INDUSTRY ANALYSIS AND VALUATION - Telecommunication - INDIA

Assignment of :
Akanksha Mittal- PGDIE-38,NITIE
                   and
Ashish Anand- PGDIM-15, NITIE  

Class of 2008-2010

 

 Industry Classification

Life cycle position

The Telecom Industry in India is in its growth stage. Telecom is one area in India where significant improvements have happened. Now the private operators also are providing services which is giving rise to more choice.
The Telecom sector in India is experiencing a stage of Mature Growth. The growth in sales is still above normal. Due to rapid growth of sales and profit margins, new players are getting attracted to the Industry giving rise to more and more competitors.This is leading to an increase in the level of supply and lower prices. Profit Margins will start declining over time.
The new players in the industry are:
Datacomm
S Tel Ltd
Unitech Wireless Ltd
ByCell Telecommunications
Swan Telecom Pvt. Ltd
Alcatel Lucent
ATC Tower Company of India Pvt. Ltd.
Aster infrastructure Pvt. Limited
Nokia Siemens Networks

Business cycle

Telecom is one area in India where significant improvements have happened. Even in the current scenario, where most of the industries are suffering due to global economic recession, telecom is one sector which is still going strong.
In February 2009, total subscriber addition was 13.25 million. Though this was marginally lower than 15.35 million additions in January.
The total subscriber base in the country now stands at 375 million, nearly 50% more than that a year ago.
  (Source: www.trai.gov.in)

External Factors

–Government & Social

Telecommunications in India were introduced in 1851 when the British Raj first laid telegraph lines near Calcutta. Later, in 1881, the telephone was invented by Graham Bell and British firms introduced what was then known as POTS (Plain Old Telephone Services) into the colony. By the time India achieved independence in 1947, the country had 321 telephone exchanges in urban areas with a tele-density of just about 0.25 phones per 1000 people. Telecommunication has been a state subject since independence, especially till the mid 80s, when the government controlled all the aspects of the sector through the ministry of Posts and Telegraphs as a natural monopoly. Telephones continued to be looked upon more as a luxury than as an essential means of communication that could benefit business and administration. The result was a concentration of telephones around urban and metropolitan centres. Policy makers however, shifted their stand on telephones being a luxury rather than an essential infrastructural tool for efficient business and economic growth in the seventh 5 year plan (1985 to 1990). Thus began the real development of telecommunications in the country. After a long and extended debate over the ineffective development of the telecommunication in the country, the Public Accounts Committee of the Lok Sabha recommended a complete overhaul of telecommunications and a long sought after reorganisation was undertaken in 1986 to split the public, postal and telecom operations into separate departments.

The growth of telecommunications in the real sense began with the late prime minister, Rajiv Gandhi initiating the liberalisation of the sector firstly by demonopolizing telecom equipment manufacturing in 1985. This allowed private firms to manufacture telephones, while the Department of Telecommunications (DOT) licensed switching technology from various foreign firms. A simultaneous thrust was provided to the national development of telecommunications equipment by hiring non-resident Indian engineer, Satyen
(Sam) Pitroda to start the Centre for Development of Telematics with the goal of designing an indigenous digital telecommunication switch, whose manufacture would be licensed to local firms.

When actual reforms were initiated in 1994, there were three incumbents in the fixed service sector, namely DoT (Department of Telecom), MTNL and VSNL. Of these, DoT operated in all parts of the country except for Delhi and Mumbai while MTNL operated in Delhi and Mumbai, and VSNL provided international telephony.An essential part of the entire game of privatisation is the setting up of tariffs in order to be beneficial for all the players. This task has been entrusted by the government to the newly formed body for the purpose, The Telecom Regulatory Authority of India (TRAI). TRAI issued its first directive regarding tariff-setting following National Telecom Policy of 1994 aimed at re-balancing tariffs and to usher in an era of competitive service provision. 

As the NTP 1994 did not fulfil many of the important areas, so TRAI introduced a reformed policy in 1999, called the New Telecom Policy or NTP 1999. 

Telecommunication is one of the fastest growing segments in the country with the tele-density (number of telephones per every hundred people) reaching 14.40% at the end of July 2006, compared to 8.6% in Dec 2004. This was primarily because of the liberalisation of the sector by Government of India, which made telecom services readily accessible and affordable. This phenomenal growth in Indian telecom has drawn the attention of the world. 

–Technology

The latest technology in telecom is 3G. 3G is the third generation of tele standards and technology for mobile networking, superseding 2.5G. It is based on the International Telecommunication Union (ITU) family of standards under the IMT-2000.[1]

3G networks enable network operators to offer users a wider range of more advanced services while achieving greater network capacity through improved spectral efficiency. Services include wide-area wireless voice telephony, video calls, and broadband wireless data, all in a mobile environment. Additional features also include HSPA data transmission capabilities able to deliver speeds up to 14.4 Mbit/s on the downlink and 5.8 Mbit/s on the uplink.

Unlike IEEE 802.11 networks, which are commonly called Wi-Fi or WLAN networks, 3G networks are wide-area cellular telephone networks that evolved to incorporate high-speed Internet access and video telephony. IEEE 802.11 networks are short range, high-bandwidth networks primarily developed for data.

Service providers provide different services on networks. BlackBerry is the latest one.BlackBerry services bring together smart phones  and software services to provide customers with easy wireless access to email, phone, web and multimedia applications. At present, four telecom operators - Reliance Communications, Airtel, Vodafone and Tata Teleservices - are providing BlackBerry services. 

Introduction of new technology in Telecommunications Services Sector is always welcome by the customers since telecommunication has become the dire need of the hour. Hence new technology causes customer expansion and high profit margins.

-Demographics

The following demographic statistics are from the CIA World Factbook

Total Population

1,147.996 million (July 2008 est. CIA)

Rural Population

72.2%, male: 381,668,992, female: 360,948,755
Age structure:
0–14 years: 30.8%, male: 188,208,196, female: 171,356,024
15–64 years: 64.3%, male: 386,432,921, female: 364,215,759
65+ years: 4.9%, male: 27,258,259, female: 30,031,289 (2007 est.)
 The median age of Indians is 25.1 years.

The majority of the Indian population is in the age group of 15-64 years. Mostly users of mobile phones belong to this category of age. Hence, Indian holds a great potential market for telecom service providers. Even yuong generation of India is attracted more and more towards cell phones and this has become a trend and need of even small children in India. This assures a high growth in this industry in future.
Most of the service providers have covered majority of the urban population of India. But many far fledged villages of India still need to be connected through mobile phones. The untapped rural population of India is a huge proportion of the 72.2% total rural population of India. Also, the demand for telecom service in rural people is increasing day by day. This further ensures growth in the industry. 

Demand Analysis

- Real and Nominal Growth & Supply/Demand Analysis

Indian telecom continues to register a significant growth in the current fiscal year. This has been due to the impact of economic reforms and pro-active policies of the government. Today, Indian telecom network with about 364 million connections in October 2008 is the third largest in the world .Indian telecom has achieved another milestone as it has become the second largest wireless network in the world by surpassing USA. With the current pace, where about nine million telephones are being added every month, the target of 500 million connections by 2010 is well within our reach.

The total number of telephones has increased from 76.53 million on March 31, 2004 to 363.95 million on October 31 2008. While 94.63 million telephones were added during the twelve months of 2007-08, about more than nine million subscribers are being added every month during the current fiscal year. Tele- density has also increased from 12.7 per cent in March 2006 to 31.50 per cent in October 2008. Rural teledensity increased to 13.4 per cent in October 2008 with 109.05 million rural telephone connections. Urban teledensity on the other hand has been 74.61 per cent in October 2008.

The growth of wireless services has been phenomenal, with wireless subscribers growing at a compound annual growth rate (CAGR) of 87.7 per cent per annum since 2003. The share of private sector in total telephone connections is now 77.44 per cent as per the latest statistics available for October 2008 as against a meager 5% in 1999.

Rural telephones have gone up from 12.3 million in March 2004 to 109.05 million in October 2008 with a teledensity of 13.04%. The target of 100 million rural telephones by 2010 has been achieved well in advance.

It is also envisaged that internet and broad-band subscribers will increase to 40 million and 20 million, respectively, by 2010. As per the latest available statistics for September 2008, about 5.7% villages have broadband coverage and the number of rural broadband connections is 1.55 lakh.

Foreign direct investment (FDI) is one of the important sources to meet the huge funds that are required for rapid network expansion. The FDI policy provides an investor-friendly environment for the growth of the telecom sector. The policy of the Government of India is to strive to maximize the developmental impact and spin-offs of FDI. At present, 74% to 100% FDI is permitted for various telecom services. The total FDI equity inflows in telecom sector have been 1261 million USD during 2007-08.
The government is now looking forward to achieve the target of 600 million telephone subscribers by the end of Eleventh Plan and to achieve rural teledensity of 25% by means of 200 million rural connections at the end of 11th Plan. It is also envisaged that internet and broad-band subscribers will increase to 40 million and 20 million, respectively, by 2010.

Supply Analysis

–Degree of Concentration

Today, the telecommunications industry is a vast one with a large number of private players who are constantly bringing down the cost to consumers thereby making services more affordable and helping improve life in general and business in particular. On the Indian business scene are successful government owned institutions like MTNL and BSNL on the one hand, and even more successful and aggressive players like the Tata’s and Reliance on the other. Competition has just begun and is heating up every day with either lowering of tariffs or introduction of newer and improved services to keep a larger share of the market. Reliance, for instance, has been one of the recent, more aggressive players in the telecom business when it introduced a wireless phone in the market for as low as Rs. 500.    

–Ease of entry

Friction does exist between existing players and the newer entrants, as also between the providers of
services based on different technologies (CDMA Vs Cellular). The same needs to be resolved with government intervention through the regulator in order to further improve the services. The telecom sector today is not a small one and covers various services and many players within each service. One of the most vibrant developments in telecommunications has been Cellular telephony – a technology that gives us
the power to communicate anytime and anywhere. This segment, a part of the broader telecommunications industry, has today spawned an entire industry in mobile telecommunication. Mobile phones today are an integral part of growth, success and economic efficiency of businesses. The government in India has today
recognized, providing world-class telecommunications infrastructure as the key to rapid economic and social development of the country.

 

–Industry capacity

 Conservative estimates put a tag of a 3% increase in the growth of GDP for every 1% rise in the tele-density in the nation. Accordingly, this sector has received a great thrust from the government for investments and development.

Profitability

Increased FDI Flows
The Telecom sector is one of the largest attractor of Foreign Direct Investment in the country, accounting for almost a fifth of FDI approvals since 1991.

Heavy investment in Infrastructure
The cellular industry is responsible for the single largest chunk of investment by any individual industry.
The industry has already invested over Rs. 20,000 crores and is expected to invest even more in the years to come.

Revenue Generation for the Government of India
The cellular telephony sector is poised for big growth going forward provided the government controls the
sector and its players in a healthy manner. Basic and Cellular telephony form the back bone of communications in the country though the internet too has played a pivotal role. 


Employment Generation
As the number of licensees goes up and they start their operations with 77 networks on air, the employment opportunities in this sector will be huge.



Originally posted at http://knol.google.com/k/ industry-analysis-and-valuation-telecommunication-india Knol number 947

Scope of Banking According to Banking Regulations of India

The Banking Regulation Act, 1949 is the basis for regulation of banking in India. Scope of banking is specified in this act.

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Definition of Banking

The Banking Regulation Act, 1949 is the basis for regulation of banking in India.

Section 5(b) of the Act defines banking as “banking” means the accepting, for the purpose of lending or investment, of deposits of money from the public, repayable on demand or otherwise, and withdrawable by cheque, draft, order or otherwise.

Forms of Business in which Banking Companies may Engage

Section 6(1) specified additional forms business in which banking companies may engage in.

Section 6 (1)

In additional to the business of banking, a banking company may engage in any one or more of the following forms of business, namely:-

(a)- the borrowing, raising, or taking up of money;

- the lending or advancing money either upon or without security;

- the drawing, making, accepting; discounting, buying, selling collecting and dealing in bills of exchange, hoodies, promissory notes, coupons, drafts, bills of lading, railway receipts, warrants, debentures, certificates, scrips and other instruments, and securities whether transferable or negotiable or not;

- the granting and issuing of letters of credit, traveller’s cheques and circular notes;  

- the buying, selling and dealing in bullion and specie;

- the buying and  selling of foreign exchange including foreign bank notes;

- the acquiring, holding, issuing on commission, underwriting and dealing in stock, funds, shares, debentures, debenture stock, bonds, obligations, securities and investments of all kinds;

- the purchasing and selling of bonds, scrips orother forms of securities on behalf of constituents or others,

- the negotiating of loans and advances;

- the receiving of all kinds of bonds, scrips or other forms of securities on deposits or for safe custody or otherwise;

- the providing of safe deposit vaults;

- the collecting and transmitting of money and securities;

(b) – acting as agents for Government or local authoprity or any other person or persons;

- the carrying on of agency business of any description including the clearing and forwarding of goods, giving of receipts and discharges and otherwise acting as an attorney on behalf of customers, but excluding the business of a [managing agent or secretary and treasurer] of a company;

(c) contracting for public and private loans and negotiating and issuing the same;

(d) the effecting, insuring, guaranteeing, underwriting, participating in managing and carrying out of any issue, public or private, of State, municipal or other loans or of shares, stock, debentures, or debenture stock of any company, corporation or association and the lending of money for the purpose of any such issue;

(e) carrying on and transacting every kind of guarantee and indemnity business;

(g) acquiring and holding and generally dealing with any property or any right, title or interest in any such property which may form the security or part of the security for any loans or advances or which may be connected with any such security;

(h) undertaking and executing trusts;

(i) undertaking the administration of estates as executor- trustee or otherwise;

(j) establishing and supporting or aiding in the establishment and support of associations, institutions, funds, trusts and conveniences calculated to benefit employees or ex-employees of the company or the dependents or connections of such persons; granting pensions and allowances and making payments towards insurance; subscribing to or guaranteeing moneys for charitable or benevolent objects or for any exhibition or for any public, general or useful object;

(k) the acquisition, construction, maintenance and alteration of any building or works necessary or convenient for the purposes of the company;

(l) selling, improving, managing, developing, exchanging, leasing, mortgaging, disposing of or turning into account or otherwise dealing with all or any part of the property and rights of the company;

(m) acquiring and undertaking the whole or any part of the business of any person or company, when such business is of a nature enumerated or described in this sub- section;

(n) doing all such other things as are incidental or conducive to the promotion or advancement of the business of the company;

(o) any other form of business which the Central Government may, by notification in the Official Gazette, specify as a form of business in which it is lawful for a banking company to engage.

(2) No banking company shall engage in any form of business other than those referred to in sub-section (1).    

For full act

http://indiacode.nic.in/fullact1.asp?tfnm=194910

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Originally posted in Knol - Number 39

Mandi - NITIE - Experiential Learning by B-School Students

Providing Selling Experience to B-School Students

Selling process can be taught and learned more effectively..

In India a B School by name NITIE has innovated a pedagogy titled ' Mandi @ NITIE ' by which  learners are sent into market with products to sell and the exercise trains the participants not only  in selling skills but also in many other subjects in MBA curriculum - Personality development, Strategic Management, Human Resource  Management, Communication etc. by asking the students to plan their activity on their own.
The students who underwent the exercise wrote knols. You can read   'Mandi'  knols by using  search command and typing Mandi. There are 200 knols.

Profit and Loss Account and Balance Sheet of Companies in India

 Part 1 to Schedule VI of the Indian Companies Act, 1956 gives the format in which the balance sheet is to be prepared.

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Form of Balance Sheet

Part 1 to Schedule VI of the Indian Companies Act, 1956 gives the format in which the balance sheet is to be prepared. The schedule gives 2 types of formats, the horizontal format and the vertical format. A company can prepare its balance sheet in either of the 2 formats.  Horizontal format and vertical format are the two.

In the horizontal format, the liabilities including the share capital are placed on the left side and assets of all types on the right. The main heads in this form are arranged as under:

	(a) Share Capital	(a) Fixed assets
	(b) Reserves and surplus	(b) Investments
	(c) Loans	(c) Current assets, loans and advances
	(d) Current liabilities and	(d) Miscellaneous expenditure to the provisions extent not      written off or adjusted
		(e) Profit & Loss Account
	Total

In the vertical format, the various heads of liabilities and assets are arranged vertically and current liabilities are shown as deduction, from current assets. Whatever information is required to be given in the horizontal format must also be given in the vertical format. Summarized prescribed vertical form of balance sheet is given below:

I. Sources of Funds

(1) Shareholders’ funds

(2) Loan funds

Total

II Application of  Funds

(1) Fixed assets
(2) Investments
(3) Current assets, loans and advances      Less: Current liabilities & provisions.
(4)	(a) Miscellaneous expenditure to the extent not written off or adjusted.
	(b) Profit & Loss Account
Total

References

http://www.thebharat.com/legal/companylaw/accounts.html

For various formats

http://www.caclubindia.com/share_files/default.asp

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MBA Knowledge Revision articles project is  migrated from Knol to
Management Theory Review Blog
http://nraomtr.blogspot.com

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