Shyam-sistema To Begin Mobile Operations In Tamil Nadu By March 2009

[ravi_patent 28]

http://www.thehindubusinessline.com/ew/200...11950030100.htm

On February 26, 2008, the Communication and IT Minister, Andimuthu Raja, gave his permission to issue licences to new telecom operators amidst a lot of opposition from existing players. Though the minister was criticised for giving away spectrum to the new players without conducting an auction, Raja pushed through with the decision and hoped that the new operators would launch their services to bring cheaper mobile services to consumers.

The companies that received fresh licences were Swan Telecom, Unitech, STel, Datacom, Shyam-Sistema, Bycell, Spice Telecom and Loop Telecom.

Soon after receiving the government nod, these companies declared war on the incumbents, to grab a larger share of the booming cellular market in the country. (See The call of competition in eWorld dated February 18, 2008). They sounded the bugle with a combined investment of over $10 billion and some innovative tariff schemes in the offing that promised to give the incumbents a run for their money. Some of them announced that they would get 10 million subscribers by the end of 2009.

However, even after a year since the licences were awarded, none of these companies is anywhere near fulfilling promises. Reeling under the combined effects of the liquidity crunch in a slowing economy, a highly competitive market dominated by the likes of Airtel and Vodafone and problems among various equity holders, the dreams of the new players seem to be going sour.

Take, for example, the case of Datacom. A feud between the two owners of the company — Mahendra Nahata of Himachal Futuristic Communications Ltd and Videocon promoters Dhoot family — is threatening to cripple Datacom’s future.

Datacom was initially owned by Nahata-promoted Jumbo Techno Services. But when Videocon failed to get a licence from the Government, it picked up 64 per cent stake in Datacom. The dispute began after Nahata alleged that the Dhoots were not fulfilling their commitments made during the initial agreement. Sources in Nahata’s camp said that Dhoot had promised to pump in money into the company as equity but later offered a loan to finance the mobile services project.

This dispute between the two promoters has not only delayed the launch of Datacom’s cellular services by at least six months but also driven away prospective international investors from picking up a stake in the company. Etisalat, which recently picked up 45 per cent stake in another new telecom company — Swan — had earlier shown interest in Datacom. Similarly, Telenor, which struck a deal with Unitech to acquire a stake in its new telecom venture, was also close to partnering Datacom. However, the spat between the Indian promoters is keeping away the international investors.

The company has also lost its Chief Executive Officer, Ravi Sharma, who quit the company on the grounds that the dispute was delaying Datacom’s business decisions. While Nahata and Dhoots have put the discussions on a fast track, the delay is hurting the interest of Datacom. The company had earlier said that it was planning to launch services by the end of 2008. It has not even placed orders for buying network equipment until now.

Another company whose entry into the telecom segment had attracted a lot of excitement was real-estate major Unitech. The company, which has no experience in the telecom sector, made all the right moves initially after it got the licences. First, it appointed Rohit Chandra, the then Northern region head for Aircel, as the CEO for the new venture. In October, Unitech also struck a strategic deal with Norway-based mobile company Telenor wherein the European company agreed to take 60 per cent stake for Rs 6,120 crore.

The deal was a great one for Unitech as the company had not set up a single tower or owned a subscriber and still managed to get that valuation. Trouble started after Telenor’s shares crashed to a five-year low on the news of its investment in Unitech’s telecom project. Also, Telenor said its Q3 profits fell 33 per cent to 3 billion kroner.

The Nordic company had plans to finance the acquisition by selling approximately Norwegian kroner $12 billion or $1.8 billion worth of its shares in a rights issues in the first quarter of 2009. But investors signalled they would rather see a cut in dividend than a dilutive share issue or asset sales. It then decided to evaluate alternative ways of funding the investment, including the previously announced rights issue.

Due to a melting market Unitech itself has seen over 90 per cent erosion in market capitalisation from its peak in January. Even though the company said that the deal with Telenor will be completed this month analysts pointed out that the absence of a viable funding plan makes the future uncertain for Unitech’s telecom project.

Other new players are also nowhere near launching their services. Loop Telecom, partly promoted by the Ruias, is still looking for a partner. When contacted by eWorld over its future plans, Loop’s spokesperson sent a one-line response indicating that the company did not have much to say on its rollout as of now.

One of the new players has run into trouble with government authorities. Swan Telecom had got a foreign partner through a deal with Dubai-based Emirates Telecommunications Corp (Etisalat) which agreed to buy 45 per cent stake for $900 million. But the money has not flowed into the Indian company as it is yet to be cleared by the Foreign Investment Promotion Board.

Swan has also been dragged into another controversy with the Prime Minister’s Office asking the Department of Telecom to look into allegations of undue favour shown to Swan Telecom. The company had got into a roaming agreement with BSNL, which will allow it to use the state-owned firm’s national network to offer mobile services. While Swan has agreed to pay a fee to BSNL for using the network, concerns have been raised since BSNL has so far refused to open up its network to any private telecom companies for roaming agreements.

The PMO’s order followed complaints by at least two Members of Parliament that Swan may have been given undue favours. Swan was owned by Reliance Communications when it applied for licence. However, RCom has since maintained that it has sold off majority of its equity shares in the company to Dynamix Balwas Group, which is a real-estate firm based in Mumbai. Analysts say that the new players, even if they were to launch services, face a bumpy ride ahead, given the falling average revenue per user and aggressive incumbent operators.

Some help from govt

In a bid to bring the new operators’ plans back on track, the Ministry of Communication is taking steps to make the business case stronger for them. It has proposed to dilute the rollout obligation for the start-ups by doing away with the target to be achieved at the end of one year after getting the licence.

Under the current rules, the new players are required to cover at least 10 per cent of each district headquarter in a circle by February 2009. Failure to do so would attract a penalty which would make all the new entrants liable. But Department of Telecom has now proposed to dilute the norms and give the operators three years to complete the roll out.

In another move, the Ministry has asked the telecom regulator to review the current interconnection norms to reduce the termination rates. Termination charges are paid by the operator on whose network the call originates to the operator on whose network the call ends. At present operators pay each other 30 paise a minute as termination charges. The regulator has indicated that this fee could be as low as 13 paise a minute. A lower termination charge will give the new players more head room to compete with existing players by bringing down tariffs. It will also help in keeping their operating expense under control because they will end up paying out a lower charge to incumbent players.

DoT is also planning on allowing mobile number portability, which will enable subscribers to retain their phone numbers even after changing their operator. New players are banking on MNP to take away subscribers from existing players by offering them cheaper rates and better quality of service.

Another policy decision that could make the new operators business-viable is the introduction of Mobile Virtual Network Operators (MVNO).

Virtual operators do not own spectrum or infrastructure. They lease out capacity from mobile companies and then sell tariff packages under their own branding and focused at a specific consumer segment. MVNOs are expected give new telecom companies an opportunity to roll out quicker and utilise their freshly laid out network more efficiently.

However, the new players will first have to launch their services if they have to take advantage of these initiatives. The delay is, of course, benefiting the incumbent players. The existing operators are adding close to 8 million new subscribers a month.

They have already added close to 80 million new subscribers since the licences were awarded to the new players. The more the new operators delay launching their services, the smaller will be the market size left for them.

The only company that seems to be on track with its plans is Shyam-Sistema. It has already launched services in Rajasthan and is planning to begin mobile operations in Tamil Nadu by March under the MTS brand, which is owned by the Russian conglomerate Sistema.

Others including STel and ByCell have not announced any plans yet. Communications Minister Raja would be hoping that his decision to bring in new players will offer the consumers more choice before going into the general elections later this year.

Status check

Datacom: Caught in a feud between promoters. Launch plans delayed by at least six months.

Unitech: Uncertainty over funding. Both promoters are reeling under the impact of market meltdown and liquidity crunch.

Swan: Has been caught in controversy over alleged favours shown by BSNL. PMO has sought an investigation. FIPB yet to clear deal with Etisalat.

Loop: Still looking for a strategic partner. Launch plans are unknown.

Spice Telecom: Has been acquired by Idea Cellular.

Shyam Telelink: Rollout plans seem to be on track. Has launched services in Rajasthan and is planning to enter Tamil Nadu by March.

[Himanshu Singh 19]

extremely well written article. can be expected only of the hindu.

[ravi_patent 28]

dear himanshu

i beg to differ wt u abt Hindu

anybody who has been following either this forum or indian telecom developments regularly

will be in the knowledge of datacom's problems or unitech's sell off or the undue favoritism

bestowed upon Swan...this report i believe has joined together all the known facts...

and fails to give worthy reasons for denying the customers more choice and the govt revenue.

every tom, **** and harry has been allotted spectrum by the responsible ,irresponsibly...