Monthly Archives: October 2005

More on Vodafone

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It seems that Vodafone is creating more ripples than it ought to.

I had reported earlier that Vodafone’s investment seems more like a speculation, rather than any real investment. As the details became clear, Warburg Pincus exited with the sale of it’s stake.

It’s hard to believe that Vodafone paid $1000 per subscriber. Partly because on the flawed assumptions that mobile telephony would always grow. Partly because, the numbers are a BIG suspect. Despite the crowing about the “lowest tariffs”, we are still to see genuine opening up of the telecom industry. Primarily Carrier Access Codes that needs to be implemented. That would give us the right to choose our service provider. Not only on the price factor- hopefully soon on the quality factor too.

Mobile phones are good- but they cannot entirely replace the landlines. This is because the spectrum is a scarce resource. No wonder, the telecom majors are falling over themselves to get 3G licences. Despite the steep prices and utter lack of content.

Read more on the Business Standard Story

The Rural Gamble

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Much has been talked about the rural telephony and the need for mobile services. Though there are caveats to the same.

First define a rural area. On an arbitrary basis, it is an area of less than 5000 population. The income levels are much less defined. Similary, its hard to believe the existing government definition of “Below Poverty Line” ( so called BPL ) families. Again, they are defined as those who are earning less than $1 per day. I would appreciate if anyone corrects me on this please. I couldn’t find any reference online.

It’s hard to believe the statistics. In that case, what is the measure of rural consumption? It is the foodgrains. Over the past 10+ years, as the neo liberalistic policies have taken shape, we have seen a sharp decline in the consumption of foodgrains. So much so, malnutrition has become an epidemic. On the wayside and not related to telecom. Do you know that Iron Deficiency Anaemia is one of the commonest clinical conditions seen in India? A clear reflection of lopsided dietary patterns.

In this scenario, the falling consumption of foodgrains means that rural folk are earning less.The policies that were supposed to help them ( infact every policy- damned policy is designed to help them ) haven’t worked. And so does the capitalistic model which states that income would trickle down to the downtrodden. Well, so has the leftist policies ( the bloody corpse worshippers ) that believes in redistribution of wealth, has worked in their bastions. Infact, unreported in the mainstream media, West Bengal has very poor health care indicators, much less than the national average.

So, assuming the poor people would spend their money on food, where is the test case for rural mobile telephony? Nope, it isnt there. Firstly because the mobile handsets need to affordable. Secondly, the high recurring costs. Despite the claims that tariffs are among the lowest in the world. Pooh pooh.

I believe that Broadband networks- through fixed line telephony would make perfect sense. First, in the field of education and get them in the mainstream. Secondly, most of the outsourcing and the data entry jobs can be moved in the interior of the country. Of course, this is exmplotation of the labour- still they would be much better off than depending on the traditional methods which hasn’t yeilded any results.

TRAI is subsiding the costs of setting up mobile networks, when instead it should force BSNL to open up it’s last mile and allow other private players to offer their telephony sevices. Of course, some babu sitting up isn’t happy to hear this.

Only the fixed line telephony would be able to shrink costs and offer a long term viable solution to digital divide. Mobile telephony would just eat up spectrum and nothing else. Of course, on the flip side, there is a perfect case for the likes of BSNL who have managed to get subscribers from these very areas. Would it mean that it would have to share the network? Or is it a reflection of underserved area with a huge pent up demand? Time would tell.

Vodafone’s entry

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It was expected. I had mentioned it long time back that Airtel is looking to divest it’s stake in Telecom and look for greener pastures elsehwere. Notably in Agriculture. Yet, what does the entry of Vodafone means here?

For starters, they have only invested in 10% stake in Airtel. Meaning thereby that it would give Airtel some funds for expansion. The exact details for the arriving at the valuation aren’t known but then they wouldnt be known either.

Does it mean that Indian Telecom is “rocking”? No. Because, Vodafone’s strategy seems to be wait and watch. Interestingly, they haven’t applied as independent operator. That would mean buying a licence and setting up a shop here and slowly grow up scales. They just chose to invest- I believe with full knowledge that they have the option to sell of stake in the future whenever the valuation improves.

The news came in with announcement of Q2 results of Airtel. This was much less than the market expecatations and as of date, their share prices went down instead of improving.

Hence Vodafone’s investment needs to be taken with a pinch of salt.

How does this help Airtel in the long run? I believe that extra infusion of funds would help in one way. Further, they might be able to have extra expertise in value added services like content. As I mentioned, the details are not yet known.

How does it benefit Indian Telecom? Well, this comes at the heels of the expected 74% FDI limit to be announced shortly. There had been a proposal but it wasn’t notified. We might see the entry of another player- the smaller players in GSM like Aircel or Spice might decide to sell out. Or the extra funds may give Airtel the financial muscle to buy out the smaller players. They have conciosuly tried to avoid raising money from the banks or financial lenders. Reliance may well be able to hive off it’s GSM network. Though I would be thankful to anyone for providing me the details from North East and so called category C circles.

Is the euphoria warranted? Of course not. Yet, telecom experts of all hues are going to crow about anytime soon.