Innovative Financing: Changing the Relationship Between the Rich and the Poor

Very soon, people who fly will have a chance to help the world's some of the most unfortunate inhabitants. Flyers, when purchasing airline tickets either on the websites of airlines or through travel agents, will be asked to make a direct contribution to the fight against the world's three deadliest epidemics: HIV/AIDS, malaria, and tuberculosis. This is part of a movement called innovative financing, which is a new kind of aid-tool that could fundamentally change the relationship between the rich and the poor throughout the world, a few dollars at a time.

Each of these diseases – HIV/AIDS, malaria, and tuberculosis – still causes more deaths in developing countries than any other single disease, according to the World Health Organization. In 2004, the last year for which statistics were available, together these three diseases caused one in eight deaths in low-income countries.

So, the whole point is to help such poor people the next time you fly. Trust me; changing the so-called “third world” in this way is cheaper than changing such world by bombing them! The logic is very simple: when people have lots to lose, they think multiple times before losing such things. Let’s help people in getting a real life, and they will think hundreds of times before even planning to give it up! Please raise the costs of “switching” – in a business jargon, for people who understand only business!

Telcos Preparing for the Next Low-cost, Low-end Telecoms War

Vodafone has introduced the `cheapest’ mobile phone ever at the Mobile World Congress (MWC) being held in Barcelona. The handset, aimed for the developing countries, will be initially launched in India, Turkey, and eight African countries including Lesotho, Kenya, and Ghana. The phone is available for less than USD 15 and allows voice calls, SMS as well as mobile payment services. An expensive version of the phone has a color screen and FM radio and is priced at USD 20.

Reliance Communications (RCOM), India’s second biggest mobile communications company, has signed a deal with Huawei to purchase two million CDMA handsets worth INR 3.4 billion (USD 73.27 million). The handsets are priced in a range of INR 1700 (USD 36.63) to INR 1950 (USD 42.02) each unit and are equipped with camera and FM radio. RCOM plans to launch these handsets in Tier-II and Tier-III cities in India. (1 USD = 46.40 INR).

Now, as mobile call-rates in India are already close to free, a new wave of low-cost, low-end war is apparently emerging on the horizon to capture even the remotest of countrymen and countrywomen. Once the telcos are satiated that not even a single Indian is left without having a mobile phone in hand, a new wave of unimaginably massive, extremely painful telecoms market-consolidation will happen. There will then be only two options: buy or get sold! And, such buying and selling will happen based on the market segments the telcos would like to play in and play with. Telcos valuations will be computed almost linearly: X number of customers times $Y per customer – and this will be based on customer segmentation -- plus, the net assets, if any. That’s it. Only the best and biggest will survive the onslaught "massacre." Thus, the survivors will live happily ever after, until the next disruptive technologies emerge on the markets. The end of the saga!

Is Buzz Buzzing?

Buzz has started off with a negative buzz! For end-users, the biggest “buzz” is a concern for privacy.

By default, based on your contacts list, it connects you to people! When you add others to your Buzz – that is, when you start following, or when you start getting followed – you can see who all your “Buzz-mates” are connected to! Now, this is a serious concern for people who experimented with – or better, say, who got victimized of – Buzz!

Well, Google has promised to fix this bug immediately. The “patches” are on their way, in phases, of course. But, I think its strategy has already paid off in getting million of customers on Day 1 of the Buzz release. I call this business strategy “leveraging” and “monetizing” the power of the brand, the faith people have in the brand, and the fickleness of, and the lack of comprehensiveness in, the rules and regulations that govern the industry in which the brand operates. It’s about weighing the costs and the associated benefits. It’s all business! And, businesses do capitalize on loopholes in law. Companies will keep on exploiting such loopholes in order to gain customers and improve their bottom-line.

Wasn’t the privacy issue involved obvious to Google? The answer is as obvious as the question itself! It’s called go-to-market strategy – it is about how to acquire customers in a crowded market. Thus, Buzz was released with a buzz! And, it successfully created the necessary buzz for getting all our attention, especially when we are busy on Facebook, Twitter, MySpace, Orkut, and others. Mission accomplished! :-)

Short to Shorter

For quite a while, I have been noticing something interesting. Day by day, things are getting shorter and shorter. Be they:

• The cycles of boom and bust.

• Interactions amongst human being (twitter, Facebook, MySpace, blogs, the volumes of voice calls are dropping worldwide, etc).

• The sizes of products (vehicles, computers, handheld-devices, etc).

• The life cycles of products and services, as we seek for frequent changes and upgrades.

• Newspapers are getting reduced to, and sometimes even replaced by, blogs, tweets, buzz, et al.

• Peoples’ memories have remarkably been getting shorter and shorter. We just move on so easily and so quickly, shrugging things off as if they never happened, and saying C’est la vie – and it must move on! :-) Well, nothing is wrong with this philosophy! But, shouldn’t we try hard enough to shape it the way we want it to be? Could you vouch for your own answer? Really? :-) Liar!

• Commitments – be they to life, passion, jobs, responsibilities, tenacity, education, logic, humility, empathy, promise, austerity, allegiance, or love.

We are getting bored of things so easily that we continually seek for changes. How is this mindset going to affect our lives? Only time will tell. But, I can surely tell you one thing – there are things that when get shorter become better, but, then, there are other things that when get shorter become worse! So, watch out what you wish for, before you really wish for! :-)

Leaders Vs Managers

Have you ever paused for a while to think of whether you are a leader-material or a manager-material? But, yes, it requires that you understand the subtle difference between the two!

So, how does a leader differ from a manager? Well, I like, and offer, practical definitions/observations, rather than purely theoretical ones that run up to hundreds of pages! Moreover, the difference mentioned below is purely and broadly based on human characteristics, attitudes, and mindsets.

The biggest, and most remarkable, difference is that leaders DON'T lead by concealing data/information/facts/esoteric-concepts from their followers. In fact, they reveal, and subsequently train, their followers on everything they could. Then, they “challenge” their followers to challenge their own preaching/teaching, driving the best out of all concerned, subsequently refining and building on the preaching even further. In other words, they level the playing ground, which could equally be used by all the stakeholders who are allowed to challenge and compete against themselves, albeit in healthy terms – perhaps the theory of genuine excellence prevails here. So, it is not surprising to witness that the best leads the cohort, and is widely highly regarded as a genuine leader, because s/he has the ability to inspire everyone else, including herself/himself!

But, sadly, how many such leaders do we have? Or, even the bigger question is, how many of us do want to be one of that kind?

Whereas, managers inherently are people who like to conceal data/information/facts/esoteric-concepts/know-how from their subordinates, and from the other stakeholders. They manage by hiding things, because doing so is what gives them importance, stability, cushion, fake respect, and eventually job security. If they reveal all the things they know, they might make themselves redundant, or might even make themselves completely useless, as they won’t have any further “value” to add to the teams they manage, or to the organizations they work for. Above all said and done, managers do have some genuine responsibilities, such as collecting work status, filling excel sheets, generalizing everything, firefighting, making things look complex, creating barriers, and, most importantly, "doing" performance appraisals. After all, organizations do have corporate social responsibilities for generating mass employment! Don't they?

Well, I am aware of the fact that I am being very strict in my evaluation here! But, that is the precise reason that I say it is very, very hard to find genuine leaders. And, on the other hand, that is equally the reason why most of us want to be managers – perhaps theory of convenience applies here!

Please note that there could be leaders who might officially be labeled as managers, and vice versa. You will find these two kinds in different skins! So, watch out!!

For further differences, there are millions of books on the topic out there waiting for your grab – so go and waste your time! :-)

The Plight of the Indian Telecom Industry

Of late, I have been in conversation with my colleagues regarding the present and future of the Indian telecom industry. Here is an excerpt from our day-to-day discussion. If you find it logical, please let us know too. If you think that we are engrossly wrong in the way we are reading the market, we need to hear from you even more. Your comments are most welcome.

Question: How do you perceive the contemporary telecom industry in India?
Kausar Fahim: From the perspective of the Indian economy, it has been an industry of paramount importance, as it helps the economy grow. Almost all industries depend on the telecom sector, for strategic and operational reasons. But, from the perspective of the telecom industry, I think that the telecom industry has matured a lot, although there is an acute need for improving the quality of the services. Looking at the kinds of strategic games that are being played, such as stiff price-war while the market penetration rate is just 30% and the ARPU is just INR 100+, I am very, very dubious of the profitability of the sector itself, and especially of the new entrants. In other words, if I were a new entrant, I would not enter into the Indian telecom industry now. I would rather wait and watch for the market consolidation to happen. In Economics term, I would rather wait for the market to be either Cournot Oligopoly or Stackelberg Oligopoly, but definitely not Bertrand Oligopoly.

Question: In which stage is the Indian telecom industry?
Kausar Fahim: I think it has matured enough to play strategic games, with dire consequences. It has become capable of erecting barriers for new entrants. Not many entry barriers are there, as the government is extreme care of not having a monopolisitc market in any of the circles. In an Economics term, I would say the telecom market is Bertrand Oligopoly, with a "beggar-thy-neighbour" policy. It is definitely good for customers, as they are getting products and services for cheap, but, then, they won't get quality services, as the bottom-lines of the players are heading southward.

Question: Why do you think the quality of services is poor, or is not up to the mark? What could resolve the issue?
Kausar Fahim: Look at the call-drop rates. Even in metropolises, such as New Delhi and Bangalore, the quality of the network connectivity is poor. Much worse are the conditions in the smaller cities! I think 3G could solve most of these kinds of issues, as the majority of the problems is of insufficient spectrum.

Question: Why is the 3G spectrum not yet there?
Riyaz Ahmad Khan: 3G has been procrastinated by the Indian government because of several reasons:

1. The Indian Defence is still occupying most of the 3G spectrum, and has to migrate to some other band of spectrum. In order to migrate to some other spectrum, they have to change their equipment -- which takes time and involves budgetary issues.

2. The Indian government did a lot of study not to leave any stone unturned in order to squeeze the maximum cash out of the sales of spectrum and licenses. A special team was sent to the US to study the pricing of the 3G spectrum. A delay could be part of the pricing strategy, wherein, you let accumulate as many buyers as possbile, with as much appetite and desperateness as possible.

3. There has been a lobby working with the Indian government that has been influencing the government not to auction the 3G spectrum anytime soon, as they want to reap maximum benefits out of their 2G-related investments. Moreover, they are also not ready for capitalizing the 3G spectrum. This is also in the interests of the government, as the 3G spectrum is going to be auctioned, and you always want as many bidders as possible for any auction.

4. The Indian government do not intend to repeat the mistakes it made at the time of the auction of the 2G spectrum. The government intends to auction the new spectrum on a profit-sharing basis, obviously along with the downpayment by the higgest bidder.

5. The whole process of the 3G auction also got delayed because of the change in government at the centre -- from the BJP-led government to the Congress-led government.

6. New operators also want a delay as they are busy setting their operations up.

7. For long, telecoms operators had contemplated on which way to go further: Wimax or 3G. This added further delay to the auction process.

Question: How do you see the Indian telecoms industry in the future?
Kausar Fahim: As we all know, India is a country of poor people! 25% of the resident Indians are below the Indian-standard of the poverty line! And, amongst the rest, a majority just earn enough to support a living somehow! And, every telco knows that it cannot sell value-added-services (VAS) to poor people, with a high profit margin. If it HAS to sell value-added-services to poor people, somehow, or anyhow, the solutions lie in very low prices that might trigger another spree of a price war amongst the telcos that undoubtedly will rob them of their high-margin businesses, hitting their bottom-lines the most.

Secondly, companies grow with the economy. No company can grow at a faster pace than the economy in which it operates for indefinite period of time, otherwise the company will engulf the economy! India is growing at 6% per annum. Even if we assume that the telecom industry will outpace this growth for some more years, but, then, the growth in the sector is already being shared by many hands! What would be the net-profit share of each company in this kind of Bertrand Oligopoly? What would be the implications of all these in the short-term, medium-term, and long-term? Dubious?

Thirdly, telcos are busy acquiring customers at the cost of their net profits -- and this makes business sense to some extent, especially when this is the max they can do. The big players want to earn as many customers as possible, even if it means low net profits. Going forward, they know that there are two sources of prime growth:

1) by selling VAS to relatively well-off people who are ready to consume VAS. For this telcos need 3G, the fate of which is still not decided. It is apparent that big, ready players have to bleed for some more time.

2) by capturing the fragmented rural markets and poor people in urban areas to primarily raise their ARPM (Avergae Revenue Per Minute), and, if possible at all, then also raise their ARPU. A price war might increase the market share and revenues to some extent, but it certainly negatively impacts the bottom-line, which is the ultimate objective of fighting any war.

Thus, my concern is that what is the guarantee that a price war will not happen for selling VAS once the 3G spectrum is in place? Consequently, what would the impact be on the ARPU, ARPM, ROI, ROTA, ROCE, etc.?

In short, I am bearish about the Indian telecom industry in the short-to medium term. If Mergers and Acquisitions (M&A) happen in the industry, there could be substantial growth, going forward thereafter, otherwise the industry will grow, with the economy, at a rate of 8 percent to 10 percent Y-o-Y -- which would be a mediocre performace as per the industry expectations. The rationale behind this is the portion of the disposable income of the masses that is spent on telecoms products and services. Moreover, there is a plethora of VoIP-based telephony services that pose a big threat to the industry's revenues.

Riyaz Ahmad Khan: I am bullish about the Indian telecom industry because the mobile phone is something that we are always carrying while we are awake! It is unlike most of the other products that we use just for a couple of minutes everyday. The other important factors are the sheer population of India, and the untapped potential lying therein. With just 30 percent penetration rate, the telecom industry has a long way to go forward.

The Bounce-back of the Capitalistic World

On September 11, 2001, the Dow was at 9605. On March 09, 2009, the Dow was at the 12-year low of 6440. And, yesterday – on September 11, 2009 – the Dow, once again, closed at 9605.

The inference is quite easily fathomable! Isn’t it? While, between 1997 and 2001, it took the Dow to reach 9605 in four years, this year, in 2009, the journey of those four years has been covered in just flat six months! Impressive! Indeed!

This has technically been so because of the high “base-effect,” and, in other words, what I satirically call, “the spring effect of a capitalistic world” – the harder it falls, the faster it bounces back.

So, what lies ahead, from here? Well, if you are a long-tern player, go long – your investments will be in the safe hands of the capitalistic markets. But, if you love to ride the tides of intra-day-and inter-day movements, keep watching for market indicators, right from the far East to the far West – you too will enjoy your journey on the “tides.”

So, what’s the moral of the story? Irrespective of who you are, you are almost “insured” to book profits, just keep buying on the dips! The "game" is just half-way through! You can catch up! Trust me. You can, provided you identify the dips. :-)

Reclaiming the Lost Grounds

For the past one week, the bourses worldwide, having surged more than 30 percent since March 09, 2009, have been struggling to hold on to their recently gained grounds. So far, it seems that the bourses worldwide are all poised to take off in a big way.

Be it the DJIA, the NASDAQ, the FTSE 100, the DAX 30, the CAC 40, the Nikkei 225, the Hang Seng, the Shanghai Composite, the Tel Aviv 100, the NSE 50, the BSE 30, all have surged like anything by more than 30 percent on the hope that the world’s economy is recovering from the Great Recession, and is bound to reap big returns in the near-term-to medium-term future.

Well, I have no doubt about this, as after every recession, the capitalist world strikes back even more vigorously than the pre-recession one to retain its lost grounds as quickly as possible. That’s the precise reason why the bourses have been running quite ahead of the market fundamentals. It’s not a wrong thing, as the bourses are meant for getting a hold on the future earnings at the least possible costs.

So, will the NSE 50 cross its 4730 barrier in the next couple of sessions, and will it cross 4850 in the next couple of weeks? I bet; it will. Just watch out! Go long.

Making Progress

What do you mean by making progress? And, how do you measure it? How do you measure qualitative progress, and, then, how do you interpret the quantitative measurement? Could you prorate your so far progress to assure yourself that you would be growing indefinitely at the same rate? If yes, then what are the assumptions that you are making, and are your assumptions justifiable? If no, then what are the impediments that you foresee, and how would you overcome them?

What is a neat rate of progress? How do you define neat, and on what bases? Well, I think I can help you out in aligning your weighted-matrix for the estimation of your progress. But, you need to benchmark your accomplishments on your own!

Should you need any further brainstorming related to your “making progress,” please feel free to get back to me. I would love to share my quantitative model for reasonably quantifying the progress made, both qualitative and quantitative.

Finally, no point for guessing the source of the caption! :-)

The Over-reaction of the Indian Stock Markets

First of all, how is the new budget, as proposed by the newly elected Indian government?

To me, the budget looks good, if not excellent. It has an inclusive approach to the future growth of the Indian economy, keeping in mind the current Great Recession. The government has rightly decided to expand the depth and breadth of future expansion of the economy by:

1) Enhancing the disposable income of the masses by increasing the tax-exemption slabs. This will leave the people, with relatively a little more money to spend, keeping in mind the current inflation.

2) Trying to bring the poor of the country to the mainstream of consumer-base, especially farmers, as they contribute 28 percent to the Indian GDP. That’s the reason for extending support to this segment in this new budget.

3) Revoking and reforming some specific taxes, such as the Fringe Benefits Tax, the Commodities Transaction tax, the Minimum Alternative tax. Doing so ensures that the entities concerned are not taxed twice, and the entities are taxed righteously, without giving them a big window to evade taxes (remember Reliance until a couple of years back).

4) Increasing the government spending on the National Rural Employment Guarantee Act, the Food Security Act, and the National Rural Health Mission. All these are intended to take care of the neglected, down-trodden, poor masses, who all can contribute to the future growth of the economy, which is currently at USD 1.3 trillion.

5) Not selling much stake in the coveted Public Sector Units off to cover a large portion of the fiscal deficit immediately. I think the government has taken the right decision for NOT giving a knee-jerk-reaction type of solution to reduce the proposed fiscal deficit of 6.8 percent of the GDP. Instead, the budget is looking forward to borrowing USD 93 billion to fund the budget spending on the roads, power, and aid to the poor. The dilapidated state of infrastructure robs the country of almost 2 percent of growth to the real GDP!

In other words, the budget looks like a good one, with long-term-growth prospects, as it takes an inclusive approach that takes care of all strata concerned, at least to some extent, for sure.

Then, why did the stock markets over-reacted post budget? Well, the answers lie in the recent past of the stock markets!

Having been deep fried recently on the Indian bourses because of the of-late global massacre on the stock exchanges worldwide, the investors were expecting a quick, irrational, selfish growth, which is against the basics of the market fundamentals and Economics, to offset their recent past losses. The budget doesn’t have anything to fulfill that kind of right-off-the-roof growth. So, simply out of despair and to beat the FIIs in going for a selling spree, the domestic institutional investors over-reacted by mass selling of equities. The result of which has been that the bourses shed more than 1000 points, within a couple of days.

A piece of honest advice to retail investors is that look for economic indicators, for financial statements of the companies that you are interested to invest in, for buying at the dips, and for staying invested for as long as possible. You are guaranteed to make good profits.

And, finally, a piece of advice to speculators is that visit the Church more often! You never know when you have no other choice, but to lie in the backyard of the Church peacefully! After all, everyday is not a Sunday.