan is in an Abysmal State on all counts, and Nato has The Moral Obligation to rescue The Country from total chaos

The travel warning for Afghanistan is all over the place across the globe. Besides the fact that peace is a rare commodity in the nation since ages, their egregious situation portrays a vestige of the infrastructure and social standards that most countries enjoy today. The country is ranked 155 in Human Development Index (2010), 176 out of 178 in Corruption Perception Index (2010), and 4th from the bottom in Child and Maternal deaths!

Take the case of agriculture. A blossoming sector, but it was destroyed in the last 10 years because of war, deficient infrastructure and corruption. The only crop that makes profits is opium as the nation produces 90% of the world’s share! Shockingly, almonds grown locally are more expensive than the ones grown in California as they are not subsidized like their American counterparts. Road infrastructure is also on the verge of collapse. The three main roadways, Kishim to Fayzabad Road, Gardez to Khost Road, and Bamyan to Dushi Road are in primitive condition and often flooded by rainstorms. In power, per capita access has reduced from 22% to a mere 7% or 19.25 KW (USAID data). Around 15,000 women die every year due to pregnancy related complications! Literacy rate is 5.6% for women & 27% for men. Potable water can be accessed only by 17% & sanitation by 10%. Some 20% of children are malnourished, and 90% of girls have no access to education.

Clearly, a country that was already teetering on the edge has been brought to the brink of chaos and strife by years of war. Even as the NATO looks negotiating a settlement, it is equally important to take the onus of rebuilding Afghanistan.


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posted by Editorial at 4:54 PM

Thursday, July 26, 2012

Scrutiny-NATO: HISTORICAL MISTAKES

A Comprehensive Journey through The History of The North Atlantic Treaty Organisation (NATO) and Libya will Convincingly Demonstrate that The World has more to fear from NATO than from Colonel Muammar Gaddafi!

NATO’s second mistake was getting itself into the 1999 Yugoslavia war. By doing so, it not only violated its own rules but also the international order. According to Article 5 of the NATO treaty, the organisation as a collective defence force is permitted to use force only if any of its members is attacked – and no NATO countries were invaded in that war. Also, Article 53 of the UN Charter says that no collective defence alliance has the right to bomb a nation without prior approval of the UN Security Council. NATO didn’t bother to ask UNSC. NATO’s involvement led to more deaths than those resulting from Yugoslavia’s ground attack on Kosovo.

NATO has also failed to redefine its role outside Europe. It was primarily formed with American influence and support; firstly, to combat Russia, and secondly, to keep American interests alive in Europe. However, 9/11 changed the course of history. It gave the US a chance to misuse Article 5 of the NATO treaty and that too, outside Europe in Afghanistan. NATO’s engagement in the Afghan war was carried out on the grounds that there was mutual consensus that NATO will not be used in the far east. But NATO later refused to have made any such claim. Under the leadership of US, NATO attacked a nation – Afghanistan – in the name of fighting terrorism. NATO operations killed thousands of innocent Afghans. While it may be argued that NATO’s Afghan moves reduced terrorist activities, what cannot be denied is the collateral damage being caused by NATO due to its gunslinger behaviour.

Now, NATO is committing the same mistake in Libya. The liberation that Libya needs is not what NATO can give and certainly not using the extreme methods that it has employed. Gaddafi, in a letter to President Obama, wrote that “democracy and building of civil society can’t be achieved by means of missiles and aircraft or by backing armed members of Al-Qaeda in Benghazi.”

It’s hard to disagree on that point. But NATO with 28 member states, an estimated 70% of the world’s combined military spending, is definitely not going to learn any lessons from Gaddafi. The West always wanted Libya at their feet for its vast oil reserves (Libya has the largest reserves in Africa and ranks 9th in the world with 41.5 billion barrels as of 2007) – and to defeat an erstwhile ally Gaddafi, the cherry on the cake. Undoubtedly, Gaddafi should seriously consider allowing democracy within the nation. And if NATO seriously wishes to prove a point, why not start with Saudi Arabia?


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posted by Editorial at 2:25 PM

Tuesday, July 24, 2012

Will The Legend live on?

The Walt Disney Company has been one of The Most Iconic Corporate Turnarounds in Business History. Robert Iger has been Strategically Leading The Company since 2005, but The Challenge lies in reducing dependence on a Specific Business Segment. Is Disney up to it?

September 24, 1984: Despite his undisputed success as President of Paramount Pictures, Michael Eisner woke up feeling nervous. Monday morning blues were rare for a man of Eisner’s capacity. But, it was his first day as the Chairman and CEO of the Walt Disney Company. Two days back, Eisner waited at his home along with his wife Jane and friend Michael Ovitz while the Disney Board met to take a final decision on his appointment. A few minutes later, he got a call from Stanley Gold, President and CEO of Shamrock Holdings, Roy E. Disney’s (Walt Disney’s nephew) private investment company, stating that Eisner has got the job. Additionally, Frank Wells, former VP at Warner Bros. has been appointed as President and COO. In the evening, both Eisner and Wells joined a party hosted by Roy in honour of the new management. Towards the end, Eisner turned to Roy exclaiming, “We know you’re responsible for us being here. I’ll never forget it. If I ever lose your confidence, let me know, and I’ll resign”.

November 30, 2003: Roy is informed that he would not be renominated to the Disney board! In the afternoon, he decides to step down himself; sending the resignation to Eisner & dispatching copies to leading media houses. The following day, Gold also resigns and the duo decides to wage a war from outside to save the company. After much deliberations, Eisner finally resigns on October 01, 2005; handing over the reins to Robert Iger, President, Walt Disney Company.

Of course, there was a chain of cataclysmic events in between. In 1984, the company was struggling with insurmountable pressures. After achieving a high of $123 in 1973, Disney’s stock fell back to meager $50 levels. When Eisner and Wells joined, they were burdened with the task of turning around a legendary corporation, which had almost lost everything barring the legend. But, in less than four years, they did so, and Eisner became the darling of Hollywood and Wall Street. Profits increased by five times to $444.7 million and revenues doubled to roughly $10 billion. However, in 1994, Frank Wells died in a tragic helicopter crash. Ever since, Eisner lost his midas touch. In 2002, the operating income fell drastically by 29.5% yoy to reach $28.22 billion. Issues like his theme park expansion plans, choice of comrades and handling of ABC Networks brought Eisner under severe criticism. When Roy expressed his displeasure, Eisner ensured that he was taken off the board. And by now, you know the rest of the story.



 

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posted by Editorial at 5:31 PM

Friday, July 20, 2012

Defence from The Enemy Within

Is China’s Rising defence Expenditure a Sign of Internal Strife?

Chinese journalists may have little to cover in their media unfriendly nation, but China itself can never complain of a lack of publicity beyond its borders!

The country recently grabbed ample media space for its military expenditure. In its annual budget for the year 2011-12, it has increased its military expenditure substantially by around 12.7% to 601 billion yuan ($91.5 billion). Interestingly, India increased its defence spending by 12% as well this year to $36.53 billion. But the Stockholm International Peace Research Institute estimates that it had exceeded the $100 billion mark in 2009 itself. Moreover, it has promised a 40% salary hike for its military.

As per officials, the defence budget accounts for just 6% of China’s national budget and less than 2% of its GDP. It is about 25% of America’s estimated military expenditure of around $553 billion for 2012. It is claimed that most of this expenditure will be towards the upgradation of defence equipments. But a number of other possible objectives come to mind, ranging from achieving parity with US in the long run, to maintaining a hegemony in its periphery. Understandably, its Asian counterparts are particularly concerned.

China rubbishes these allegations, claims total transparency and says that it has numerous challenges as a growing economic power. What it will refuse to admit is that it is also threatened by rising protests at home in line with the Jasmine revolution witnessed in Tunisia, Egypt and now Libya. Some analyses of military deployments do indicate a surge in trouble prone areas like Tibet. 


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posted by Editorial at 5:05 PM

Wednesday, July 18, 2012

All Eyes are on The Company as it Seeks to do to Toyota

Volkswagen has Renewed the term of its CEO, and all Eyes are on The Company as it Seeks to do to Toyota what Toyota did to GM by 2018. Can Winterkorn Indeed win his Most Coveted Prize? 

While Toyota is running hard towards its goal to sell 7.7 million units this year, Volkswagen is pushing the accelerator towards its 10 million unit sales target by 2018. “Whether Volkswagen is able to do so (beat Toyota by 2018) or not, it will certainly centralise the efforts of Volkswagen towards ensuring high sales and profitability,” said Christoph Stürmer, research director - OEM Strategy, IHS Automotive.

With the kind of growth plans Toyota has in its mind, Volkswagen may even find it tough to overtake the Japanese giant in unit sales. Stürmer adds, “I believe Toyota will stay at the top of charts in the automobile industry after 2018 as well. But what will work for Volkswagen will be that it can from then work towards a new ‘2025’ vision; which may again be to displace Toyota.” Moreover, Toyota is dealing with more challenges. The sales back home are expected to fall by over 17% in 2011; wherein it will be able to sell 1.3 million units in Japan. Toyota will still produce close to 3.1 million units in 2011; down 5% as compared to the 3.28 million units produced in 2010. The move will expose the Japanese auto major to threatening foreign exchange risk and Toyota will try to stay afloat by cutting costs and reviewing production processes. But the price to earnings ratio of Toyota at a level of 20.15% not only beats the 11.02% figure for the sector but also the 13.21% for Volkswagen.

The global automotive industry is all set to go through a major shift wherein Asian economies like India and China will attract more attention. Anticipating the trend, both Toyota and Volkswagen have earmarked huge investments in these markets. On the one end, Volkswagen’s Chakan plant is gathering pace in the production cycle while Toyota’s unit for the Etios project is helping the company reach new skies on the volumes front. Clearly, it will be the high volumes market where we will see both players fighting it out through to the last lap. While Toyota will like to fight it on the product front as it no longer has the superior technology image (after the 2.3 million unit recalls it recently announced), Volkswagen will be pushing its products on the design front. But since these markets would play the decisive role, Toyota’s climb-down in terms of revenues and focus on volumes would play to its advantage. At least for 2018, Toyota may indeed have the last laugh. For Winterkorn, it may indeed be more prudent to focus on alleviating margin pressures and getting his strategy for India and China right. If he manages this, ‘2025’ could see Volkswagen tip the scales, even though he may have to watch that one from the sidelines.



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posted by Editorial at 4:38 PM