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Sunday, 4 May 2014
Will Reliance Jio's entry to hurt profits of incumbent telcos?
After the superlative earnings performance by Idea Cellular and Bharti Airtel amid increasing data consumption and addition of value customers, analysts are apprehensive whether the renewed optimism in the sector is going to stay for long, given the Reliance Jio's impending entry into the telecom market by the year end.
While Bharti Airtel reported an increase of 89% in net profit for the quarter ending March 31, Idea Cellular clocked 91% jump in its earnings.
On the other hand, Mukesh Ambani's Reliance Jio has accelerated efforts to roll out its 4G services across the country. It has finalised key vendor and supplier partnerships and is making rapid progress in building critical infrastructure needed to launch the services.
Even though there has been partial consolidation in the 14-player industry following the exit of some players such as Elisalat and STel and reduced foot prints by Loop Mobile, Reliance foray is expected to create ripples in the improving sector.
"Telecom operators have been increasing tariffs to an extent that once Reliance Jio comes up they are able to pull back the prices depending on the competition that will be created," said a sector analyst requesting anonymity.
"However whether Reliance Jio's entry would affect the market by dragging it back to the tariff war days would largely depend on how they enter into the market. Voice war is a thing of the past, it is all going to be about data," he added.
Infotel was the only player to bag pan-India licence when the Broadband Wireless Access (BWA) spectrum auction that facilitates 4G services took place in 2010. Its competitors Bharti Airtel bagged spectrum in four circles, Aircel in eight, Qualcomm in four, Tikona in five while Augure in one.
While Reliance Industries bought Infotel post the auctions, Bharti Airtel bought 100% stake in Qualcomm spectrum in 2013.
Thereafter, in the recently held auctions of 1800 MHz spectrum many companies such as Idea Cellular and Vodafone participated and are now in the fray to launch their 4G services as the spectrum that was put on offer was technology neutral.
While Idea has said it will launch 4G services in eight of its key revenue markets where it acquired fresh spectrum without specifying any details, Vodafone too has acquired enough spectrum to roll out 4G services.
Talking about Reliance Jio's aggressive market strategics affecting the business of the incumbents, Jaideep Ghosh of KPMG said, "Airtel and Idea are established players with millions of users. It is difficult for another player to just enter and impact the market instantly. Everyone aspires to make money and thus unreasonable tariff wars should not be seen."
"Currently what we are seeing is the result of something that happened during the last two three quarters back. Today the ARPUs have increased as the number of competitors have declined and freebies and discounts have been cut down drastically. Many operators have reduced there footprints as well while some of them have exited the market altogether. So the market has witnessed a much-needed consolidation as well," he added.
According to a Goldman Sachs analysis, unlike Idea Cellular which showed a 3% quarter on quarter decline in revenue per minute (RPM), Bharti showed flat RPM, suggesting Idea's quarter on quarter decline was largely due to its more aggressive tariff increase in previous quarters and higher proportion of low RPM growth in the fourth quarter. From an overall industry perspective, we believe telcos remain focused on raising tariffs.
The entire 4G ecosystem has not yet developed in terms of devices, said Hemant Joshi, Partner at research firm Deloitte. "3G itself has not taken off the way it should have. There is lot of potential for 3G services which is slowly getting tapped. 4G ecosystem has not yet developed in terms of devices, deployment of towers. So there are a whole range of issues. 4G maturity will take time." he said putting aside apprehensions that Reliance Jio's aggressive plans will shake the industry.
Speaking on the possibility of staunch competition by Reliance Jio by the year end, Gopal Vittal, Managing Director and CEO (India and South Asia), Bharti Airtel said, "At the end of the day what are we trying to do? We have to have competitive growth and profitable growth... so as the competitors strategy evolves we will look at it and respond."
Another leading player spoke on the condition of anonymity that data tariff is already low and the competition is no lesser. "The incumbents are fighting within themselves for a larger share of the pie. It is not that easy for a new operator to add value customers by just giving discounts and freebies. They (Reliance Jio) will get customers initially, but will that help them in the long terms? Never! They too need to have quality customers therefore instead of getting unnecessarily aggressive they are expected to be calculative."
"They are launching on a very new technology that has not even evolved. If they will make a mistake, we will learn from it," he added.
DoT set to ask Trai to reconsider 800 Mhz base price
The telecom department is set to ask the sector regulator to reconsider
the reserve price recommended for auctioning spectrum in the 800 Mhz
band for a possible reduction, because the government is unable to
procure a contiguous block of 5 Mhz airwaves for sale.
The
Telecom Regulatory Authority of India (Trai) in February proposed that
the government start auction with a base price of Rs 2,685 crore for a
pan-India block of 1 Mhz spectrum. CDMA operators, who use this band of
airwaves, have been putting pressure on the government to cut the price,
saying that it was too high and may prevent them from bidding.
While
the move by the Department of Telecommunications (DoT) is good news for
CDMA operators, non-availability of contiguous bandwidth means the
usability of the airwaves will be affected. For instance, the
fourth-generation long-term evolution technology requires contiguous, or
continuous, airwaves of a minimum 5 Mhz of airwaves.
The telecom
department will also ask Trai to propose the spectrum usage charge for
the spectrum, according to an internal DoT document.
While the 800
Mhz band is traditionally used by CDMA operators, the new telecom policy
allows liberalised use of spectrum. That makes this band more lucrative
than the 900 Mhz or 1800 Mhz bands used for providing more popular GSM
services, as lower frequencies are more considered efficient, especially
for data services.
Trai had cited the efficiency of the 800 Mhz
band and the availability of contiguous blocks for setting the base
price higher than the price at which 1800 Mhz airwaves were sold at an
auction as recently as in February.
A DoT committee has now found
that it is unable to meet the most basic premise set by the regulator, a
contiguous block of 5 Mhz spectrum.
At best, the government would be
able to shore up a contiguous band in just four of the 22 telecom
service areas: Assam, Madhya Pradesh, the Northeast and Mumbai, the
document says.
Trai had recommended the government to take back
800 Mhz spectrum from Mahanagar Telephone Nigam Ltd and Bharat Sanchar
Nigam Ltd, saying that the two state-run operators have left them
largely unused, and that this would make a contiguous band available for
sale.
MTNL has refused to part with its spectrum holding, saying
that it has already invested heavily over the networks in Delhi and
Mumbai. BSNL says it has used this spectrum to render telephony services
in rural and far-flung areas where other technology including GSM
services are not possible. If it must surrender the bandwidth, MTNL has
said, its investment must be reimbursed by the government with auction
proceeds, on a pro-rata basis. MTNL's CDMA licence would expire in 2017.
The
DoT committee has also explained that even thought Tata Teleservices
has surrendered part of its CDMA spectrum, the matter is in the court
and it wouldn't be legally advisable for the government to auction the
surrendered spectrum until the case was resolved.
The committee
wants the regulator to reconsider its proposal to make it mandatory for
new bidders of 800 Mhz to seek a minimum of 5 Mhz airwaves, because of
the lack of contiguity in 18 service areas.
In the February
auction, telecom companies had together bid Rs 61,162 crore for the
rights to use a total of 399.2 Mhz spectrum across 1800 and 900 Mhz
bands. The winning price for pan-India spectrum in the 1800 Mhz was Rs
2,270 crore.
Google's Plan to 'kill' URLs Revealed
Google seems set to 'kill' website URLs with an upcoming update of its
popular browser Chrome. With this update, Chrome browser will show the
website's URL as a clickable button, while address bar (officially
called Omnibox) will still be used to type a website's name or search
query.
This update, called Origin Chip, is part of the build for
Chrome 36, which is due in July. The web browser is currently on build
34, and the next version is due this month.
At present, this
feature is in testing stage and users can choose to enable or disable it
by putting chrome://flags/#origin-chip-in-omnibox in the Omnibox.
At present, the Omnibox displays a website's full URL, as shown in the image below:
After the Chrome 36 update, the browser will show the URL in this manner:
Therefore, if users are reading a particular story on TOI.com, they will
only see timesofindia.indiatimes.com, not the whole link. In order to
edit the URL or copy it, they can click on the website using the mouse
or use Ctrl+L keyboard shortcut.
Google
is presently assessing users' reaction to this new feature, so the
feature may not make it to the actual Chrome 36 version that the company
rolls out.
While Google has not made an official comment on this
feature, the tech community is busy speculating reasons behind this
change. One of the reasons cited for this change is that it will help
crack down on phishing attacks. As with the sub-domain clearly spelled
out besides the Omnibox, users would be able to better see if the
website they are visiting is official or not.
Apple's Safari browser for mobile devices also does not show the full website URL, just the main domain name.
Facebook Users Hacked While Trying To Hack Friends’ Accounts
An online tool that has recently become popular among Facebook users in
India promises users that it will hack their friends' Facebook accounts.
However, it has been revealed that the tool instead hacks these
Facebook users' accounts!
This Facebook hacking tool, which has
the disclaimer "For Education Purpose," is hyperlinked to a document in
Google Drive. This document has a code, which is to be pasted in web
browsers' address bars. As per the instructions in the document, the
user needs to wait for two hours for the hack to take effect.
According
to a blog post by Symantec researcher Satnam Narang, instead of hacking
their friends' accounts, this hack will perform a series of actions
without their knowledge.
"Behind the scene, your account is used
to follow lists and users, and give likes to pages in order to inflate
the follower and like counts defined by the scammers. Your account is
also used to tag the names of all your friends in the comment section of
the original post," he says.
That is not all. The post says,
"This is done to help the scam spread further, playing off the curiosity
of your friends, who may visit the post to find out more and hopefully
follow the instructions as well."
This scam originally started in
2011 and is a variation of self-XSS (self cross-site scripting). The
original scammers behind this iteration had great success with the scam
at the beginning of this year, netting between 50,000 to 100,000 likes
and followers on a number of pages and profiles, according to Narang's
blog.
This campaign is allegedly run by hackers based in India,
who have modified the original authors' code by simply adding their own
pages and profiles into the script to increase their follower and like
counts.
Users who have clicked on such a link can check whether
or not their account has liked and followed a number of pages and
profiles without consent in their activity logs.
Voice Rates To Rise, Data Prices To Fall
Reliance Communications, India's fourth largest mobile phone operator, expects voice tariffs to rise further, in line with input costs, as the company will continue to cut discounts and could even raise headline rates like it had done about a month back, Gurdeep Singh, chief executive of the company's consumer business said. Speaking to ET's Romit Guha after announcing the company's fourth quarter and annual numbers Friday, he indicated that data prices on the other hand could fall, as telcos needed to add subscribers for the pricier services. The sharp fall in fourth quarter on year net profit was mainly due to a one off gain in the previous year's quarter, he explained. Edited excerpts.
Q) Can you explain the on-year fall in net profit this quarter?
A)
Last year fourth quarter had a reversal of a provision for business
restructuring cost worth Rs 550 crore, which was envisaged, but could
not be booked.
Q) Can you explain the one-off items on Q4 of 2013-2014?
A)
There are also two one off items this quarter - one is depreciation
becoming almost double because of certain impairment. Certain assets
have been impaired because of end of life and some aren't required
anymore. Usually, our depreciation is around Rs 950 crore per quarter.
Also, we had created some deferred tax liability. So, there is a higher
tax credit, which is also a one off, it will neutralize the depreciation
impact.
Q) Finance costs continue to weigh on your results. Comment.
A)
During the quarter, we have repaid a lot of our foreign currency loans.
And part of those are from internal accruals and some also refinanced
through the rupee loans. The rupee interest costs are much higher than
dollar costs.
Q) Will you increase voice rates further going forward?
A) We
continue to see the rates hardening in the future. This is a continuing
process, and you have to keep checking the cost of the input material.
We still believe there is headroom for tariffs to go up in future on the
voice side.
Q) Will you increase headline rates further in future?
A) Yes.
The whole idea is to reduce the gap between the headline rates and the
discounted minutes, and by raising the headline tariffs, we are now
bridging the gap, and this endeavor will continue.
Q) Where do you see data prices going?
A) India
is at a stage where there are 200 million internet users while there
are 900 million mobile users. We are at a stage where we need to rapidly
drive adoption of the internet on 2G and 3G. So, once you make it more
affordable, you can drive more adoption.
Q) How does 2014-2015 look like for Reliance Communications?
A) We
continue to focus on profitable, sustainable growth on the network, and
we continue to increase the contribution of paid minutes and profitable
minutes on the network. Data contribution is very encouraging and going
forward we are soon going to reach an inflexion point in data growth.
Q) Any updates on fund raising for paring your debt? Any updates on stake sale in Reliance Globalcom (Global Cloud Xchange)?
A)
Our position continues to be the same. We are actively working on
deleveraging the balance sheet and with that respect, we have identified
many initiatives, and Globalcom is one of those, and if we have
something material, we will surely come back to you.
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