Telecom bubble rising

Two sets of figures pertaining to the Indian telecom industry were released recently. Each tells a different story. According to the one released by the Telecom Regulatory Authority of India (Trai), the wireless subscriber base increased by 16.67million during October 2009, taking the total number of subscribers to 488million. That's a yearly growth rate of almost 50 per cent -- a continuation of the great Indian telecom story.

Shrinking profitsMeanwhile, for the September quarter, Bharti Airtel, the country's largest cellular operator, saw its profits slide quarter-on-quarter for the first time in its history. Rival Reliance fared no better: its profits fell by more than 50 per cent compared to last year. Vodafone Essar's revenues too fell 7 per cent in the September quarter compared with the June quarter. How does this make sense? More subscribers mean more revenues, and more revenues mean more profit, right? Well, not exactly.

The first part of the answer lies in the fact that the new subscribers are from the "bottom of the pyramid" and contribute very little to revenues. "Till we reached the 300million mark, each subscriber was contributing to the top line (gross revenue) and the bottom line (profits) [of cellular operators]. But after 300million, not everyone's been contributing. Today, between 10-20 per cent of an operator's subscribers are not contributing [to revenues]. They have just taken the phone to receive incoming calls," says analyst Romal Shetty, head, telecom, KPMG India.

Secondly, there is an increasing trend of consumers buying two or more SIM cards to take advantage of schemes offered by competing operators. According to a recent report by Macquarie equities research, the recent addition of subscribers has been due to "increased incidence of dual SIMs". So the total number of people using a mobile phone might actually be lower.

Thirdly, in a bid to rapidly add subscribers, new players such as Tata Docomo have driven prices down with schemes such as per-second billing. Existing players such as Airtel, Reliance and Vodafone have followed suit. Also, the subscriber growth today is fragmented between 13-14 operators who have set up base in India -- an unsustainable number, according to analysts.

All these factors are expected to push down the average revenue per user (Arpu). Now, Arpu has always been falling in India (from a little over Rs300 per month in 2006 to less than Rs200 per month in 2009) thanks to lowering of tariffs. But it never affected the revenues of cellular operators because they continued to add more subscribers. This, however, will be difficult to achieve now.

For the first time, experts are predicting a fall in the EBITDA margins of telecom companies. EBITDA is earnings before interest, tax, depreciation and amortisation. A lower EBITDA margin indicates lower profitability, making companies less favourable for investment.

"It's after one quarter that we will see the full impact [of the price war]. EBITDA margins historically have been around 35 per cent for publicly listed players in India. That could fall to below 30 per cent," says Kunal Bajaj, managing director, BDA Connect, an advisory firm. The telecom industry will see a 'bloodbath' for at least two years. According to analysts, there will eventually be a consolidation, which will leave only six or seven of the current 13-14 players standing.

VAS is the difference?
In the mean time, with diminishing returns on calls and SMSes, cellular operators need to shift their focus to value added services (VAS), opine experts. "In mature markets like Japan and Korea, 30 to 40 per cent of revenues come from VAS. In India, operators earn around 90 per cent from voice and only 10 per cent from VAS," says Shetty.
Revenue per user doesn't normally increase on voice services, adds Shetty, pointing out how VAS can boost margins for the operator: "With Indian Idol, an SMS to vote for your favourite contestant costs the user Rs6. The cost of providing that SMS might be less than 10ps to the operator." That's some margin, no doubt. However, person-to-person SMS is priced much lower.

VAS will also help in retaining [higher end] customers, says BDA Connect's Bajaj, "The higher end segment has remained untouched by the recent price wars because it is not so price sensitive. They also tend to be very loyal to their phone numbers. [But] when mobile number portability comes into play, operators risk losing this higher-end customer base. This could also affect large bulk enterprise deals. So, one really needs to think about how to retain these consumers by offering compelling services."

Things have begun shifting on the ground as well. According to Mouli Raman, co-founder and chief technology officer, OnMobile, a VAS provider, "There is an urgency [among cellular operators] that we haven't seen before. We had some products in the pipeline on which operators were not keen on earlier because of other preoccupations. But now they are really pushing them through so that they can take [the service] to market much faster."

Beyond caller tunes
Although there are several examples of VAS that are doing well, they are restricted to services such as caller tunes or on-demand music. Such services constitute what Mouli calls "the first phase" of VAS.

High-spending customers, who typically also own smartphones, look for internet-based services, which are just not up to the mark in India, says Bajaj. "Today, ring tones account for a disproportionate share of the VAS pie and that is only because there isn't much else of value that has been marketed to the consumers," points out Albert Almeida, chief operating office, Hungama Mobile

KPMG's Shetty agrees: "When telecom services get into the eco-system of the people -- and by that I mean the economic life-cycle of people, when they use it for business services... That's when the second revolution will take place."

This is happening at a very smallscale today. Mouli points out a company called Baba Jobs which has a mobile service to help rural migrants find jobs in cities. "This is a very niche application. But people are willing to pay Rs30-40 per month for the service."
Another such tool is Reuters Market Light, which provides farmers price information on various crops from nearby mandis. This service has, according to the company, been used by 1,35,000 farmers in two years. "Even farmers are willing to spend Rs60 per month, because they feel they can get a return on their investment," says Bajaj.

On the whole, it is hard to deny that cellular operators are under pressure on multiple
fronts: the levelling off of new and high-usage customers, falling revenue per user, the spectrum squeeze, and a deadly price war that is bound to hurt revenues. Plus, the Trai is getting into the picture to trim hitherto fat margins on SMSes. And there's also the risk of consumer disenchantment with poor quality of services which could, with number portability in the offing, result in the erosion of customer base. It is clear that the tough times ahead will be a call of opportunity that, if not answered swiftly, may prove to be a fatal missed call.

So simple but still so deap....

IK ONKAR

ik-oNkaar sat naam kartaa purakh nirbha-o nirvair akaal moorat ajoonee saibhaN gur parsaad.

One Universal Creator God. The Name Is Truth. Creative Being Personified. No Fear. No Hatred. Image Of The Undying, Beyond Birth, Self-Existent. By Guru's Grace.

jap
Chant And Meditate.

aad sach jugaad sach.
True In The Primal Beginning. True Throughout The Ages.

hai bhee sach naanak hosee bhee sach.
True Here And Now. O Nanak, Forever And Ever True.

sochai soch na hova-ee jay sochee lakh vaar.
By thinking, He cannot be reduced to thought, even by thinking hundreds of thousands of times.

chupai chup na hova-ee jay laa-ay rahaa liv taar.
By remaining silent, inner silence is not obtained, even by remaining lovingly absorbed deep within.

bhukhi-aa bhukh na utree jay bannaa puree-aa bhaar.
The hunger of the hungry is not appeased, even by piling up loads of worldly goods.

sahas si-aanpaa lakh hohi ta ik na chalai naal.
Hundreds of thousands of clever tricks, but not even one of them will go along with you in the end.

kiv sachi-aaraa ho-ee-ai kiv koorhai tutai paal.
So how can you become truthful? And how can the veil of illusion be torn away?

hukam rajaa-ee chalnaa naanak likhi-aa naal.
O Nanak, it is written that you shall obey the Hukam of His Command, and walk in the Way of His Will.

Know your Booze

WHAT IS ALCOHOL?

Alcohol is obtained after breaking down natural sugar of grain into CO2, ethanol or ethyl alcohol and residual content. Yeast from grains and vegetables changes the sugar into alcohol. From the cheapest beer to the most expensive wine or after dinner liqueur, all alcohol is made with the same fermentation process. The different colours, tastes, potencies and flavours come from the different fruits or vegetables used and the additives, by-products and diluting substances employed during the fermentation process.

WHAT IS RUM?

Rum is distilled from sugar cane juice and/or molasses. It is aged in barrels to impart additional flavours. The first true rums were made in the Caribbean during the early 17th century by fermenting the molasses left over from refining sugar into a heady liquor. Barbados is held by many to be the birthplace of rum. Rum is one of the major liquors in the world, with a history steeped in the myths of piracy, the Caribbean, and slavery. Others include Bacardi and Captain Morgan.

WHAT IS CHAMPAGNE?

Technically speaking, champagne is sparkling wine made in the Champagne region of France. But it is often mistakenly used as a generic description of sparkling white wines in the style of the wines of Champagne. Champagne is produced as a blend between the Pinot Noir, Pinot Meunier, and Chardonnay grapes. Champagne is designed to be drunk upon purchase, and in nearly all cases is not meant to be collectible. A non-vintage Champagne will begin losing quality within only three or four years, while prestige champagne may last up to 15 years without degrading. Champagne is normally drunk from either a flute or tulip glass, both of which are skinny and tall. This shape allows the scents of the champagne to reach their full potential, and helps the bubbles last for longer than in flatter, larger-bowled glasses. The bigger brands include Moet & Chandon, Laurent Perrier and Krug.

Why should you never drink on an empty stomach?

Experts say eating food before drinking retains alcohol in the system where it is absorbed slowly into the blood stream. This gives the liver more time to break the alcohol down. Otherwise, it is directly absorbed without being broken down into simpler compounds. This can be harmful for the liver and general health. The kick comes when the alcohol is absorbed into the bloodstream directly and slows down the central nervous system; hence the reflexes and reactions are slower.

WHAT IS SINGLE MALT?

Single malt is so-called because the malt comes from a single distillery. It is a whisky refined by a single distillery, using malted barley as the only grain ingredient. Each distillery has its own distinct taste, flavour and style and single malts bear that. Some world-renowned single malts are Glenfiddich, Glenmorangie, Glenlivet, Glenkinchie and if you move into the rare varieties, PortEllen, Dalmore, Glenfarclas, IsleofJura, Knocdhu, Lagavulin, Laphroig, Macallan, Oban,Taliskar, Cragganmore. Enjoying a single malt is a connoissseur’s job and you have to learn to be one. A single grain, as distinct from a single malt, is a grain whisky made at one distillery, while the single malt is made with barley.

WHAT IS GIN?

Gin is a hard alcohol flavoured with the seeds of the juniper bush. Gin is a rather dry alcohol and is rarely drunk on its own, but used instead as a base for many different types of drinks. Good gin is very smooth, with a strong juniper flavour exciting the senses. Gin made its way to England with the ascension of William of Orange to the British throne. And a new style of gin evolved. Dutch gin is distilled from barley and is somewhat nearer whiskey than the London Dry style, which evolved in the 19th century. One difference today is that the London style, since it uses column stills, rather than the pot stills preferred by the Dutch, tends to have a higher alcohol concentration. The famous brands include Beefeater London Dry gin, Bombay Sapphire, Plymouth and Tanqueray.

WHAT IS BLENDED WHISKY?

Blended whisky is a mixture of single malt whiskys and ethanol derived from grains. Developed for those who could not stomach the strong taste of whisky, it is a combination of malt and grain whiskys. First distilled and bottled by Andrew Usher in Edinburgh in the early 1860s, it turned out to be softer, lighter and more palatable. The character of the whisky is determined not only by the proportions of malt and grain whisky, but also by the ages of the individual whiskies and the manner in which they are combined to bring out the finest qualities in each other. Most whisky drunk across the world is blended whisky. Famous Grouse, Bells, Teacher's, Whyte & Mackay and Johnnie Walker are a few that are well-known.

WHAT IS VODKA?

Vodka is distilled from one of the following: corn, wheat, rye or potatoes. It is usually clear, perhaps tinted (by fruit or herbal additives etc), but always clear, never cloudy. Vodka is very rarely aged in barrels. Usually it goes from distillery to bottle to store and bar shelves. The exact history of vodka is unknown, though it most likely originated somewhere in the region of Poland or Russia between the 14th and 16th centuries. The word is thought to derive from Russian, meaning roughly “little water”. Although vodka is traditionally drunk neat in the vodka belt — Eastern Europe and the Nordic countries — its popularity, elsewhere, derives from its neutral spirit usefulness in cocktails and mixed drinks, such as the Bloody Mary, the Screwdriver, the White Russian, the vodka tonic, and the vodka martini. Stolichnaya, Smirnoff, Grey goose and Absolut are the more well-known brands.

Does drinking water before or between drinks help you hold your drink better?

Dehydration causes your blood volume to go down and alcohol even more. So make it a habit to drink enough water before a hard drink. Experts say in case of alcohol consumption, the bigger you are the better it is. Big people have a larger quantity of blood, so alcohol they take in is more diluted as it mixes with blood. Women are generally smaller than men. They also have proportionately more fat and less water in their bodies and so the entration of alcohol in their blood is higher for the same amount drunk.

WHAT IS COGNAC?

The wines of Poitou, La Rochelle and Angoumois, produced from high quality vineyards, were shipped to Northern Europe where they were enjoyed by the English, Dutch and Scandinavians as early as the 13th century. In the 16th century, they were transformed into eaude-vie, then matured in oak casks to become Cognac.. That was the start of the adventure for a town, which was to become the capital of a world famous trade.

Cognac is a living thing. During its time in the oak casks it is in permanent contact with the air. This allows it to extract the substances from the wood that give both its colour and its final bouquet.

Ageing is indispensable if an eau-de-vie is to become Cognac. It takes place in casks or barrels that hold between 270 and 450 litres. The natural humidity of the cellars, in which the casks are stored is one of the determining factors in the maturing process.

What’s the difference between WHISKY & WHISKEY?

Alcohol, malted or not, made from grain which is produced in Scotland is called WHISKY, while it is called WHISKEY if it is produced in USA or Ireland. American whiskey is called Bourbon and is made from grain. Bourbon is at least 51 per cent corn or maize.

Scotch whisky is generally double distilled, while Irish whiskey is generally distilled three times. It is is whisky that has been distilled and matured in Scotland for at least three hours in oak casks.

Wheat whisky is the rarest whisky.

Rye whiskies are mostly popular within the US.

What goes better with Whisky - Water or Soda?

Whisky is preferred with water more than soda as soda is carbonated water and it kills the taste of whisky. But real connoisseurs of whisky like to have it neat or with water on side or with two cubes of ice.

Courtesy: Economic Times