PepsiCo India asks a few employees to move to IBM
Beverage company PepsiCo has asked its employees from its Indian unit to move to IBM Global Services, to whom it has outsourced some of its operations, or quit, said informed sources.
 
The sources said PepsiCo has outsourced its IT operations to IBM and wants to shift its employees from the IT, administration and accounts departments to IBM’s office at Chennai from their current base at Gurgaon.
 
However, when contacted, the company denied any such move. Mrinal Kanti Dey, general manager, corporate communications, PepsiCo India, said, “As per my knowledge, no one from the IT department or any other department has been asked to shift to Chennai and no one has shifted from any of the departments.”
 
While outsourcing was a trend more evident among foreign companies, it is slowly catching the fancy of India-based companies too. Companies like Bharti Airtel and Idea Cellular have outsourced some of their operations to other companies in the past.
 
Bharti group had outsourced network management, IT operations and call centre operations for its mobile services to four different global majors. Idea Cellular had outsourced its IT operations to IBM Global Services.
 

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Tariff war leaves mobile operators bleeding

These days every other GSM mobile services provider has been bit by the lower tariff bug. The "pay-per-call" and "pay-per-second" initiative by Tata Teleservices has forced major players like Bharti Airtel and Reliance Communications (RCom) to join the tariff war. The latest to join the war is Idea Cellular, which is offering call rates as low as 40 paisa per minute.

 
While this is great for consumers, but the real question is, can these companies really afford it? And if yes, then at what cost? During the April to June quarter, all GSM mobile service providers have reported a fall of about 8% in average revenues per user (ARPU) while their total revenues increased marginally by 2.4%.
 
Following the launch of its GSM services and new plans, Tata Teleservices is gaining in terms of subscribers. Although, earlier, almost all players termed Tata Tele's tariff plans as a marketing "gimmick", now everyone is feeling the heat. Despite offering a reduced tariff plan, Bharti Airtel, the country's largest telecom services provider, reported a 10% drop in net subscriber addition in September. This is the highest month-on-month decline for Bharti Airtel, after March 2005, when its net subscriber addition fell by 22%.
 
According to Anand Rathi Financial Services Ltd, the decline in net additions may have been a key factor behind the sharp tariff cuts announced by Bharti Airtel in late September under the ‘Airtel Advantage’ scheme.
 
"We estimate RCom’s 50 paisa flat outgoing rate plan to generate 40-45 paise average revenue per minute (ARPM), including SMS, value added services (VAS), benefit of 60 second pulse and customer inertia and expect Bharti would be able to charge a 5%-10% premium given its superior branding, coverage and distribution," the brokerage added.
 
The quality of earnings would continue to deteriorate as the share of high margin 'monthly rental' declines and minutes of usage (MOU) and ARPMs decelerate at a higher rate. "While the industry has witnessed ARPM declines in the past and has been resilient through MOU increase, this time we anticipate lower MOU elasticity, if any, as well as higher churn management expenses and pressure on post-paid revenues,” said Enam Securities Pvt Ltd, in a report.
 
Enam said it believes that lower capacity expansion and creation and industry consolidation are eventual outcomes in the long run.
 
Besides Bharti Airtel, the players that would feel the maximum pressure of the tariff war are RCom, Vodafone Essar and Idea Cellular. All these mobile services providers, except RCom have witnessed about 10% drop in net subscriber additions in September. During the month, Bharti Airtel added 2.5 million subscribers while Vodafone-Essar and Idea were able to add 1.9 million and 1.4 million subscribers, respectively.
 
"Deceleration in Idea's financials would be much higher due to lower incumbency advantage, lower ARPUs and lower EBITDA percentage compared with Bharti," Enam said.

 

The tariff war started by Tata Teleservices will also affect new entrants in the mobile services market. According to a report by Motilal Oswal Securities Ltd, EBITDA break-even timelines for new entrants continue to stretch because of tariff pressures as relative tariff stability is critical for new operators to achieve break-even but pricing innovations targeted at increasing visibility are likely to continue. Competitive pressure and prospects of spectrum sharing/in-circle roaming could make new entrants reduce capacity expansion outlays, the report added.
-Yogesh Sapkale [email protected]

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Investment banking ambitions of two business houses
Anil Dhirubhai Ambani Group (ADAG) promoted Reliance Capital plans to enter into investment banking by the current fiscal end while Religare has announced an ambitious plan to start an emerging-markets investment bank. Do these plans make sense? Will they be able to compete against the well-entrenched franchise of ICICI Securities, SBI Capital Markets, Kotak, JM Financial and foreign entities like Goldman Sachs, Morgan Stanley and Merrill Lynch?
 
Reliance Capital, the non-banking finance arm of ADAG, is set to foray into investment banking by end of March 2010. The company already has presence in asset management, retail broking and insurance businesses. Although entering the i-banking space has been on the agenda for Reliance Capital for a long time, the market downturn during 2008 forced the company to put its plans on the backburner. Now, with the markets enjoying a good run, the company is finally set to enter into the competitive space currently occupied by players like ICICI Securities, SBI Capital Markets, Kotak Investment Banking and so on. With this new venture, Reliance Capital aims to fill in the ‘missing link’ in its business, to become a full-fledged financial services provider. 
 
However, Reliance Capital’s investment banking move raises concerns regarding the potential conflict of interest with ADAG’s current businesses. Being the large, diversified group it is, there might be many customers and suppliers in its various businesses who would be wary of sharing business details and vital information.
Religare’s vision of becoming a global-oriented investment bank is more suspect. Barely a few years into operations, it would be extremely difficult for Religare Capital Markets to step into such a relations-centric business overnight. The key thing in investment banking is generation of leads and closing the deal based on previous relationships with the client. With its focus initially towards emerging markets like Indonesia and Malaysia, Religare Capital hopes to tap the opportunities arising out of potential M&A activity in these countries. For that, however, it will have to put in place an effective system of generating business leads. Secondly, investment deals materialise from having solid, long-term relationships. This is something which has worked in favour of investment banking giants like SBI Capital Markets and ICICI Securities. SBI gets the cream of the customers through its efficient loan appraisal process. This gives them a better quality loan portfolio and better quality borrowers. The background and knowledge of SBI, apart from the comfort level, provides an edge to SBI Capital Markets. Similarly, investment banking behemoth Merrill Lynch’s India operations are driven by the fact that it is run by people with age-old client relationships. Kotak Investment Banking too has the experience of the last 25 years and has developed relationships that make it a seasoned player in this area. Enam Securities’s ability to provide good quality portfolio advice to top level management has given it a unique edge. Global investment banks like Goldman Sachs, Morgan Stanley, Credit Lyonnais derive their strength from robust research and global relationships. All these companies thus have distinct advantages in terms of long term connections, routes and pedigree. Compared to them, Religare Capital Markets is a small fish, with little connections even in India. How it would manage to attract clients globally on a sustained basis is an even bigger issue. It would be a long while before Reliance and Reliance make their mark. -Debashis Basu with Sanket Dhanorker [email protected]

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