Analysis for Telecom Service Industry (FY 2011-2012)

Indian Telecom Industry started in 1851 when the first operational land lines were laid by the government near Calcutta (seat of British power) and now driven by wireless revolution, the Indian telecom industry is one of the fastest growing in the world contributing to nearly 2% of the Indian GDP and it’s bound to increase considering huge potential of Indian Urban market and untapped rural market. Needless to say, it also has one of the lowest tariffs in the world enabled by the hyper-competition in the market.

However, over last few years, telecom sector has witnessed several setbacks in terms of various scams, cancellation of 2G licenses of many operators, unsuccessful launch of 3G (not so great customer database), uncertain policy etc.  Considering all these significant negatives, industry did not seem (and certainly is not!) in its healthy state.  And thus, it came as a big surprise when the Indian Telecom Industry actually grew by 7% in the last fiscal.

If you see an industry getting defeated, then you are certainly not looking at the Telecom!! Yes, the telecom service industry revenue went up from 1,71,347 Cr. to 1,82,459 Cr. in FY 2011-12 according to telecom journal Voice & Data. Various telecom services counted in the survey include cellular, fixed line, National Long Distance (NLD), International Long Distance (ILD), broadband and VSAT services. 

SOURCE: VOICE & DATA

1)    Cellular:  It grew by almost 17 % and contributed 65 % of the entire industry’s revenue. The total cellular subscriber base was increased by 117 million during last fiscal and three major players are Bharti Airtel, Vodafone and Idea according to the market share.

2)    Fixed, NLD & ILD: Fixed and NLD segment did not see any growth. People are going wireless and fixed line industry has seen dip in their revenue by almost 19%. Similarly, NLD segment has seen a dip of 15% perhaps because of the fact that tariff for local calls and long distance calls are almost identical. Amongst three, ILD segment has witnessed minuscule growth of 0.27 %. Amongst top 5 players in ILD segment, Tata Comm. grew by 20 % and Vodafone grew by 40 %.

3)    Broadband: Despite the popularity of the Internet in India, broadband segment has seen dip of 0.46 %. It should be noted that the Internet penetration in India is one of the lowest in the world and only accounts for 8-10% of the population compared to OECD counties, where avg. penetration rate is over 50%.

P.S. The Organisation for Economic Co-operation and Development (OECD) is an international economic organisation of 34 countries founded in 1961 to stimulate economic progress and world trade.

4) VSAT: The term VSAT is an acronym for Very Small Aperture Terminals. Any requirement for connectivity in remote areas where other technologies cannot provide services or where dedicated and uninterrupted data connectivity is required (like core banking facility and the involvement of financial transaction) then the answer lies with VSAT services. VAST industry in India saw the growth of 6 % in FY 11-12 and credit goes to the growing demand from banking industry.

The Indian telecom service industry is likely to sustain growth in next fiscal considering the rollout of 4G service by all major telecom players and shall emerge as one of the key sectors responsible for India’s economic growth. 

Kaushal Joshi

Class of 2014

THE INTERLOCKED TROIKAS

In the last couple of months of 2011, the government seemed to be working like there was no tomorrow. May be this was to compensate the time lost for legislation due to the controversy surrounding the Lokpal Bill and FDI in multi brand retail. As always there was always something to cheer about after a period of prolonged gloom. Well the cheer was in the form of flurry of encouraging government policies for the ICTE (Information & Communication Technology and Electronics) industry. The draft policy on Electronics (NPE) was unveiled on 3^rd October, 2011 and that on IT (NPIT) was unveiled on 7^th October, 2011. To add to that other policies like the draft NTP 2011 was released on October 10 and the National Manufacturing Policy (NMP) and National Optical Fibre Network (NOFN) were approved by the Union cabinet on 25^th October 2011.

ICT and Electronics industries have been the beacon on which the Indian economy has scripted marvelous success stories. Now it is time these industries synergize more which has the potential to produce spectacular and unprecedented success.

Now considering these three sectors, the challenges faced by Electronics sector (ESDM industry), lesser known of the trio, are something which needs to be taken up as top priority and hence the widespread interest in these policies from the industry.

NPE 2011

NPE 2011 envisions creating a globally competitive Electronics Systems Design and Manufacturing (ESDM) industry to meet the domestic as well as International demands. To accomplish this vision, many policies have been enlisted. The most important objective is to achieve a turnover of Rs 20 lakh crores by 2020 with an investment of Rs 5 lakh crores and thereby creating employment of around 2.8 crore by 2020. Of the total turnover targeted, Rs 2.75 lakh crores is expected from chip design and Rs 4 lakh crores from exports by 2020, an increase of more than 1000% from the current figure. NPE 2011 also aims to develop high-quality electronic products at affordable prices for inclusive adoption and deployment to improve productivity, efficiency and ease of operations in other sectors and also promote global best practices in use and disposal of electronic products. It also aims to provide incentives for setting up of over 200 Electronic Manufacturing Clusters (EMCs) with world class logistics and infrastructure and easy to do business facilities. The consequence of such a policy would be a boost to other sectors like automotive, industrial, medical, and also communications.

NPE 2011 can be a lifeline for the telecom ecosystem. In early 1990s when the wave of liberalization hit our country, the government wanted to develop the software industry as quickly as possible. The fallout, the idea of indigenous manufacturing of equipments took a backseat. These events started off a self defeating cycle where in dependency on imports increased manifold. Today the same government bemoans the lack of manufacturing capabilities in India. So we can see that poor policies for the sake of immediate returns will cost more in the future. Just consider these facts emanating from the industry circles. The demand for telecom equipment is estimated at around Rs 54,000 Crores in 2011 and is expected to increase to around 2.5 lakh crores in 2020, which is the second highest in the import bill after oil. With India being the fastest growing telecom market, the need for telecommunication networks will also increase. Trying to meet this need through imports puts tremendous strain on the exchequer’s coffers and presents substantial security issues. Hence the guidelines laid down in NPE 2011 gives impetus to manufacturing in telecom sector. Another enabling policy is to declare mobile phones specifically and other electronics products for data communication as goods of special importance under the Central Sales Tax Act. The policy aims to significantly scale up human resource creation to 2500 PhDs annually by 2020 in the sector.

NMP 2011 complements the NPE 2011. NMP 2011 also aims to increase the manufacturing share of GDP by 22% in 2022 and create 10 crore additional jobs by 2022.

NPIT 2011

The software/IT industry has been the darling of our economy. It has been a key factor in India emerging as a knowledge based power house. The Indian IT industry as of 2010 is worth Rs 4.5 lakh crores with nearly 80% of revenue coming from exports. The industry employs around 25 lakh skilled people. The current crisis in the developed countries have brought with it challenges as well as opportunities. This means we should start looking within our economy. There are encouraging sign of increasing IT usage due to gaining popularity of ICT industry.

Some of the major objectives include increasing revenues of IT/ITeS to around Rs. 15 lakh crores and expand exports to Rs. 10 lakh crores. Also more focus is laid on service delivery through e-Governance. NPE and NPIT together enable an ecosystem for mobile internet and mobile value added services.

Summary

The triads – IT, Telecommunications & Electronics have been significantly contributing to the growth of the economy. ICT can in fact help to reach out to the masses in the hinterlands enabling them to be hit the wave of development. ICT industry also gives ESDM sector a much needed push due to well known reasons. But to achieve that the government has to build up the brand image of the ESDM sector as it always taken a back seat to accommodate the more glamorous IT sector.

Aakash, an android tablet, is a product developed by IIT Jodhpur in collaboration with Datawind. It costs as low as Rs.2500 (commercial version costs around Rs 6000). This is an example of how innovation within the country can lead to cost effectiveness. The most interesting part is that the tablet was manufactured in India and not in China which was a cheaper option (import of finished goods attracts lower duty than the raw materials). Datawind CEO once said that since it was an Indian design, he wanted the phone to be manufactured in house. The point I want to drive home is the sense of pride and satisfaction in creating something in our own backyard. This can also be a trigger for breathtaking success in the near the future with appropriate enablers.

IT and Telecom have achieved tremendous growth in the past and now with collaboration with ESDM sector can look forward to exponential growth given the opportunities available in our country. For all this to happen the government should continue to play the role as an “enabler” and drive home the point that the policy statements are not mere statements of virtuous intentions but those which will enable the engine of the economy to chug along merrily.

L.KISHAN CHAND

Class of 2013

COMMON TELECOM TERMINOLOGIES

The mobile world moves at a breakneck pace, and it's difficult to keep up without the technical jargons and abbreviations most industry insiders throw around. And they do love to toss those terms around! One has to understand and be familiar with these jargons and abbreviations to know the industry better.

Following are the few examples. 

ARPU : It stands for Average Revenue per User. The term is mostly used in context to understand how much a person is paying for phone bill. The average revenue per user has different components in it. Generally a mobile phone user spends on voice minutes, text messages and data transfer. Carriers also consider users extra spending such as wallpapers and ringtones in this category.

Average Revenue per User (ARPU) Erosion : ARPU erosion is the business condition where monthly average revenue per user continues to go downward for an extended period of time. The statistics show that the user spending has remained same despite the voice rates going down, also an exception to the Law of Demand! One reason for the average revenue per user remaining same is, customers are heavily spending on text messages and data transfer instead of voice minutes.

ARPPU : An acronym for Average Revenue per Paying User which is calculated by dividing up the revenue amongst the users who paid anything at all. This yields a figure that is significantly larger than ARPU.

AMPU : It stands for Average Margin per User. It is related to one of the criteria for measuring the success of a telecom company but less being used. It focuses on the margin produced per sold unit and not the amount of cash (revenue) earned from each customer. Thus, one can afford low volumes and still have a healthy company.

Churn : Churn is a term used to describe the number of subscribers who leave a supplier during a given time period. The churn is typically measured monthly.

Churn is an important figure in subscription based services like mobile telephony and pay TV because it’s an indicator for customer dissatisfaction.

MOU : It is an acronym for Minutes of Use; often used in the telecom industry. It is the total time which is measured in minutes that a customer uses his or her mobile phone during a day, month, or year.

SAC : It’s an acronym for Subscriber Acquisition Cost. It is an average cost of signing up a new customer. SAC is the amount of money a company spends for each new subscriber they gain. It is also most frequently used by mobile telecoms companies. The customer acquisition cost of mobile companies is complicated by the number of costs involved. Example includes mobile telecoms companies which frequently pay incentives to retailers who bring in customers for their networks.

LTV : It stands for Life Time Value and it’s calculated by multiplying Average Revenue per User (ARPU) by the average length of the company’s relationship with a customer. One can figure out the length by dividing 1 by the churn rate for the period.

For example,

If there are 1000 customers and revenue generated is Rs. 25000.

Then, the ARPU is Rs. 25.

Let’s take churn rate 20 % which means the average length of the relationship is 5 months. (5 * 20% is 100% turnover)

Thus, LTV = Rs. 25 * (1 / 0.2)

                 = Rs. 125

CPM : It’s Cost per Mile (CPM), also called Cost per thousand (CPT) (in Latin mile means thousand) and is a commonly used measurement in advertising. CPM as a metric is used in advertising across a number of mediums (TV, Online, Radio, etc). And as advertising moved online it continued the tradition and stuck us with this somewhat cryptic metric.

CPM is commonly used by Internet marketers to price advertisement banners. For example, a Web site that has a CPM rate of Rs. 25 and guarantees advertisers 600,000 impressions will charge Rs. 15,000 (Rs. 25 x 600) for those advertisers' ad banner.

Kaushal Joshi

Class of 2014

BUSINESS DISRUPTION - CONSUMERIZATION OF TECHNOLOGY

Today everything is becoming consumer centric, be it a common FMCG product or the latest technology, it is the consumer who is driving the business of any organization by forcing them to think and innovate. This was not the case till early 1990’s when all the technology and product innovations were driven by business or enterprise since the technology at that stage was not matured. The trend started changing with the emergence of World Wide Web in mid 1990’s when companies like Yahoo and Google developed personalized services of emails and since then most of the innovative technologies are emerging from consumer side only. For example popularity of social networking among consumers made business firms like Facebook, Twitter and Linkedin such a big success. Unlike earlier days the new age consumers are demanding, eager and tech savvy and it is becoming a challenge for many firms to satisfy their needs. These days, new technologies that come-in are adopted, used and even dumped by the consumers even before they can gain acceptance by the business firms.

With this changing trend, enterprises are now increasingly looking at consumerization of technology within their own organization. One of the latest example is of Bring your own device (BYOD) concept which describes the recent trend of employees bringing their personally owned mobile devices to their work place and using those devices to access privileged company resources such as emails, fileservers and databases. As technology continues to advances, these mobile devices like smart-phones, iPhones and tablets with the richest collection of latest apps are becoming everyday commodity for most of the IT professionals and with such practices like BYOD they are able to converge their personal technology with the enterprise IT, what is commonly known as CoIT – Converged IT. It gives the employee an alternative to be self sufficient in meeting their IT needs using their personalized technology and devices. It can also bring the dispersed mobile employees together to build more than just a business; they can help build relationships that can make business a successful one.

This trend towards the adoption of not just personal devices but also personalized technology like cloud at work seems to be inexorable. In fact many firms have realized the power of social media and are providing consumerized services like Google, Facebook and Twitter as the essential components of their market strategies. As per Gartner, “Consumerization of IT” will be the most significant trend affecting IT for the next decade.

Although this consumerization of technology in enterprise or in other words the movement of consumer technology into enterprise brings a lots of scope of bringing more value to the business by revolutionizing the way it is currently done, enterprises are still reluctant to adopt it seeing it as a Business Disruptor and encroachment of consumerization on IT as its adoption will have to be backed by a lot many significant changes and reshaping of the IT as well as business model. One of the primary concerns is the loss of control of IT over the technology being used which leads to security concerns. Few of the major concerns are listed below.

• Loss of Control and track over the way operations will be carried out in an enterprise.
• Ambiguity in the compliance and ownership for data security.
• Data and access retrieval once the employee leave the organization.
• Careful planning and appropriate policies need to be defined ensuring there are no loopholes in the security.
• It will require more efficient and scalable database operations.
• New IT support system needs to be developed for converging the personal devices with non-standard operating system with the enterprise network and database.
• The dynamism in the field of technology. The speed with which the new technology comes in and become obsolete. It can lead to management Chaos.
• The volume of options available in terms of technologies to the consumers.
• It can lead to business risks.

In view of the above concerns regarding consumerization of technology at work place, enterprises feel that it will disrupt their normal business. But these concerns can be allayed if the IT team starts to learn to manage and govern the ever changing technology as today the market is dynamically evolving and the company needs to adapt to such innovative ideas if they want to be successful in such kind of environment.

The security and controlling concern can be remedied by using technologies like Intel’s “Trusted Execution Technology”, Data encryption with easy-to-use key management for virtual and cloud environments, unified security management solutions and other mobile security solutions like Mobile Data Protection (MDP) and Mobile Device Management (MDM). Careful and proper descriptive planning and policy definition outlining the rules of technology engagement is also a must for implementing such kind of change. With these capabilities in place the corporate data can be securely accessed and shared across physical, virtual and cloud environments and embrace consumerization.

For the business risks that consumerized technology might expose an enterprise to, it should be noted and thought upon that the business risks will only become bigger if companies do not capitalize on capable and skilful value creating employees which is developed and enhanced using consumerized technology. It brings and enhances the agility and productivity level of employees. So, there is actually a tradeoff between the two types of business risks and many other implications of using and not using the consumerized technology as well which a company must consider before making a final call regarding implementation of consumerized services like Bring your own device.

Finally it can be concluded that a win-win situation can be achieved for all the stakeholders of a company – the consumers, the technology vendors and the organization itself if it realizes the immense innovation opportunities by integrating popular tech-solutions in their enterprise system and instead of being considered as a business disruptor it can rather be a primary enabler for business growth. 

Ankita Singh

Class of 2014

Indian telecom sector and Energy Struggle

Diesel: Is the savior justified?

The power failure which occurred in North India due to the collapse of the interconnected northern, north eastern and eastern electric grid was one of the biggest blackouts in the Indian history.  The telecom operators like Bharti Airtel however managed to provide the services, thanks to the voluminous diesel consumption.

Due to the unreliable electrical grid supply the service providers currently use diesel generators, batteries, and a variety of power management equipment to cover the demand-supply gap. Today more than 60% of the towers in India depend solely on diesel for power generation .The telecom sector consumes high quantities of diesel to keep its towers working. The disadvantages of using diesel generators would include:

1. They require sophisticated maintenance which can be costly and less than timely;
2. Produces 5.2 million tonnes of CO2 emissions (out of 13 million tonnes overall) annually which is over 2% of the country’s total greenhouse gas emissions.

Considering this many tower companies currently use renewable energy sources such as solar, biogas and wind besides hydroelectric power, for their respective towers. There are off grid telecom model proposed by Renewable Energy Services Company (RESCO) which promise

• Dead simple installation 
• A business model that scales
• Low cost
• Low power usage

Interestingly the tower companies can earn credits (similar to carbon credits) that can be sold at a later time. However there are issues such as having to keep the solar panels clean for efficient usage and the unreliable weather conditions.

Another alternate would be Fuel cells: electrochemical devices that generate direct current and can be connected in parallel as a generator replacement. They can also be hybridized with solar, mains, batteries, and other power supplies. Their promised prospects include:

1. Greater reliability
2. Reduced CAPEX and OPEX
3. Energy conservation and eco-friendliness

I feel that fuel cell-solar hybrid solution may prove ideal for eco-friendly base station operation; the solar energy electrolyzes water to produce hydrogen, which is used by the fuel cells to generate power when the solar cells are down. This would not only reduce the risk faced by the telecom sector from electricity grid but also reduce the diesel consumption, thereby proving to be a beneficial backup.

SHRUTI

CLASS OF 2014

Emerging Technologies in TELECOM

Growth encourages more growth. This has been the typical phenomenon for telecom industry. Recently I came across few of the emerging technologies which I thought to share with all.

Wireless charging is one such technology. It is being said that companies like Samsung and HTC have already started using this feature in their handsets. This wireless charging includes two charging units-the transfer unit and the receiving unit. The transferring unit uses non-radiative magnetic field to get charged and charge the transfer to the receiving unit. However the distance of this kind of power transmission is limited and some amount of energy is even lost during transmission.

Augmented Reality is to enhance the computer generated sensory inputs by sound and graphics. It can add value to the reality by adding details and presenting those details to the end customer. It had a market size of 2 million dollars in 2010 and is expected to reach 2 billion dollars by 2015.It can be particularly very helpful for the medical field and space field.

Dash 7 is an emerging Radio Frequency Identification (RFID) designed for security and asset monitoring applications. DASH7 is an open source wireless sensor networking standard for wireless sensor networking which operates in the 433 MHz unlicensed ISM band. DASH7 provides multi-year battery life, range of up to 2 Km, indoor location with 1 meter accuracy, low latency for connecting with moving things, a very small open source protocol stack, AES 128-bit public key encryption support and data transfer of up to 200 Kbit/second. It can penetrate deep into water and concrete. It is a complement to Near field Communication (NFC) technology.

Location Based Services is another emerging field and is one of the largest enterprise revenue generating applications along with AR and Games. It involves finding the location of the mobile device .The various technologies used for LBS are Cell ID, Enhanced Cell ID, GPS etc. LBS could be used in:

·         Maps and Navigation like maps, routing etc

·         Tracking Services like Vehicle Tracking, Friends and family finder etc

·         Information Services like yellow pages, city guides etc

·         Application like social networking, context advertising etc

Neelima Agrawal

SITM (Class of 2013)

Telco & Cable - VYING for the same pie

No other industry touches as many technology-related business sectors as telecommunications. Telecom is also deeply intertwined with entertainment of all types, including cable TV systems, since cable companies are now aggressively offering local exchange service and high-speed Internet access. The relationship between the telecom and cable sectors has become even more complex as telcos are now selling TV via IP (Internet protocol) services, competing directly against cable.

With the hypercompetitive Indian telecom market the only aim is growth in number of new subscribers, less churn & increase in ARPU. The mandatory digitization of the Cable TV sector has opened avenues for the establishment of an ‘All Digital Ecosystem’ and has led us to the era of ‘Convergence’.

Technological convergence will affect not only technological developments and solutions but it will move beyond its technological nature towards markets, industries and corporations. It will shift and/or remove barriers between markets and industries. This will result in an increasing trend of mergers and acquisitions among corporations within the telecom & media related industries.

Several major factors are creating changes in the telecommunications sector today, including:

1.   A shift in business and commercial telephones to VOIP (Voice over Internet Protocol) services, that is, telephone via the Internet.

2.    A shift in residential and personal telephone use from wired services to wireless.

3.    Intense competition between cable and wired services providers.

4.    Steady increases in Internet usage for communications of all types.

5.    The continuing evolution of advanced wireless technologies.

Through the convergence of telecommunications, media & entertainment and IT, the way in which consumers experience (home) entertainment will change from 'push' to 'pull' or from 'availability based' to 'on demand'. People will be able to access the content (digital text, audio, video,) where and whenever they want it. Smart, (in-home) applications will propose relevant content in real-time to users based on their activities and preferences.

Telecom Industry in India

The  Indian  mobile  industry  has  been  successful  in providing affordable telecom services, thereby empowering the common man and has also driven wider economic  growth  across  the  country  and  contributed  to government finances.

India has the world's second-largest mobile phone users with over 929.37 million as of May 2012. It has the world's fourth-largest Internet users with over 121 million as of December 2011.

India has come to be regarded as the world's most competitive and one of the fastest growing telecom markets.

Cable TV Industry in India

Indian TV Distribution industry, world’s second largest with 105 million cable & satellite (C&S) homes, is set for a makeover as the long-awaited ‘digitization’ becomes a reality. As of 2009, there are 22 million digital homes with 18 million of these on the DTH platform.

Cable players are now equipped to utilize and operate set-top-boxes (STBs) and would look to lock-in customers, given the threat from DTH.

The total digital homes tally is set to rise by 4x to 86 million by 2015E, and address the biggest concern of ‘under-reporting’ in its wake. In the backdrop, the expectation is of a 6.5x increase in the organized pie to Rs.340 billion even on a modest 14.5% CAGR in industry revenues to Rs.480 billion by 2015.

India’s digital C&S base is set to expand to 86m by 2015E with 48 million DTH (18 million as of 2009) and 38 million digital cable (4 million) homes. Digitization is no longer a ‘choice’ for cable operators and assumes a sense of urgency in the face of increasing threat from DTH

Also Indian C&S market paralysed by rampant under-declaration and poor yields. While cable industry did not deliver on digitization expectations in the past three years, DTH garnered 18 million subscribers (subs) as of 2009.

SHRIKKANTH GOPALAN

CLASS OF 2013

THE TAX CONUNDRUM

Is Vodafone’s victory a setback for the Indian government?

Ø What happened?

In February 2007, Vodafone acquired 67% stake in Hutchison Essar Ltd (HEL) for around INR 575 billion (1$ = INR 50). The Income Tax (IT) department issued a show cause notice in September 2007 for trying to avoid tax payment to which Vodafone filled a petition in Bombay High Court in October the same year. In the course of next two years the battle just got more intense and on September 8, 2010 the Bombay High Court ruled in favor of the IT department and subsequently Vodafone was asked to pay to IT department INR 11,297 Crores. Not willing to throw in the towel, on September 14, 2010 the British Telecom giant went to the Supreme Court, the apex body of India’s judicial system. In the mean time the High Court’s order was implemented where in INR 2500 crores had to be deposited to the IT department and INR 8500 crores in bank guarantee by the telecom operator.

Finally on January 20, 2012, the curtains came down on the four year old case where in the apex court ruled in favor of Vodafone and asked the IT department to return the INR 2500 crores deposited with two months along with an interest payment of 4%. The Chief Justice also asked the Supreme Court to return the INR 8500 crores in bank guarantee with four weeks.

Ø  The Acquisition aspect.

Brief

Hutchison Telecom International Limited (HTIL) is leading provider of telecommunications services worldwide. It is based out of HongKong. HTIL offers services in other countries also (Indonesia, Vietnam, SriLanka, Thailand, Israel).

Now any large enterprise would typically consists of subsidiary corporations. The purpose is to have a better view of the enterprise both for the management as well as for the lenders.

Actual Deal

Vodafone International Holding BV acquired 100% share in CGP holdings limited based in Cayman from Hutchison Telecommunications International Holdings Limited, a BVI company. The Cayman Islands based company owned more than 50% in HEL.

Ø  Tax laws in India.

Brief

The Indian Income Tax Department in governed by the Central Board of Direct Taxes (CBDT). CBDT is one of the arms of Department of Revenue under the Ministry of Finance, Government of India.

Sections

Whenever there is a transfer of capital assets, it results in capital gains. A capital asset is defined under Section 2(14) of IT act 1961. Capital asset is a property of any kind, including assets that are movable or immovable, tangible or intangible, fixed or circulating, but excluding trading stock held for the purpose of realizing a financial or economic return.

Section 195 of IT act’s objective is to avoid a loss of revenue to exchequer as a result of tax liability in the hands of a foreign resident. So deduct tax from the source itself instead of chasing the foreign nationals.

Section 163 (1) (c) states that the income whether received in India or outside India, that income is liable to be taxable in India provided that it is attributable to operations carried out in India.

Section 9 (1) states that all income accruing to a non-resident from a business connection in India shall be deemed to have arisen in India and therefore subject to tax in India.

Ø  Supreme Court reasoning

The Supreme Court has noted that the transaction between HTIL and Vodafone International holdings was an offshore transaction between two non-resident entities and therefore does not come under the jurisdiction of the tax authorities in India.

The Revenue Department initially filed the case against Vodafone with respect section 195 of the IT act. But section 195 of IT act clearly says that tax is payable only when a payment is made from a resident to another non-resident entities. As stated above the transaction is between two non-resident entities and thus section 195 does not apply for this transaction.

Section 9 (1) of IT act does not state about that indirect transfer of capital assets. This is exactly what has happened in this offshore transaction and thus this section could not be applicable for tax deduction. Section 163 (1) also could not be invoke as the court categorically stated that there is no transfer of capital assets situated in India. The apex court has reiterated the fact that it is just transfer of shares and not capital assets and such transactions can’t be taxed under existing tax laws. The court also held that the offshore transaction was a structured foreign direct investment (FDI).

The court also took cognizance of the fact that the Direct Taxes Code (DTC) bill proposes the taxation of offshore share transactions, even from indirect transfer of a capital asset situated in India. The above proposal is stated in Section 5 (1) (d) which says “the income shall be deemed to accrue in India, if it accrues, whether directly or indirectly, through or from the transfer of a capital asset situated in India.” There are further provisions about the gains arising out of transfer of capital assets in the DTC.

The Supreme Court also came out with pretty strong worded statements like “Capital punishment meted out for capital investments”. So clearly the court was clear in its reading of the laws as it is.

Ø  Implications.

The Supreme Court has again showcased that the judicial systems in India are still alive and kicking. The verdict came in as a shock/surprise to a majority of the people. This proves that there is fairness in the judicial system of our country.

Well the government has some serious thinking to do in terms of the revenue outflow. The government, already reeling under tremendous pressure from the fiscal side, will certainly feel the heat. This verdict has also driven home the point about bringing in transparency in the tax laws of our country.

But not all has gone bad. This verdict will boost the foreign investor’s confidence level sky high and encourage investment (I mean FDI and not FII). The loss of revenue for the government now may be insignificant when compared to the long term gains arising due to increased investment inflow into the country. As the 2008 subprime crisis has show, FII and portfolio investments can be trusted at our own peril. FDI inflows will have a more stabilizing effect on our economy. With the dark and gloomy clouds of recession still hovering over the developed economies, the time is just ripe for India to take the big leap.

Well GOI is keen on bringing those offshore deals similar to the Vodafone one into the tax net. GOI has also made it clear that the amendment to the tax laws was just a question of time. why would the government like to forego indirect transfers worth around Rs. 35000 crores. Only time will tell the foreign investors sentiment on this issue.

L.KISHAN CHAND
Class of 2013

NASSCOM LEADERSHIP FORUM

The NASSCOM leadership forum was held in Mumbai from February 14^th to 16^th. The forum had around 25 country representations, with 1,600 delegates in attendance in over 45 sessions.

The event had four major themes.

a)    Hyper specialization and need for specialized talent.

b)    Global Uncertainties.

c)    Leadership in uncertain times.

d)    Emerging opportunities.

Key Highlights

1. Tapping the US health market.

• Law being passed in the US to comply with WHO – to migrate to ICD-10 from ICD-9.
• Opportunities similar to the “Y2K” era.

2. Cloud Support.

3. Global sourcing.

4. India’s dream UID project.

5. This summit was used by international agencies as platform to attract India investment. 

• The targets were not only the top IT companies but also the mid size companies of the range $40 million – $750 million.

6. Surprise Visitor.

• Automobile maker Ford showcased its open source app development platform OpenXC at the forum. Ford plans to provide IT-solutions such as voice controls in entry level and mid-segment cars.

7. Next $100 billion coming from the Small and medium IT firms.

8. Nasscom is working with the Ministry of IT to bring out a framework for government IT contracts; there were 15 large and 75 small companies and Nasscom is trying to create a market space for the small companies.

9. Demands

• Removal of MAT.
• Change – the requirement of developing 25 acres of land even in small towns.

OTHER SPEAKERS

• Abishek Bachhan – Cross generational leadership.
• Shekhar Kapoor – Rise of Blogistan.
• Richard Hadlee – Technology & innovation, on & off the pitch.
• Pranav Mistry – Invisible Computing.

VIEWPOINT

The stand out point to be considered in the forum was that the growth pattern will have to change. What has brought the IT industry so far may not be the blueprint for the path ahead.

Top industry echelons at the forum said the way forward will have to be led by the tier-2 and tier-3 companies. With the global scenario still unclear, newer pastures have to be discovered.

Indeed, we Indians should be proud of the IT/ITeS industry with revenues expected to touch $100 billion this fiscal, making India as a Knowledge power house. The exports accounted for nearly $69 billion and the domestic market accounted for $32 billion in the current fiscal. But the point to be noted is that the SMEs in IT sector contribute only $2 billion which is very meager compared to $100 billion. Out of the total export share around 80% is contributed by the top 200 IT companies while the rest is contributed by around 2200 SMEs. This is what the forum addressed.

The International conference IndiaSoft, the flagship event of the Electronics and Computer Software Export Promotion Council (ESC), which will be held in Hyderabad between March 21 and 23, 2012 can be used as platform by the SMEs to showcase their capabilities and win orders. The best part is that the focus is on the emerging countries as part of the IndiaSoft conference.

The government ( read Home Minister) has at the forum requested the IT companies to look inwards and explore how IT can solve the bottlenecks related to government services provided to the poor. Aadhar, is one such example.

There is the rhetoric that one should help rural India so that it can also reap the benefits of liberalization and globalization. Well it is a known fact that many MNCs like Unilever, P&G, Haier, Telecom MNCs are doing extremely well in India because of the huge population base in rural India. I doubt these MNCs had the idea of rebuilding India. The point is that the rural market must be seen as a profitable market. The rural markets fill up the space left behind by the current urban market. So our own companies (read IT companies) should also look at rural India not in terms of poverty and indebtedness but as profitable segments. IT can be a real game changer if properly channeled in our country.

L.KISHAN CHAND
Class of 2013

Yearly Review of Telecommunication Industry

Telecommunication Industry in the year gone by (2011)

1. MNP – This facility enabled the mobile users to retain their numbers while changing from one mobile network operator to another. For now only intra circle MNP is allowed at porting fees of Rs.19. It was initially implemented in Haryana circle on 25 Nov, 2010 and was than rolled out for Pan India on 20 Jan, 2011. Total MNP requests stood at 231.66 lakh subscriber till the end of October, 2011. Idea leads the porting in requests whereas Reliance CDMA faced the largest number of porting out requests till 31 Oct, 2011.

2. NTP – In a move toward consolidating the telecom industry in India, TRAI recommended a draft of the National telecom policy, 2011 to the Dot. It was revealed in Oct, 2011 and Government plans to implement it by Jun, 2012. Draft covers current area of concerns faced by telecommunication industry related to Roaming charges, Spectrum usage, Convergence, Broadband, exit policy, mergers & acquisitions etc. Draft also showed that Indian telecom industry has matured enough to move into a next level.

3. Rise and fall of 3G network - First six months of 2011 saw the launch of 3G services in India by private operators. State owned MTNL and BSNL had already launched 3G in selected cities by 2009. But it was in starting of 2011 which saw a rise in use of 3G services. But as per speculation, sale of the 3G services didn’t grew much due to many concerns like high prices, poor network, roaming issues etc among the customer. Till date operators are still fighting against roaming policies set by DoT for 3G. DoT has debarred them from forming a coalition among them for providing roaming services in India. The collective $14.6 billion investment in licence by the operators just managed to get a subscriber base of around 17 million by Oct, 2011.

4. Growth of Smartphones – Smartphone market saw a tremendous growth in Indian. As against 2.5 million units in 2010, sale of Smartphones is set to touch 8.5 million units till the end of 2011. Samsung finally overtook the Finnish giant Nokia in Indian Smartphones market in end of December. The proportion of Smartphones as a percentage of total mobile handset shipment also increased up to 6%. 

5. Death of the iLeader – 5 Oct, 2011 witnessed death of legendary techno leader Steve Jobs, the master mind behind Apple’s iphone, iPad, iPod, iMac, iTunes, He died at the age of 56. He had co-founded Apple computers in 1976 along with his friend Steve Wozniak. Steve Jobs had earlier announced on 24 Aug, 2011 to step down as Apple’s CEO. Apple is currently the largest company in terms of market capitalization. 

6. BWA auctioning in India – In 2011 finally India’s auctioning for broadband wireless access (BWA) took place. On 11 Jun, 2011 this auctioning saw government cloaking a total of Rs 38,000 Crore. Only Reliance Infotel won the bid for Pan India licence, giving away Rs 12,850 Crore to the government. They are set to launch Long Term Evolution (LTE) based high speed 4G wireless broadband services in India in second half of 2012. Whereas other companies like Aircel won bid for 8 circles, Bharti Airtel and Qualcomm won for 4 circles, Tikona for 5 circles and Augere for 1 circle.

7. Near Field Communication technology (NFC) – It has become one the most talked about application in current scenario. It is a set of standards for mobiles and similar devices to establish a radio communication with each other by touching them together or bringing them to proximity. Though 2011 saw a start in trend of NFC based Smartphones in India, it is forecasted that NFC technology would have risen to 96.9 million units worldwide in 2011.  NFC technology will also help in rolling up the mobile banking sector in India.

8. National Optical Fibre Network (NOFN) project – Department of telecommunication approved the NOFN project. Telecom commission cleared the 20,000 Crore project on 22 Jul, 2011 with a vision to connect all the panchayats of the country by optical network in the next 3 years. It will help in increasing the broadband penetration in India which was at a very low figure of 12.98 million by the end of October 2011. This project will be funded by the USO fund. This fund currently has a balance of around Rs.16,000 Crore, with Rs.6000 Crore getting added every year from the operators in India.

9. The cable Television networks (regulation) amendment bill,2011 – This bill was passed by both Rajya Sabha and Lok Sabha in December, 2011.The bill has mandated that all cable companies should  convert their analog system to digital in four metros by 31 Mar 2012. Big cities with a population greater than one million should be digitalized by 31 Mar 2013 and the whole country by 31 Dec 2014. In addition to 500 million cable TV viewers who will experience better audio and video quality, this bill is also going to benefit other stakeholders like MSOs, Broadcasters and Govt. Customers will also be able to pick and pay for the channels they choose to watch. Services like Video on demand and rise in number of channels will improve the cable network.   

10. 2G scam – The 2G scam was the most talked about topic in the telecommunication industry in 2011. The scandal which is still under scanner involved many big politicians, Bureaucrats, Corporate Executives, Corporations and media people. High profile people like A. Raja- former cabinet telecom minister, M.K. Kanimozi – former Rajya Sabha member,  Siddharth Behura – former telecom secretary, Sanjay Chandra –MD Unitech, Shahid Balwa  - promoter Swann telecom were accused of wrongdoing. They were charged for illegally undercharging mobile telephone companies for frequency allocation licenses. A CAG report calculates the loss due to this scam to be around Rs.1,70,000 crore.

Telecommunication Industry in the year ahead (2012)

The year gone by (2011) has been an eventful year for the Indian economy. India has witnessed high inflation and slowing growth leading to a situation called as ‘stagflation’.

Well the same can be said about the telecom sector. The industry has been grappling with slow growth in terms less number of subscribers being added every month and high interest rates on the money borrowed for the 3G auctions. This has forced the operators to hike the fares. This in a way has signaled that the honeymoon for the Indian public at large is coming to an end and also represents the transition the telecom sector is going through.

Considering what has happened in 2011, we would like to give a snapshot of what is in store in 2012 and where telecom in India is heading.

1. Launch of 4G services - In 2011, 3G, although an anticlimax (as per the figures), made an impact on the people of our country and the policy makers. The forthcoming year may have something very stimulating i.e. faster broad band technology. Players like Reliance Industries (RIL), Airtel, and Tikona are pushing to launch 4G services in India. Tikona is gearing up to launch 4G with TD-LTE.

The point to be noted is that 4G will be launched at the same time as the rest of the world. Now since huge investments have been made in other technologies like 3G, Edge etc it would be interesting to see whether 4G will go along with other technologies or not.

2. Ecosystem - The smart phones are dominating world handset market today. So the launch of 4G services would require handsets to support the services. Getting the handsets in time will be a humongous task. The users will also have to adjust to the new services. After having seen a poor response for 3G, uptake of 4G services is bound to poor/limited to urban areas.Those operators with 3G spectrum can always go back to the earlier technologies like 2G, 2.5G. Those with BWA spectrum don’t enjoy such luxury. So rolling out 4G services would indeed be a challenge which the operators will have to face.

3. Mergers & Acquisitions - The players have been clamoring for a liberal M&A guidelines for the consolidation of the industry, which would definitely bring some sanity for the top players. With the Telecom Commission accepting the norms by TRAI, we should expect reasonable amount of M&A activities to kick start. SAR Group, makers of Wynncom brand of mobile phones, took controlling stake in the Indian arm of U.K.-based Fly Mobiles. The story is same as that of the operators. With intense competition (1.5 crores units per month) and many serious small time players, that makes it perfect for consolidation in the handset market too.

4. Mbps vs. MoU - ARPU has nosedived to less than Rs.100. For long the operators earned their lion’s share from voice and miniscule share from data. With voice revenue falling, data has to be the next cash cow for the operators. Since the launch of 3G services didn’t make the intended impact, it will be interesting to see how the operators will use 4G to make an impact on the data services front. Mbps will be battling out with MoU (minutes of usage) side by side.

5. Ambanis rendezvous - With RIL evincing interest in utilizing the infrastructure of RCom for the 4G services offered, the Ambani brothers can look to dominate the telecom market with RCom in 2G and 3G and RIL into 4G.

6. Roaming - The draft NTP2011 proposes to remove roaming charges. This was greeted with displeasure as roaming charges constitute 8% to 10% of the total revenue. TRAI has been engaged in talks with its foreign counterparts to lower the international roaming charges. Given that India now attracts more tourists, lower roaming charges will benefit the foreigners and TRAI would expect a quid pro quo for the Indian operators. It will be interesting to see how money counter will be affected as a result of the above policy.

7. Information Technology in Telecom - The Telecom sector, despite all its travails, is expected to lead the way in terms of potential growth. IT spending in India is projected to total $79.8 billion in 2012, a 9% increase over 2011. The telecom market is the largest IT segment in India with IT spending forecast expected touch around $55 billion in 2012. Even though IT analysts see a flat growth in 2012 for IT sector, Telecom market offers an opportunity to make hay in 2012. IT is the primary driver of business growth and the telecom ecosystem would want to use IT more now than ever before to enhance its business performance.

8. Cloud Connect - Like 3G, cloud was also a household term in 2011. Any discussion about telecom would not be complete without reference to cloud services. It is expected that the 4G services deployment will utilize the cloud for offering various services. It is also expected to bring in agility for Indian enterprises especially the SMEs. “India get your business online” an initiative by Google, aims to achieve agility and cost reduction for the enterprises.

9. Digital Cable - The Cable Television Networks (Regulation) Amendment Bill 2011 was passed on December 13th, 2011. Albeit such a move was expected long time ago still it brought out the smiles. The bill has some provisions though which has evoked mixed reactions from the industry. Digital translates to more channels, more advertisements leading to incremental revenue for the stakeholders involved. As a whole this bill is bound to bring in high quality video content (VOD) directly to the homes of the people thereby enriching their viewing experience. Cable can now look at cloud to offer new services and to cater to newer devices. However issues related to cost and revenue model will take centre stage in the upcoming year.

10. Migration to IPv6 - The business view toward IPv6 is very simple: Connectivity for future IP customers. With the government deciding March 2012 as the deadline for all government offices to be IPv6 compatible, it is going to a tough task to accomplish the same. Operators can use the IPv6 platform for differentiation in this hyper competitive market. The major concern, even though deadlines have been set, is the timing of release and its effect on the industry as whole. Location based services may take a hit as all LBS services are based on IPv4 databases.

Telecom sector, once the sunrise sector of our country, is going through tough times. Expectations in 2012 aren’t too great but opportunities do exist. The operators will have to reinvent the operating model in order to make the data services click. Consolidation in the industry is for sure to change the dynamics of the telecom industry in near future. Let’s, with bated breath, wait and watch.

L.KISHAN CHAND

&

VISHAL

(Class of 2013)