3G may turn it around for telecom

Rajesh S Kurup / Mumbai May 3, 2007
The outlook for the telecom sector is robust for the current financial year due to the huge capital expenditure plans announced by service providers, increase in telecom penetration and infrastructure sharing becoming more prevalent.

If the government keeps its promise of releasing more spectrum, we will witness the onset of third generation mobile telephony, which enables high-speed data transfer. If it becomes popular, the average revenue per user, which has been declining for most operators, may well go up significantly.

The largest private telecom company, Bharti Airtel, has announced a capital expenditure of $3.5 billion (about Rs 15,000 crore) this financial year, while the second largest, Reliance Communications, has announced Rs 10,000 crore. AV Birla group's Idea Cellular has announced a capital expenditure of about Rs 12,000 crore for the next two years.

Other players too have large plans. These include Hutchison Essar (Rs 7,200 crore), state-owned Bharat Sanchar Nigam Ltd (Rs 4,715 crore), Tata Teleservices (Rs 4,150 crore), Aircel (Rs 3,680 crore), MTNL (Rs 1,970 crore) and Spice Communications (Rs 1,285 crore).

According to an analyst, the majority of the capital would be used for the expansion of services in the country, resulting in faster rollout of services, especially in the rural and semi-urban areas, connecting the length and breadth of the country in the next 24 months. However, the results would emerge within the next two quarters, or latest by the end of this year.

Indian telecom companies are also looking at increasing the pace of erection of passive infrastructure or towers. Reliance is committed to setting up another 8,000 towers, in addition to its existing 12,000 BTSs, and Bharti Airtel has announced an addition of 30,000 BTSs to its existing 40,000 towers. GTL Infrastructure is looking at adding 400 towers a month to its existing 1,200 cell sites.

The emergence of tower sharing, after a recent Telecom Authority of India (Trai ) notification that a BTS can be shared among three players, would result in faster rollout of services. Analysts expect the Indian telecom sector to witness one of its fastest growths during this financial year, especially during the last two quarters of the year.

The industry is also expecting a fall in handset prices that would help in driving telecom penetration. The present telecom penetration stands at an abysmal 14.3 per cent, compared with other developing nations across the world. For example, the telecom penetration in Pakistan stands at around 27 per cent, more than double of India.

The prices of entry-level handsets have fallen to around Rs 1,000 from Rs 4,000 three years ago. Analysts and industry sources expect a further reduction in prices to around Rs 800-900 that would drive telephony growth in the country.

Macquarie Research has raised its wireless subscriber forecast to 425 million subscribers by March 2010, up from our earlier forecast of 400 million. This is based on higher wireless penetration expectations for each of the 23 wireless circles in India.

According to an analyst firm, this would drive revenues and EBITDA margins for the companies in the telecom space.

Another important factor is the country's strong economy that is expected to grow at around 9-10 per cent during the year. The rising income levels of Indian households would provide a "huge impetus" for the wireless sector growth in the country.

Industry expects a monthly net addition of around 7.5-7.7 million per month for the next two years, compared with the existing 6.6 million per month.

Moreover, the entry of Vodafone would also bring in more value-added services and features to the country, that would make other Indian companies launch newer customer-friendly services. If spectrum is released this quarter, as is expected by the industry, it would result in the rollout of 3G services in the country. For the sector, the current year and the next could well turn out to be the best years.

ONGC gets 38% premium reduction on risk cover

One of the big changes with the liberalization of the industry.

ONGC gets 38% premium reduction on risk cover
Falaknaaz Syed / Mumbai May 09, 2007

The Oil and Natural Gas Corporation (ONGC) has secured a 38 per cent reduction in premium on its insurance policy for 2007-08, in spite of consecutive losses in the last two years. The policy is due for renewal on May 11.

ONGC’s insurance policy is the country’s largest insurance policy. Insurance policies, where the sum insured is Rs 2,500 crore and above, are called large risk policies and are largely reinsurance driven i.e. the reinsurers decide the terms and conditions of the policy.

RS Sharma, CMD of ONGC, said, “We have received a confirmation from United India today that the risk has been placed overseas. We have paid the premium and the insurance policy will be issued to us before May 11.” When asked about the premium, he said, “This year the reduction in premium is 38 per cent.”

Speaking about the risk sharing, MK Garg, CMD of United India Insurance company, said, “The mandatory 15 per cent of the risk is reinsured with GIC. United India is the lead insurer and the remaining three insurers, New India Assurance, Oriental and National Insurance are sharing around 8 per cent. The remaining 77 per cent will be reinsured overseas.”

ONGC’s current assets in India exceed $20 billion. For the purpose of this insurance cover, the declared value is around $15 billion. This is an increase of 25 per cent over last year’s declared assets. Last year, the declared assets were approximately $13 billion and the premium was $47 million. United India was the insurer, with Ace and AIG being the reinsurers.

The premium amount changes every year, depending on the asset value and the reinsurance market capacity and costs. The premium is quoted at $29 million this year, though the company reported losses of

Rs 1,800 crore or $400 million in 2005. It also lost a vessel called Sagar Bhushan in 2006, where the claim amount could vary between $30 million and $70 million.