A war between doctors and third-party administrators (TPAs) who facilitate medical...
As voice players become weaker, will Reliance move in for a kill as it did with the much smaller polyester business more than a decade ago?
As Reliance Industries re-enters the telecom business through a side door, it is worthwhile to ponder that this would be the first time RIL would be entering a business as one of the last competitors, especially where established global and local giants already rule. Remember that Reliance simply has no competition in petrochemicals and in exploration. In oil-refining, no major capacities except that of Essar have come up after Reliance decided to enter the sector.
The story is different in telecom. Global telecom giants like Vodafone, NTT and Sistema are in India. Bharti, the Indian market leader, is a global player now with footprints in Bangladesh and Africa. There are deep-pocketed mavericks as well like Shivasankaran (Aircel) and Videocon. Of course, Reliance has not entered voice telephony-not as yet-and there are very few serious players in the broadband business. But if you mix the possible RIL success in broadband, some regulatory changes and oodles if free cash flow-suddenly you have a business that is a threat to the existing giants in more ways than one.
As Macquarie said in a research note, "In a repeat of 2003, we are seeing the birth of four new players in the Indian telecom space. While one could dismiss their entry citing competition only for wireless data, this clearly thwarts the future growth option for incumbents from wireless data during the next five years." And what if wireless data is as big and a more profitable business than voice? With their resources spent on expanding into voice and grabbing 3G licences, the existing mobile players will look like weak lumbering giants.
The timing could not have been worse for existing operators. With more than 50% citizens covered (which essentially is 100% of the market-eliminating many women, the elderly and the bone poor), there are fewer chances of significant growth in subscriber volumes. Instead, operators will have to focus more on higher usage per subscriber. After acquiring 3G licences, mobile operators were looking for an opportunity to create products and tariff plans with data-based services as the base product instead of voice-based services, thus unlocking new revenue segments. (read more http://www.moneylife.in/article/8/5639.html ). "We believe that the revenue contribution of new subscribers and incremental revenue from existing subscribers has a greater importance than subscriber growth.
With the operators adopting minute factory model and the secular fall in average revenues per user (ARPUs) and revenues per minute (RPMs), we believe minutes of usage (MoUs) will be the key metric to watch," said Kisan Ratilal Choksey Shares and Securities Pvt Ltd, in a research report.
But with the kind of money and technology that Reliance is bringing in, the operators may not have a chance to push up their MoUs-certainly not enough to cover their high costs of 3G licences. As it is, nobody makes any money in the cellphone business now except Bharti. As voice players become weak, would Reliance be lying in wait to launch a process of "consolidation?" If it does so, it would be a much bigger repeat of what happened in the polyester fibre business-RIL bought the loss-making fibre businesses of Raymond, ICI, RP Goenka and Deccan Polyester one by one at throwaway prices after they had bled to near-death.
Of course, the path of RIL and the voice players will cross right now itself, in a minor way. RIL Infotel already has an Internet Service Provider (ISP) licence, so it can sell both data and Voice over Internet Protocol (VoIP), although it would need to acquire a UASL licence if it wants to offer circuit-switched voice.
Currently, ISPs are not subjected to any revenue-share licence fee. However, on 19th May, telecom regulator TRAI has recommended bringing all ISPs under a uniform licence fee regime, suggesting licence fees of 4%, 5% and 6% of revenue in FY11, FY12 and FY13, respectively. Nevertheless, this should not be any hindrance for big players such as RIL. More importantly, this foray into broadband services has given RIL a virtual free hand compared with incumbent players in mobile and wireless data services. Who knows, tomorrow we may get a data-based tariff plan which may offer unlimited or free talk time.
While RIL does not have any legacy network or technology to burden itself with, all other 2G operators will have to continue 2G services. Operators who have won 3G spectrum may think they have an advantage over broadband, but the technology which RIL is planning to use for its broadband services, is already 4G-ready, leaving incumbent operators in a 'helpless' situation.
Globally, technology has started its progression towards 4G networks. At present, 4G technologies include LTE, ultra mobile broadband (UMB) and WiMAX. For WiMAX, operators have to build a new network whereas LTE only needs an upgrade in existing mobile infrastructure which is already used by over 80% of mobile subscribers globally. This is one of the reasons that many carriers intend to support LTE-which RIL is adopting. Interestingly, according to an RCom spokesperson: "RCom prefers LTE standard, offering a single evolution path for both CDMA and GSM networks."
RCom, of course, is controlled by Anil Ambani, until the other day a fierce rival of Mukesh Ambani on the natural gas issue. Now the junior Ambani is making extremely friendly overtures such as this. Welcoming the entry of RIL into broadband services, a spokesperson of Reliance ADA group said, "We welcome the entry of Reliance Industries into the high-potential wireless broadband space.
As leading telecom infrastructure and content service providers, we look forward to offering our services to RIL and other BWA players, even while we compete for customers in the marketplace through our choice of different technologies." If recent reports about the Ambani brothers spending 'quality time' together in Africa are any indication, we may soon see more than "co-operation" between RIL and ADA group companies-possibly a takeover by RIL of RCom?
In 2003, there were four new entrants in the cell-phone market, the most notable of which was RIL, which began the remarkable telecom foray in 2003 of what is now called RCom. Eight years later there are again four, led by RIL moving into broadband. It is going to be the start of another big wave of changes, the contours of which we can only imagine now.
Last week, Bharti Airtel said that it had bought Zain’s African assets for $10.7 billion, the largest ever cross-border deal in emerging markets. But has it really? A Tanzanian newspaper thinks otherwise and strangely, Bharti is keeping mum
On 8th June, Indian operator Bharti Airtel Ltd announced with great fanfare that it has completed the acquisition of Zain Group's mobile operations in 15 countries across Africa for an enterprise valuation of $10.7 billion. Sunil Bharti Mittal, chairman and managing director, Bharti announced with great elan, “We are delighted at the closure of this transformational deal for India and Bharti. We would like to express our deep gratitude and thank the governments of all the 15 countries as well as the government of India for their overwhelming support to this landmark event. This will further strengthen the historic Indo-Africa economic and social ties and provide a big boost to South-South cooperation.”
Mr Mittal also thanked the Zain team for their professionalism, which enabled them to close this transaction in a record time.
The question is has the deal been truly consummated?
On 14th June, The Citizen, a Tanzanian newspaper, reported that the takeover of Zain Tanzania by Bharti Airtel has not been concluded as there were certain issues that still needed to be sorted out. According to The Citizen, the Zain-Bharti Airtel deal could not be finalised as the deal does not involve the government, which has a 40% stake in the Zain business. The paper quoted two Cabinet ministers saying this. One was Peter Msolla, minister of communications, science and technology, who said, “The two companies could not claim to have completed the multi-billion dollar deal, when its (government) talks with Zain had not been concluded. He further said, “A big mistake has been made. We are shareholders and our involvement is a must. As far as I am concerned, we are not done yet. They cannot say they have sealed a deal when we are still on it.”
The newspaper also quoted Mustafa Mkulo, finance minister, who said negotiations were still going on between Zain and the government, but he would not reveal the pending issues. He elaborated, “This matter has not been finalised. We are still in touch with them (Zain) and have not concluded any issues. Let’s just leave it for now. I’m still in touch with the company.”
So, how did Bharti announce the conclusion of the deal? When contacted by Moneylife, Bharti refused to clarify. When we pointed out the article in The Citizen that says that the deal was not done, a Bharti spokesperson based in New Delhi replied by an email: “We have no comments beyond our press release dated 8 June 2010.” He also insisted on not being identified.
The Citizen tried to contact the managing director of Zain Tanzania, Khaleed Muhtadi, for comments on the government’s position but failed. The newspaper estimated that from the $10.7-billion transaction, Zain is expected to earn as much as $3 billion, which will be shared among its shareholders. Besides being consulted as a shareholder in the business in Tanzania, the government would under normal circumstances also have been entitled to a dividend like the other shareholders. The paper quoted some unnamed analysts as saying that this would still have been a raw deal since the government’s privilege of right of first refusal (ROFR) before the other shares of Zain Tanzania were sold had been disregarded. Generally, ROFR is the right of a person or company or business partner to purchase something before the offering is made available to others as the Zain Group did to its shares in Zain Tanzania.
“How can it be over, when a task force in Kenya, which was formed to look into the deal in that country, hasn’t finished its work?,” an industry insider in Dar-es-Salaam, reported The Citizen, when informed about the Bharti announcement. “From what has happened, it is clear the Zain-government partnership in Tanzania disfavours us. Can you imagine the government as a shareholder who has even no right to be consulted when the business is sold and who is not accorded the right of first refusal before the shares are sold?” reported the paper. The Citizen also reported a comment from an industry player, who sought anonymity, that the government should have used the ROFR to acquire Zain Tanzania or become a majority shareholder and use the lucrative business to boost Tanzania Telecommunications Company Ltd. He said it was wrong to deny the government the ROFR privilege. The Citizen also reported the comment of a chairman of a mobile phone operator, who spoke on condition of anonymity, that although the government had not approved the deal, Bharti’s announcement meant it could do so soon or had conditionally approved the transaction.
It remains to be seen whether the local opposition to the deal will blow up into something big or whether the dealmakers will be able to buy peace with the politicians.