Companies & Sectors
Indian telecom sector in a coma

Telecom players are in a situation where neither can they shut operations easily nor they can survive due to uncertain regulatory environment. This is more like the famous dialogue of Ajit from a Bollywood film, “Dump this man in liquid oxygen. The liquid won’t let him survive, the oxygen won’t let him die”

The Indian telecom industry continues to face difficult times, courtesy changing policies and intense competition. On Monday, the Empowered Group of Ministers (EGoM) finalised its recommendations to impose a one-time fee on incumbent operators on spectrum in excess of 4.4MHz. With this step, the Indian government has moved one step closer on clarifying most of the issues related with spectrum pricing. However, brokerages are not too hopeful on any improvement in the telecom segment.
Terming the Indian telecom as “miserable landscape”, Nomura Equity Research, said it is very difficult to assess how the upcoming spectrum auctions would pan out in November. It said operators like MTS may consider bidding in just few circles similar to Uninor and also be open to merger and acquisition (M&A) sooner than later.
The EGoM decided to impose a one-time fee on incumbents for spectrum held in excess of 4.4MHz.The cut-off is lower than the earlier-anticipated 6.2Mhz. While the charge is largely on expected lines, the proposal of prospective implementation will limit payouts. The Cabinet is likely to approve this charge on 16th October.
“While this development is negative for the sector, it is a step ahead in terms of providing clarity on impending regulatory issues. This will lead to higher spectrum related payouts for the operators and note that the impact from the one-time fees is still likely to be much lower than the impact from license renewal related costs. Amidst a slowing growth environment, we remain cautious given the lack of tariff discipline, which remains the key to earnings recovery,” said Religare Capital Markets in a research note.
The declaration of spectrum auction, reserve price and clarity on excess spectrum is providing better visibility on major regulatory issues in the telecom sector. However, few major issues like spectrum refarming in 800/900MHz band and 3G roaming arrangements still remain unanswered. In addition, the resolution of each regulatory issue is leading to higher funding requirements for telecom operators at a time when their balance sheets are already stretched.
“We maintain a negative outlook on telecom stocks due to their stretched balance sheets, high regulatory costs and inability of operators to increase tariffs,” says BRICS Securities, in a research report.
Nomura also thinks that telecom operators are in a “tight spot” and even after the auction in November, the players may remain under pressure. “On M&A specifically, the landscape or permutations could become clearer after the auctions we think—elimination is as likely as consolidation. Also it is not a given that the market will become more rational post consolidation; in fact, competition could rise even as buyers also seek a return on acquisition investment too,” it added.


IRDA bancassurance draft guidelines go against FM’s diktat

Last week, the finance minister came out in complete support to have banks set up broking arms to sell products from multiple insurance companies to put the onus on the banks to have properly trained personnel that can possibly reduce mis-selling. Will it really happen


The Insurance Regulatory and Development Authority (IRDA) revised exposure draft on bancassurance has done away with the confusing zonal tie-up, but has left door open for banks to remain as corporate agent or to go with broking route. It will bring cheer to bank-sponsored insurance companies as the zonal tie-up was intended to benefit insurance companies lacking bancassurance alliance. Industry feedback on the earlier exposure draft may have led to the newly proposed guidelines. Bank-backed insurance companies may have influenced IRDA to go back to the status quo.

The revised draft also gives banks option to avoid finance minister P Chidambaram’s diktat on broking license to sell products of multiple insurance companies. Bank-backed insurance companies like ICICI Pru Life, SBI Life, HDFC Life, IDBI Federal, Star Union Dai-ichi, Kotak Life and IndiaFirst will benefit as banks like SBI, HDFC, ICICI, IDBI, Bank of Baroda, etc, can continue the existing tie-ups across the country. It will leave less scope for insurance companies like Bharti AXA Life and General, Aegon Religare, Aviva, etc, to find banking partners for their selling products.

According to GV Nageswara Rao, MD & CEO, IDBI Federal Life, “The new draft guidelines give choices to the bank on how it would like to structure its bancassurance distribution and it is a welcome move. The earlier draft made it mandatory for a bank to tie-up with a minimum of two insurance companies, which has been dispensed with in the new draft. A bank can choose to work with only one insurer on pan-India basis, which is positive and in the interest of customers.”

Amitabh Chaudhry, MD & CEO, HDFC Life said, “Instead of mandating zonal restrictions, the new exposure draft gives the bank a choice of becoming a broker or staying as a corporate agent. As a broker, the bank has no limit on the number of tie-ups whereas as a corporate agent it can decide to stick to one insurer or choose to tie up with multiple insurers. Broadly, a bank would need to make a choice of investing in one strong symbiotic relationship or fragmented relationships across multiple insurers. What the regulator has done is provide different options to banks to choose based on their risk profile and their long-term strategy for fee-based income. This option didn't exist earlier and now it does. So, it is good for banks. How banks will exercise this option is difficult to answer at a generic level.”

The new change in the revised draft is as follows—“A bancassurance agent desirous of a tie up with more than one class of insurer shall be allowed to do so under these regulations to a maximum of 20 states/Union Territories and a minimum of 10 states/Union Territories.” The guidelines has retained the following—“One bancassurance agent should not tie up with more than one life, one non-life, one standalone health insurance company and one each specialised insurance company in any of the state or Union Territories.”

It means that banks can go with same life, non-life, standalone and specialised insurance company across the country. In case they want to open up with another insurance company from one sector, they have to do it in minimum 10 regions (states/Union Territories/major cities) and maximum 20 regions. The country is divided into 40 regions. In short, one bank can tie-up with one to four insurance companies from same sector. It gives the bank complete freedom to make decisions and hence nothing major will change than what is present today.

Mr Rao adds: “Whether a bank which has promoted an insurance company would tie up with more insurers is a choice for the bank to make, although normally you would not expect the bank to work with other insurers. The exception can be when the insurer is not present in certain geographies or in certain product segments. A broker license allows a bank to choose the best set of products from all insurers to offer to its customers. However, it is also more complex to operate and it would require sophistication on part of the bank to handle on its own training as well as operational processes.”

Mr Chaudhry says, “The key question to consider for any bank is will an additional tie-up increase the insurance penetration and bring in additional new business or will it merely mean splitting of the existing business between two insurers at additional costs of managing the relationships? Banks will have to weigh the option of providing the choice to the customer with the benefits of having their own promoted insurance company getting full access to their network.”

It will have to be seen if the FM’s talk about banks setting up broking arms gets anywhere. The Reserve Bank of India (RBI) is not in favour of allowing banks to set up broking arms as their performance will affect the balance sheet of the bank itself, which will not be in the interest of the depositors. Moneylife is of the opinion that making banks accountable has not been successful till now and going for an open architecture can further complicate the matter.

Standalone insurance companies are Max Bupa, Apollo Munich, Star Health and Religare. Specialized insurance companies are ECGC (Export Credit Guarantee Corporation), ESIC (Employees’ State Insurance Corporation) and AIC (Agriculture Insurance Company).


Australia clears terminal for GVK's $10 billion Alpha Coal project


GVK received approval for the second stage of its Alpha Coal project subject to 60 strict conditions to protect matters of environmental significance, including the Great Barrier Reef World Heritage Area and the marine area in Australia
Melbourne/Hyderabad: Australian government on Wednesday approved with strict conditions a coal terminal at a port by India's GVK group that forms part of the $10 billion Alpha Coal project in central Queensland, reports PTI.
With this, all the three components of the project - mining, rail and port - have received clearance.
The approval was given but subject to strict conditions, Environment Minister Tony Burke said in an official statement.
He said the approval for the second stage of the Alpha Coal project had been granted subject to 60 strict conditions to protect matters of national environmental significance, including the Great Barrier Reef World Heritage Area and the marine area.
Last year, GVK had acquired 79% stake in Alpha Coal and Alpha West projects, and a 100% stake in the Kevin's Corner project in Queensland from Hancock Prospecting Pty Ltd.
The project includes Alpha Coal Mine and a railway line between the mine and the port at Abbot Point, near Bowen.
GVK Vice-Chairman G V Sanjay Reddy said in a statement the company is the only coal developer in Australia to possess environmental approvals at a state and federal level that integrate the mine, rail and port.
"Importantly, we believe the overall assessment process has resulted in best practice environmental protection outcomes which we support whole-heartedly," Reddy said.
A GVK spokesperson said that now the financial closure of the project will be put on fast-track.
Meanwhile, Bruke said, "This decision follows a rigorous assessment process including the opportunity for public comment." 
He added, "The conditions I have set manage impacts on listed threatened species, as well as impacts on the Great Barrier Reef World Heritage Area and the marine area.
"These conditions will assist us in maintaining our commitment to sustainable development and ensure the outstanding universal values of the Great Barrier Reef are protected." 
The proponent will need to develop a seagrass offset package consistent with the country's approach to environmental protection, he said.
"Under this seagrass offsets scheme the proponent must work with the Queensland Government to identify opportunities to protect and conserve seagrass, the vital asset that protects threatened species including dolphins, marine turtles and dugongs," Burke said.


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