2010 is going to be a mixed-kind of year. We are still witnessing major troubles primarily in Greece, Spain, Portugal, Ireland, UK, Dubai, Japan, and the US. But, on the other hand, undoubtedly, they all will fight back, because they ought to. There is no other choice. This is primarily a capitalistic world, which doesn't give in to pessimism. We have seen unprecedented efforts by the Central Banks and Governments worldwide. All those efforts will pay off, albeit slowly but surely. There will again be booms and busts, after all that's the cycle and that is its intrinsic nature. Isn't it? Let's be patient, and hold our grounds firmly. Good luck to all of us, as we see the waning of the modern world's second-worst recession!
There will be some pains and upsets in the globalized world, as economies try to "rein in" their Balance of Payments (BOP), especially with other economies, such as China, which cuts its manufacturing-costs at the expense of its competitors and of its buyers as well! But, that's a different story altogether.
Deflation in Japan is another concern. It has become so hard to make money in Japan. So, obviously, insane amounts of funds will outflow from Japan to economies -- especially emerging economies -- that promise robust growth, creating bubbles and then consequently sudden busts! But, is it something extremely wrong? No! It's not! But, inflow and outflow of funds certainly need to be controlled and be well monitored. EXTREME free-flow of funds is a very dangerous thing, because you just never know what's going to happen next! Economies become susceptible to the idiosyncrasies of few "funds managers!" They take the world economy as "HOSTAGE!" Isn't cartel a reality?
I just hope the policy-makers worldwide would fix the root causes of the problems, instead of beating around the bush -- that is trying to fix the symptoms of the problems. Good luck to most of us !
Wednesday, March 31, 2010
Saturday, February 27, 2010
Walking Without a Plan
Walking without a plan? Yes, that's right -- walking without a plan! :-) It's possible. Trust me; it is. And, you can still work on an unplanned plan to completion. You can still coordinate without coordinating explicitly. You can still communicate without communicating vehemently. You can still promise without promising earnestly. Doesn't silence speak a thousand words? And, doesn't signaling work? All of these work, provided you know how to walk without a plan.
Have you ever driven any kind of vehicle on the Indian roads? In India, hardly anyone follows any traffic rules, but, still, considering how people drive out there, the number of accidents is still very, very low -- I repeat considering the way people drive out there. We are used to of "walking without a plan" -- it's what we have been experiencing since our childhood, isn't it? :-)
That was just an example to hint you at something. :-) Are you game for it -- walking without a plan? :-) Let's see. In the meanwhile, I just hope that you be a sport!
Have you ever driven any kind of vehicle on the Indian roads? In India, hardly anyone follows any traffic rules, but, still, considering how people drive out there, the number of accidents is still very, very low -- I repeat considering the way people drive out there. We are used to of "walking without a plan" -- it's what we have been experiencing since our childhood, isn't it? :-)
That was just an example to hint you at something. :-) Are you game for it -- walking without a plan? :-) Let's see. In the meanwhile, I just hope that you be a sport!
What Comes First: Price or Costs?
For marketing, in general, letting the price, and/or the profit margin, determine the costs of the product, rather than letting the costs of the product determine the price, and/or the profit margin, is the most prudent way to go forward.
First, decide the price of your product, and the subsequent profit margin, that you must make to satiate, or justify, your investments. Doing so gives you a costs window that you may put at stake in producing the product. Thus, the price – and/or the profit margin – of the product drives its viable costs structure. In the worst case, you might not be able to produce the product within the estimated costs. But, your money remains intact, and you can still use it for something better.
If you do the other way round, that is, if you first produce the product, and then aggregate the costs incurred in producing it, in that case, the total costs drive the price of the product, and subsequently drive the profit margin, which may or may not justify the investments made, keeping in mind that there is a certain maximum price the consumer is ready to pay for the product. This second method is prone to the risks of making the entire investments sour! The worst situation has the potential to wreck havoc -- that is that you might lose all your investments!
It is certainly not that the first method always is the best way of deciding on the price, and thus the justified costs, of a product. But, it certainly is the more logical way of going forward.
However, in some situations, the second method is the only possible way of zeroing in on the costs, and subsequently the price of a product, especially when both the producer and the potential consumers are completely new to the concept of the product that is going to be produced.
The call is yours, so take the shot! And, don't forget that you will be held accountable for it too, because if you miss it, the investors will not let you off the hook! You can run; you can hide, but you can't skip, my "love." :-)
First, decide the price of your product, and the subsequent profit margin, that you must make to satiate, or justify, your investments. Doing so gives you a costs window that you may put at stake in producing the product. Thus, the price – and/or the profit margin – of the product drives its viable costs structure. In the worst case, you might not be able to produce the product within the estimated costs. But, your money remains intact, and you can still use it for something better.
If you do the other way round, that is, if you first produce the product, and then aggregate the costs incurred in producing it, in that case, the total costs drive the price of the product, and subsequently drive the profit margin, which may or may not justify the investments made, keeping in mind that there is a certain maximum price the consumer is ready to pay for the product. This second method is prone to the risks of making the entire investments sour! The worst situation has the potential to wreck havoc -- that is that you might lose all your investments!
It is certainly not that the first method always is the best way of deciding on the price, and thus the justified costs, of a product. But, it certainly is the more logical way of going forward.
However, in some situations, the second method is the only possible way of zeroing in on the costs, and subsequently the price of a product, especially when both the producer and the potential consumers are completely new to the concept of the product that is going to be produced.
The call is yours, so take the shot! And, don't forget that you will be held accountable for it too, because if you miss it, the investors will not let you off the hook! You can run; you can hide, but you can't skip, my "love." :-)
Friday, February 26, 2010
A very positive, comprehensive, inclusive budget for 2010
Finance Minister of India has unleashed the Indian Union Budget for 2010. The budget looks quite promising. As per the budget, the masses are going to be taxed lesser for their incomes in 2010. The personal tax breaks are prudently categorized as:
Incomes <= INR 160,000: No tax
INR 160,000 < Incomes < = INR 500,000: 10%
INR 500,000 < Incomes <= INR 800,000: 20%
INR 800,000 < Incomes: 30%
Additionally, investing up to INR 20,000 in infrastructure bonds will be tax-exempt, and this exempt is going to be over and above the exempt of INR 100,000 as per Section 80C.
It is hoped that almost 60 percent of tax-payers would benefit from this tax-relief program, which will definitely increase their purchasing power, which, in turn, will positively impact the businesses operating in the country. This is the strategy of taking the economy even more toward the domestic-consumption-driven growth-path – a very, very good strategy of being self-reliant, and highly proven strategy in this Great Recession.
The budget looks forward to compensate for these relaxations to the common people through marginally increasing excise-duties in certain sectors, such as tobacco products, high-end SUVs, luxury cars, petrol and diesel, just to name a few.
Moreover, the Minimum Alternative Tax (MAT), which was actually introduced to tax companies like Reliance, is raised to 18 percent, from the current 15 percent.
The fiscal deficit for 2010 is budgeted at 6.8 percent of the GDP, but has been guided to 5.5 percent of the GDP for the next fiscal year, to 4.8 percent of the GDP for 2012, and to 4.1 percent of the GDP for 2013. Overall this phased fiscal-deficit-reduction strategy looks pretty good, keeping in mind the current financial situations around the world.
So far, the government has raised USD 7 billion by divesting stakes in the public-sector enterprises, and there will be many more such moves in the coming days to fund the planned fiscal-deficits. Moreover, the government will issue more banking licenses for the private-banking sector, and will also auction telecoms 3G-licenses for raising funds to finance the fiscal-deficits.
Overall, the Indian Union Budget for 2010 appears to be a very positive, comprehensive, inclusive budget. Good job!
Incomes <= INR 160,000: No tax
INR 160,000 < Incomes < = INR 500,000: 10%
INR 500,000 < Incomes <= INR 800,000: 20%
INR 800,000 < Incomes: 30%
Additionally, investing up to INR 20,000 in infrastructure bonds will be tax-exempt, and this exempt is going to be over and above the exempt of INR 100,000 as per Section 80C.
It is hoped that almost 60 percent of tax-payers would benefit from this tax-relief program, which will definitely increase their purchasing power, which, in turn, will positively impact the businesses operating in the country. This is the strategy of taking the economy even more toward the domestic-consumption-driven growth-path – a very, very good strategy of being self-reliant, and highly proven strategy in this Great Recession.
The budget looks forward to compensate for these relaxations to the common people through marginally increasing excise-duties in certain sectors, such as tobacco products, high-end SUVs, luxury cars, petrol and diesel, just to name a few.
Moreover, the Minimum Alternative Tax (MAT), which was actually introduced to tax companies like Reliance, is raised to 18 percent, from the current 15 percent.
The fiscal deficit for 2010 is budgeted at 6.8 percent of the GDP, but has been guided to 5.5 percent of the GDP for the next fiscal year, to 4.8 percent of the GDP for 2012, and to 4.1 percent of the GDP for 2013. Overall this phased fiscal-deficit-reduction strategy looks pretty good, keeping in mind the current financial situations around the world.
So far, the government has raised USD 7 billion by divesting stakes in the public-sector enterprises, and there will be many more such moves in the coming days to fund the planned fiscal-deficits. Moreover, the government will issue more banking licenses for the private-banking sector, and will also auction telecoms 3G-licenses for raising funds to finance the fiscal-deficits.
Overall, the Indian Union Budget for 2010 appears to be a very positive, comprehensive, inclusive budget. Good job!
Saturday, February 20, 2010
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!
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!
Thursday, February 18, 2010
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!
Wednesday, February 17, 2010
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! :-)
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! :-)
Wednesday, January 13, 2010
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! :-)
Tuesday, November 3, 2009
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.
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.
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