According to a survey, mobile VAS, mobile broadband and telecom software companies, as well as companies providing services to telecom companies, are among the favourite sectors for PE & VC investors within the industry
Research firm Venture Intelligence has said that almost 70% of the private equity (PE) and venture capital (VC) investors feel that Indian telecom operators would be able to find and profitably serve the next 100 million mobile consumers from rural areas.
A majority of investors are also willing to bet that the introduction of 3G services can be a game changer for various players in Indian telecom, Venture Intelligence said in a survey of fund managers from over 50 PE & VC firms.
"In recent months, intense and rising competition levels, declining average revenues per user (ARPUs), high costs of 3G licenses and the impending introduction of mobile number portability (MNP), have placed significant challenges before the industry," said Arun Natarajan, chief executive, Venture Intelligence.
"At the same time, as the report reveals, investors feel the introduction of 3G and the increased emphasis by mobile operators on locally-relevant applications to enhance their ARPUs, will present investors with several interesting opportunities," he added.
While the appetite for investments in mobile operators is still high, PE & VC investors who have invested over $5 billion in telecom services and related companies over the past five years, are also actively scanning for 'downstream' opportunities including mobile value-added services (VAS), telecom software and investments in other service providers to telecom companies, the report said.
In a special article for the report, an expert from KPMG points out the various opportunities and challenges ahead for PE investments across various segments within the telecom sector. While the industry will continue to provide attractive returns that PE investors seek, the landscape is likely to remain dynamic and somewhat uncertain over the foreseeable future from the market, regulatory and industry perspective, KPMG feels.
Experts from Deloitte insist in their article that 3G has great potential to alter the dynamics of the Indian telecom market. Besides the expected adoption in the metros, the poor infrastructure on the fixed line side means that an increasing number of consumers are going to rely on their mobile phones for data-driven services, leading to a massive uptake as and when the infrastructure becomes available.
Mobile Value-Added Services (VAS) companies, who have so far been struggling in the shadows of the largely voice-focused mobile operators, are looking forward keenly to the advent of 3G which promises an opportunity to enhance their revenues through new types of services. TC Meenakshisundaram of IDG Ventures India, after analysing the emerging scenario, predicts that VAS will get its rightful priority in the operators' focus to maintain or increase their ARPU and profitability.
Cable TV bills across the country, except for some select areas from Mumbai, Delhi and Kolkata and entire Chennai, are set to go up from January next year. Telecom and broadcasting regulator, Telecom Regulatory Authority of India (TRAI), has asked all broadcasters, aggregators (the authorised distributors of broadcasters), direct-to-home (DTH) operators, multi-system operators (MSOs), local cable operators (LCOs) and consumer advocacy groups to submit tariff related data by 30 November 2009.
The regulator would use the data while revising the cable TV tariff, which was last fixed in October 2007. According to media reports, cable TV tariffs are set to be revised upwards, especially to offset inflation and rates would be applicable from as early as January 2010. This revised tariff would be applicable in all non-conditional access system (CAS) areas across the country.
Earlier, in August, the Supreme Court, while accepting TRAI's plea for more time to work out a fresh tariff regime for cable services in non-CAS areas, allowed the regulator time till 31st December to complete the exercise.
At present, the monthly bill for cable TV in non-CAS areas is between Rs77 to Rs260 which is likely to go upwards by about 15% to 30%. This move may prove to be beneficial for digital broadcasters and DTH operators, as there would be a reduced difference in the monthly charges between LCOs and DTH players.
In its upcoming consultation process, TRAI may also seek to retain the current structure where the tariff caps are fixed as per status of the city, which depends on its population and paying power. At present, all cities across the country are categorized into A-1, A, B-1, B-2 and ‘others’.
"We expect this to be a positive move for the broadcasters and digitalisation players because this significant increase in cable bills will lead the consumers to shift from analogue channel to digital platform. Due to above shifting the broadcasting subscription revenue will improve as currently there is a gross under-reporting of subscriber base by the cable service providers leading to loss of revenues for broadcasters," said Rohit Maheshwari, research analyst, KR Choksey Shares and Securities Pvt Ltd, in a report.
In mid-November, the Union government had approved the much-awaited Headend in the Sky (HITS) policy which would enable a digital delivery platform for cable operators and with increased competition, it may also result in reduction in subscription rates.
Speaking about the HITS policy, Jawahar Goel, additional vice chairman, Essel group, had said that the policy will help in achieving the government's target of digitising the country by 2012. "The HITS policy is another (source of) competition for DTH operators but good for the country as under-declaration by LCOs will be take care of, but there should have been a tariff order in the policy,” he said.
The government has been thinking about digitisation of the entire cable TV services network and may not even approve new licences for cable operation for analogue services after the next five years.
"Beyond the five-year period, no new licence for cable operation will be given for analogue services. This could be done through an amendment to the Cable Act," Sushma Singh, the then secretary at the ministry of information and broadcasting, had said in February 2009.
These measures are required to get rid of problems like under-declaration of subscribers and the practice of carriage fee being charged by cable operators, Ms Singh had said.
The broadcasting industry in India is plagued by two most significant issues, taxation and a non-level playing field. DTH operators which are adding about a million subscribers every month feel if the government can rationalise the taxes, currently at around 50%, then they might be able to double their monthly subscriber figures.
For example, in Uttar Pradesh, there is an entertainment tax of 30%; if you add other taxes, then it goes up to 70%. No industry can survive with a model with 70% tax, said an industry expert.
Then there is the question of a non-level playing field. While the entire cable industry is under-declared with possible declaration levels at 10%-15%, DTH operators on the other hand cannot under-declare their subscriber base.
According to industry sources, DTH contributes almost 50% of the broadcaster's subscriptions when its size is just 15% of the total market.
Following the tariff revision, your monthly subscription bill is going to be almost same irrespective of whether you receive it through digital mode (DTH or HITS) or analogue mode (MSOs, LCOs). But since digital mode provides good quality picture and sound compared to analogue cable, for common TV subscribers, it would be better to shift to DTH or HITS.
Following tough competition from China and South Korea as well as lack of incentives, many Indian textile exporters are unwinding their positions from traditional markets like the US and the EU. These exporters are now focussing on markets like Japan, the Latin American countries, New Zealand and Australia.
“The US market is a comfortable zone and a better bet for all of us as it offers good quality and quantity potential for textile exporters. However, due to incentives withdrawn by the Indian government, our battle with countries like China and Korea has become even tougher,” said a senior official from Nahar Spinning Mills Ltd.
According to the Apparel Export Promotion Council (AEPC), during the first half of the current financial year (April to September 2009), Indian garment exports tumbled 7.3% compared to last year. In October, the country's apparel exports were hit severely and declined by 17.6% to $603 million over the year-ago period.
Indian apparel exports to the US, the world's largest market, declined by 6.5% to $2.27 billion during January to September this year compared to $3.1 billion in the same period a year ago. However, during the same period, China's exports to the US increased by 2% to $17.20 billion while Bangladesh's exports rose 2.4% to $2.70 billion.
"The government must introduce fiscal relief measures to save garment exports out of India," said AEPC chairman Rakesh Vaid, adding that there are fears of the industry suffering collateral damage. "Stimulus packages and other steps announced so far have had negligible impact on the Indian apparel industry. These measures were either release of withheld benefits or the restoring of benefits withdrawn earlier."
With weak US markets and despite marginally better recovery signs from EU countries, the Indian textile industry is not expecting higher margins, said an official from the Synthetic and Rayon Textiles Export Promotion Council (SRTEPC).
Accordingly, the trend is likely to continue for another two to three years with a 2% drop in exports to these nations, the official from Nahar Spinning added.
Textile exporters from India are not against the idea of exporting textiles to the newer markets like Japan, Latin American countries, New Zealand and Australia but would have preferred to enjoy their earlier privileges which the government has withdrawn, he said.
The government has provided better pricing for the newer markets and with less competition, the textile exports to these markets will increase, the official added.
“We have just started (exports) and have not rigorously entered these markets as we are to still studying and understanding them,” the Nahar Spinning official said, adding that it would take at least another six months to a year to do well in these markets.