In your interest.
Online Personal Finance Magazine
No beating about the bush.
Under severe pressure arising from the tariff war, many mobile operators are trying to push more and more value-added services (VASs) by using their so-called 'power' gained from a huge subscriber base
Recently, I found out many mobile operators are sending a communication to their subscribers for using value added services (VASs), like short message service (SMS), multi-media message service (MMS), mobile instant messaging (MIM) ringtones, caller tunes, music, games and last but not least, general packet radio service or GPRS.
The 'pay-per-call' and 'pay-per-second' initiative by Tata Teleservices has forced almost all players, including Bharti Airtel, Vodafone Essar, Reliance Communications (RCom) and Idea Cellular, to join the tariff war. The aggressive launch and lower tariff plans from new entrants are not only snatching customers but are also hurting the top and bottom line of incumbent mobile service providers (MSPs). On one hand the MSPs are losing out on the call services front with decline in average revenues per user (ARPU) and minutes of usage (MOU), on the other hand, there is a big scope to earn good money through VAS.
According to the global research firm Gartner the Indian telecom sector will maintain its growth trajectory and is expected to generate revenues of more than $30 billion by 2013. Voice tariffs will continue to fall in the future as new operators make their way into the industry and increase competition. Although the major proportion of revenue for telecom players stems from voice services, data services will witness fast growth in the future, Gartner said.
Another research firm, RNCOS, said it expects Indian MSP's revenues from mobile VAS to reach over Rs16,500 crore in 2010 from Rs1,675 crore in 2009, driven by the launch of 3G services and mobile number portability (MNP).
This is one of the reasons why almost all incumbent MSPs are trying very hard to push more and more VASs. But in that process, a number of complaints are emerging against MSPs and the method used by them for pushing VASs. Accordingly, many users feel, their MSP is using their subscriber base as a power to abuse an average user. For example, Bharti Airtel, the country's largest telecom operator has been trying hard to 'push' more and more VASs and in the process is depleting money, without the consent and knowledge of the subscriber.
Here is one complaint from one of our readers, who says that he had kept his Airtel pre-paid connection only for use in emergencies and hardly uses it. However from time to time he is being subscribed automatically to a number of VASs and the service gets deactivated only when he complains.
Another reader said, he had been having a long interaction with Airtel on behalf of his father who is 76 years old. Over the past eight weeks, he (the father) has been 'subscribed to' a number of VASs (matrimonial, bikinirichalert, cricket score, etc) which Airtel claims is based on a 'request from the subscriber'. SMS-driven and much publicised STOP and START services of Airtel are not easy to use or reliable. The most troublesome part is that even if the system tells you that you are not subscribed to any service, you will still lose money from VASs. Either the company does not have a good handle on such systems or has deliberately designed them to make it complex for users, to increase revenue, the reader added.
Moneylife came across many such complaints against Airtel and decided to take up the matter with the concerned officials. Although, they still have not replied to my e-mail, I got a call from someone claiming to be from customer services and here is what he said, "We are looking into the matter. Meanwhile we have reverted the amount deducted from your account.”
When I asked, why someone like Airtel (the largest MSP in India) is pushing hard these kind of VASs?, I got a reply that Airtel has given the access to their subscriber numbers to VAS providers like Mauj, who in turn are sending such messages, but Airtel is “seriously” looking into the matter.
For addressing the concerns of the mobile industry while protecting the interests of consumers with regard to explicit consent and for preventing accidental subscription to VAS, the Telecom Regulatory Authority of India (TRAI) issued a direction in April. According to it, the MSP has to provide the subscribers an option to use a procedure of double confirmation instead of the single one. For example, if a subscriber wants to copy a hello tune, then he should press * (star) and '9', instead of just *, as is the practice.
TRAI has also made it mandatory for all MSPs to intimate the subscriber, at least three days before the due date of renewal of a subscribed VAS, the due date for renewal, the charges for renewal and the toll-free telephone number for un-subscribing of such VASs. I have yet to come across a single mobile user who has received such communication from his/her MSP.
Another question is, when a subscriber had registered his/her mobile number in the National Do Not Call (NDNC) registry, how can the MSP send any commercial communication, prohibited by the registry, to even their own subscribers? Again, how can the MSP share the subscriber number with their VAS vendors? This not only puts a question mark over the power of authorities but also highlights the plight of end-users. Is there any solution for this mess?
-Yogesh Sapkale [email protected]
While distressed assets and delinquent accounts continue to erode banks’ profitability, very few favour offloading bad loans to asset reconstruction companies (ARCs)
Banks have been dealing with non-performing loan (NPL) recovery for quite some time now. Tough economic conditions brought upon by the financial meltdown contributed to rising NPL numbers of banks. The gross NPLs in the Indian banking system have increased about 22% from $12 billion in FY08 to $14 billion in FY09. However, instead of giving way to opportunities for NPL sales, the impact of recession on pricing has only made it more difficult to strike good deals with ARCs.
Banks are not selling bad loans to ARCs in good measure. The economic downturn marked a significant change in the way banks dealt with bad loans. Banks alleged that ARCs were asking for unrealistic discounts on substandard assets. They would rather attempt at recovering the money themselves than sell such loans to ARCs at hugely discounted prices. A senior official at a leading foreign bank explains, “The reason why this is happening is because there is a wide wedge between valuation that banks place on their assets and what ARCs are willing to pay. Typically the ARC would look at the liquidation value of the asset. The bank, on the other hand, would place it as a going concern as it has seen the company’s operations. Also ARCs are keener in buying assets where the security is more tangible, like property or fixed assets, as against working capital. Banks’ valuation of fixed assets is much higher.” A PricewaterhouseCoopers report ‘NPL Asia’ confirms, “A relatively weak market environment after the economic downturn, reduced investor risk appetite, and issues relating to valuations were some of the key factors that affected the activity level.”
Some ARCs were asking discounts as steep as 70%-80% on some sour commercial loans at the height of the recessionary phase. This was not a viable option for the banks as they had a feeling that recovery was still possible eventually. Says the bank official, “In case of distressed assets merely two-three years old, banks would not be willing to accept such discounts. But if nothing works out for five years, obviously 10%-20% salvage of value isn’t a bad deal. But the same discount offered earlier wouldn’t make sense.”
ARCs on their part claim that banks have unreasonable value expectations, on the basis of prices realised from isolated cases of recovery. This claim is also somewhat justified, given that ARCs also need to make profits, which are highly uncertain in this kind of business. The bank contact said, “Unlike a manufacturing business, the business of loan recovery involves high degree of uncertainty in terms of profit margins. Their model of business would not allow such small margins; hence they have to ask for higher margins.”
Also, when banks offload their bad loans to an ARC, it usually issues them security receipts (SRs) rather than paying cash upfront. Banks only make money through these SRs as and when the ARC recovers these stressed assets. Banks instead prefer to restructure loans and salvage value from distressed assets themselves or liquefy through the auction route and get cash upfront. CARE Research reports that India’s 12 leading banks have restructured loans worth around Rs32,530 crore in Q1FY2010 alone, to help them contain their NPA levels. This was in response to an RBI guideline, permitting accounts which were restructured prior to 30 June 2009 to be treated as standard accounts. However, a part of these restructured assets are expected to slip going forward. The PWC report states that NPL activity typically picks up in the second half of the financial year (ending March 2010) and many banks, including Bank of India, Bank of Baroda, UCO Bank, Dena Bank, Central Bank of India, State Bank of Hyderabad, State Bank of Bikaner and Jaipur and State Bank of India, have indicated their intentions to undertake portfolio auctions (largely corporate) in the next few months.
With banks frowning upon ARCs and restructuring assets on their own accord, ARCs like ARCIL will be under pressure to generate business. According to reports, ARCIL has acquired retail loans worth $330 million to date. However, bulk of these loans comprise of bilateral acquisitions from ICICI Bank, which has always had its own motives behind pushing bad loans to ARCIL.
Banks should also realise that in some cases, ARCs are much better at extracting the last pound of flesh, as they are more empowered to negotiate with borrowers and have better recovery processes in place. For banks, recovery of NPLs is a protracted process and they have to be wary of taking a hit to their image while initiating recovery proceedings.
–Sanket Dhanorkar [email protected]