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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The reality in realty

Vested interests in the real estate market are falsely spiking property prices. Developers and broking firms are creating a false bubble by exaggerating the improved market sentiment

The convergence of vested interests of a few developers, media houses and broking firms is creating an exaggerated bullish atmosphere in the real estate market. While realty prices have indeed moved up, builders themselves are shocked at the extent of rise claimed by the media.

“Some newspapers have been reporting that our rates for the‘Global City’ residential project at Virar have gone up from Rs 1900 per sq ft to Rs 2700 per sq ft but actually our rates have only risen from Rs 1900 per sq ft to Rs 2100 per sq ft because the building is in the process of completion,” said Boman R Irani, chairman and managing director, Rustomjee Builders. 

He also added, “There is no steep spike in the rates especially by credible developers who have got a brand name and brand image to protect.”

Our sources say that property prices have only increased in South Mumbai by 10% - 25%; elsewhere in Mumbai the prices have just started moving up. According to bankers, prices of residential properties across the country are still down by 15%- 25% from their 2008 peak.
 
M D Mallya, chairman, Bank of Baroda said, “There is a brisk sale of flats in the Rs22 lakh-Rs25 lakh range.”

KV Kamath, Chairman, ICICI Bank, said, “People have curtailed the size of home loans and the 20%-30% drop in price has certainly made 800 sq ft-1000 sq ft apartments more popular. That seems to be the new mantra.” He also added, “People are not buying today on the basis of future income.”

Since the past four months, real estate developers have been raising funds through Qualified Institutional Placements (QIPs) and through Initial Public Offerings (IPOs) or follow-on issues so that they can complete old projects which were stuck since November 2008.

Companies like Unitech Ltd, Indiabulls Real Estate Ltd, Housing Development and Infrastructure Ltd, Sobha Developers Ltd and Orbit Corp Ltd have raised funds through the QIP route. Developers such as Emaar MGF Land Ltd, Nitesh Estates, Lodha Developers Ltd and Sahara Prime City are planning to raise a total sum of around Rs9,800 crore through IPOs—Sahara Prime City has filed its draft prospectus for Rs3,450 crore, Emaar MGF Land Ltd for Rs3,850 crore (down from the Rs6,400 crore it planned to collect last year). Ambience Ltd, a Gurgaon-based developer has filed a draft prospectus with BSE to raise approximately Rs1,125 crore. 

Brokerage firms and investment bankers want to create a scenario which depicts a booming market. Angel Broking in a recent real estate analyst report said that some of the developers have increased their prices by 30%. Industry sources say this is exaggerated.

“Speculative buying is not taking place but a pent up buying (demand) is coming back to the market,” said Pranay Vakil, Chairman Knight Frank (India), a property consultancy firm.

He also explained, “Since the past eight months people had resisted from buying, thinking that prices may go down further. But now they have realised that there will be no fall in prices or interest rates, so we are seeing a demand in the market. The demand is one year old.”

Renu Sud Karnad, joint managing director, HDFC Ltd, said, “There is a lot of demand from first-time house buyers. There is a good demand for house prices in the range of Rs30 lakh-Rs50 lakh in metros and about Rs20 lakh to Rs25 lakh in smaller towns.”

She also added, “In India the housing shortage is huge. Therefore in the long run it is important for the developers to focus on affordable housing and see that the property prices do not rise sharply resulting in customers being priced out of the market.”

Many developers believe that fake hype about prices will hurt buyer sentiments. In the long run if the prices keep rising, a lot of customers will be priced out of the market.
–Pallabika Ganguly [email protected]

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New rules spur redevelopment projects for cessed buildings

Developers like Neptune and Rustomjee plan more redevelopment projects in Mumbai

The Maharashtra government’s efforts to give a boost to redevelopment in Mumbai by increasing the floor space index (FSI) up to 4, has started showing results. While developers like Rustomjee and Neptune plan more redevelopment projects, developers like the Marathon Group do not deny the possibility of venturing into one.
 
Ashok Chavan, chief minister, Maharashtra, had announced an increase in the FSI for redevelopment projects in February 2009. Cessed buildings, which are those built before 1960, will be allowed an FSI of 4 under cluster development of more than one acre plots.
 
“We are already into some of the largest redevelopment projects in Mumbai. We are also working on two more redevelopment projects in the city, but it is in the initial stages,” said Boman Irani, chairman and managing director, Rustomjee Group. Mr Irani refused to divulge any further details on the new projects.
 
Similarly, Neptune Group, a Mumbai-based developer, also plans redevelopment projects. Neptune has earlier worked on redevelopment projects for plot areas like that of factories and industries. Given the increased FSI for cluster development of cessed buildings, the group is keen on this arena. “We will plan redevelopment projects in Mumbai after six months,” said Nayan Bheda, chairman and managing director, Neptune Group.
 
Developers like the Marathon Group too are open to this new option. “Marathon Group is open to look at the possibility of such constructions but there are no immediate plans. However, our core business will remain redevelopment of open plots of land, be it industrial or textile mills closing down or shifting out of Mumbai,” said Chetan Shah, vice chairman, Marathon Realty Pvt. Ltd.
 
Most developers are looking at the FSI increase as a welcome change. Mr Shah further explains how the FSI increase will in turn help redevelopment and benefit developers. “The scheme for reconstruction of dilapidated buildings provides for existing area being reconstructed and to cover the cost of such construction, an incentive construction area for sale in the form of 50% of such reconstruction area is given to the owner/developer/society. The total area thus becomes very high for smaller plots of land and when this total construction area is divided by the available land area it becomes higher than the maximum FSI (earlier 2.5 or 3) permitted on the plot. In such a scenario, these plots become undevelopable, which is the case with most of the buildings in the city’s congested areas where already four-storied buildings without much open land area exist. So, increase of FSI to 4 is a welcome change for such buildings. Such high density will invariably result in newer developments being vertical and high-rise buildings.”
 
“What is good for the people is good for the industry. This additional FSI will only make for the development of infrastructure and that will benefit the residents of the city and will open up a lot more green spaces. By this the developers will get a better opportunity to do a better job and eventually keep a healthy profit line,” added Mr Irani.
 
Old areas like, Bhendi Bazar, Masjid, Kalbadevi and Bhuleshwar in Mumbai where dense development already exists are most likely to benefit by these projects. Given that the availability of open space in the main city of Mumbai is scarce, redevelopment projects would provide developers with more opportunities.
–Amritha Pillay ([email protected])
 

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COMMENTS

Sunita Rao

6 years ago

I would like to know what size flat would I be eligible to get in a building which is of area 16650 sq feet and there are 4 floors including ground floor each of 3970 sq feet .

There are totally 12 flats of 850 sqft each and 8 flats of 550 sqft each.

I occupy one flat of 850 sq ft

BONIFACIO VAZ

8 years ago

We have been displaced by the person claiming to be the owner, but this is a property which is ancesteral.
This particular building is in Marol, Andheri East.
The so called 'owner' who is a adopted child to the legal heirs and he has not yet got the 'conveyance letter' from the mumbai municipality office in Andheri East.

REPLY

adv dilip

In Reply to BONIFACIO VAZ 7 years ago

it is a matter of succession and adoption acts further personel law will also apply. to help u out i m required to know the facts and documents .... u can contact on 9987741375 after 6 pm

Tushar Dhanwani

8 years ago

It is a Query : - My Building is in Sion-KoliWada, GTB Nagar, and its a cess building and come in "C" Category and developed in the year 1952-53, can you please tell me currently how much FSI has increased on "C" Category Buildings as earlier its on 1.33 and Possible FSI is 2 can you please Update Me What is Current FSI and whats Additional FSI on it.

REPLY

dilip

In Reply to Tushar Dhanwani 7 years ago

one more information is required from u that how much the plot area is dealing with fsi includes various facts and dcr points and even location boundry etc it is not simple to explain in few lines u can contact on my no.9987741375

Dr Rajiv

8 years ago

its a quiery: The builder redevopt the building in 2002 and had not develop small area on top floor. The remaing area FSI is 20 sq mtrs. He had formed society and handed over poccession and society was registred and Co-Op society formed. The society agreed and signed documents in 2004 permitting 2 more years to built his fsi area but builder has failed and time period expired. Now he wants to develop the same. So far he has not convienced the property as per his commitement in writing and he is fighting with commitee members. My question is as per law is he still the owner of 20 Sq mtrs FSI after expire of agreement time?. Kindly reply, Anxious and shall be alwys thankful for your kind couretsy. Rajiv.

pushpa borkar

8 years ago

Respected Sir,
I am staying at andheri west .I want to know about if all member are not voting for R.D or not sig.letter of concern than also MGM can take dici of R.D .please certify my query .

with Regards

Jean

9 years ago

my current area is 250 sft carpet with total plot area 607 sq mtrs. under the new scheme from the government, will i be entitled to 300 sft carpet in the redeveloped building. the builder has agreed to give me 250 sft on the ground floor. with the new scheme is he liable to give me 300 sft carpet on ground floor

REPLY

dilip

In Reply to Jean 7 years ago

it depends on nego... and u can get the 300 carpet area...

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