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Saturday, September 20, 2008
Weekly Economic Review
The growth story of the Indian economy has accompanied with inflationary pressure. We have seen 12.14% inflation during the week ended 6 September 2008 compared with 3.46% during 8 September 2008. The index for primary articles includes food and non-food articles grew at 1.4% and 0.2% respectively during the week ended 6 September 2008 compared with last week (30 August 2008) thanks to higher prices of fruits & vegetables (6%), urad and wheat (3% each) and mutton (1%) however major group in WPI, manufactured product declined by 0.1 % to 207.5 from 207.7 last week.
With the reference of latest WSS report, released by RBI, higher then anticipated growth in money supply has put stress on inflationary expectations. M3 is growing at 5.2% in the financial year so far till 29 August 2008 compared with a 5.1% increased in the same period last year. The annual growth rate was 21% as on 29 August 2008 compared with a 20.3% year ago. M3 is growing to Rs 208571 crore till 29 August 2008 compared with Rs 165639 crore till 15 August. The growth in M3 is above the target of RBI’s 16.5% for 2008-09.
The apex bank of the country has responded to the liquidity condition while strengthening its MSS activities. RBI has spending Rs 177528 crore in market stabilisation scheme (MSS) during the week ended 5 September 2008 compared with Rs 173658 crore in week ended 29 August 2008 and Rs 175666 crore during the week ended 12 September 2008.While taking liquidity in to the consideration we have to analysis the banking system- the place from where the liquidity is generate. More then anticipated growth in bank credit is an indicator of strong demand. The Reserve Bank Of India (RBI) has reacted on global financial turmoil, as well as on INR depreciation. In the light of current developments in the foreign exchange markets, the Reserve Bank will continue to sell foreign exchange (US dollar) through agent banks to augment supply in the domestic foreign exchange market or intervene directly to meet any demand-supply gaps
On front of currency market, dollar has appreciating against all the currencies and INR has not an exception for the same thanks to heavy demand for oil marketing companies. At the background of volatile crude oil prices, oil companies are in favour to settle trade at double-digit prices. Heavy dollar demand from oil companies’ boost INR to record low at 45 on 12 September 2008, intervention by Reserve Bank has conformed.
Overall we have seen slow down in economy activities globally resulted in weaker trade flow, which further have impacted on forex reserves. Forex reserves has down to US $ 288 million during the week ended 5 September 2008 from US $ 295 million during the week ended 29 August 2008. During the week ended 12 September 2008 total reserves was US $ 289 million. However we have strong forex reserves in 2008-09 compared with 1990-91 forex crisis.
HP Job cuts to affect over 24000
Hewlett Packard (HP) said it is planning to cut around 24,600 jobs over the next three years as it integrates enterprise technology firm Electronic Data Systems Corp. (EDS), which it acquired for US$13.9bn in August. Before the acquisition, HP had 178,000 employees and EDS 142,000, a total of 320,000, making this cut equal to 7.5% of the company's combined workforce. HP would take a one-time charge of about US$1.7bn in the fourth quarter, but says it will save US$1.8bn a year from the job cuts. HP said it plans to eventually add about half the positions back in new areas. About half the layoffs will be in the US, with more than half affecting EDS employees.
GSPC IPO Coming soon
Gujarat State Petroleum Corp. (GSPC) plans to raise about US$1bn (about Rs45bn) from an initial public offering (IPO) of its equity shares, a senior company official said. "Our plan is to have the IPO by November but it may extend to December-January," the official, who did not want to be named, said on the sidelines of a conference in New Delhi. GSPC is planning to sell about 10-20% equity through the IPO. The company has mandated DSP Merrill Lynch, JM Financial, Kotak, SBI Caps and Citibank to manage the IPO, the company official said.
Worst is not over
The worst may not be over as yet, but looks like we’ve seen one of most historical weeks in the equity markets. Historical, because some of the big and well-known names may just be found in financial history books. The Indian market too more or less mirrored the global indices. Thankfully, there was no bankruptcy or desperate aid provided to any of the players. Rumor mills of course worked overtime. Assurances had to come in from all quarters including the PM, FM and banking big-wigs that things are not beyond one’s control. So far so good and we hope it continues.
Friday’s blaze of glory may be just be carried forward on Monday. Index heavyweight Reliance will lead the charge as Mukesh Ambani makes some significant announcement on Sunday. While the going gets good, remember, good times don’t last…tough people do. We have the F&O expiry to add to the volatility. The sun outage later in the week may bring indices to a frustrating range later. Even if you are bullish on the long term India story (like we are), there is no harm in booking profits.
Reliance Communications - Annual Report - 2007-2008
RELIANCE COMMUNICATIONS LIMITED
ANNUAL REPORT 2007-2008
DIRECTORS' REPORT
Dear Shareowners, Your Directors have pleasure in presenting the fourth Annual Report and the audited accounts for the financial year ended 31st March, 2008. Financial Results The performance of the Company for the financial year ended 31st March, 2008 is summarised below:
Particulars Financial Year Fifteen Months ended 31st March, ended 31st March, 2008 2007* (Rs. in US$ in (Rs. in US$ in crore) million** crore) million** Total income 13,426.65 3,354.99 11,761.91 2,728.98
Gross profit before 4,447.75 1,111.38 4,280.87 993.24depreciation, amortisation and exceptional items
Less:
a. Depreciation and 1,843.66 460.68 1,836.12 426.01amortisation
b. Exceptional items and - - 23.90 5.55other adjustments
Profit before tax 2,604.09 650.70 2,420.85 561.68
Less: Provision for: Current tax 2.10 0.52 0.27 0.06 Fringe benefit tax 15.54 3.89 11.73 2.72
Profit after tax 2,586.45 646.29 2,408.85 558.90
Add: Balance brought forward 2,294.90 573.44 5.65 1.31from previous year
Profit available for 4,881.35 1,219.73 2,414.50 560.21appropriation
Appropriations:
Proposed dividend 154.80 38.68 102.23 23.72on equity shares
Tax on dividend 26.31 6.57 17.37 4.03
Transfer to General Reserve 400.00 99.95 - -
Balance carried to balance sheet 4,300.24 1,074.53 2,294.90 532.46
* The previous financial year of the Company was for a period of fifteen months, hence the figures are not comparable. ** Exchange Rate Rs. 40.02 = US$ 1 as on 31 ' March, 2008 (Rs.43.10= US$ 1 as on 31 ' March, 2007).
Financial Performance
During the year under review, your Company has earned total revenue of Rs.13,426.65 crore (12 months period) against Rs.1 1 ,761 .91 crore (1 5 months period) in the previous year. The Company earned net profit of Rs.2,586.45 crore compared to Rs. 2,408.85 crore in previous year. Shareholders equity (Networth) increased to Rs.24,840.03 crore from Rs.20,525.54 crore in the previous year.
Dividend:
Your Directors have recommended a dividend of Re. 0.75 (1 5%) per equity share each of Rs. 5 for the financial year ended 31 1 March, 2008, which, if approved at the ensuing Annual General Meeting, will be paid to (i) all those equity shareholders whose names appear in the Register of Members as on 23'd September, 2008 and (ii) to those whose names as beneficial owners, are furnished bythe National Securities Depository Limited and Central Depository Services (India) Limited for the purpose.
The dividend pay out as proposed is in accordance with the Company's policy to pay sustainable dividend linked to long term performance, keeping in viewthe capital needs forthe Company's growth plans and the intent to optimal financing of such plans through internal accruals.
Management Discussion and Analysis:
Management Discussion and Analysis Report for the year under review as stipulated under Clause 49 of the listing agreement with the Stock Exchanges in India is presented in a separate section forming part of the Annual Report.
The Company has entered into various contracts in the areas of telecom and value added service businesses. While benefits from such contracts will accrue in the future years, their progress is periodically reviewed.
Business Operations:
The Company operates on a pan-India basis and offers the full value chain of wireless, wireline, national long distance, international, voice, data, video and internet based communications services under various business units organised into three strategic customer-facing business units; Wireless, Global and Broadband. These strategic business units are supported by fully integrated network operation system and by the largest retail distribution and customer services facilities. The Company also owns through its subsidiary, a global submarine cable network infrastructure and managed Ethernet and application delivery services.
During the year under review, the Department of Telecommunications (DOT), Government of India, had made necessary amendments to Unified Access Service Licenses (UASL) of the Company to enable the Company to offer GSM services in addition to existing CDMA services and made allotment of start up spectrum to the Company for providing GSM services in 14 Service Area. The DOT had also made necessary amendments to Unified Access Service Licenses (UASL) of Reliance Telecom Limited (RTL), wholly owned subsidiary of the Company to enable RTL to offer CDMA services in Assam and North East Service Area in addition to existing GSM services and made allotment of start up spectrum to RTL for providing CDMA services in Assam and North East Service Area. Accordingly the Company together with RTL will, in due course, offer nation wide GSM and CDMA services.
Amalgamation and Arrangement
a. Scheme of Arrangement for transfer of Passive Infrastructure
In terms of the Scheme of Arrangement amongst the Company Reliance Telecom Limited (RTL) and Reliance Infratel Limited (RITL) (formerly known as Reliance Telecom Infrastructure Limited), subsidiaries of the Company and their respective shareholders and creditors, as sanctioned by the Hon'ble High Court of Judicature at Bombay vide order dated 1 6th March, 2007, the passive infrastructure of the Company and RTL was demerged and vested into RITL, with effect from 10th April, 2007.
b. Reorganisation of subsidiaries
During the year, the group structure involving various subsidiaries of the Company was reorganised in terms of the various Schemes under Sections 391 to 394 of the Companies Act, 1 956 (the Act), as sanctioned bythe Hon'ble High Courts of applicable jurisdictions. Consequently, Reliance Infoinvestments Limited and Synergy Entrepreneur Solutions Private Limited (SESPL) amalgamated with Reliance Communications Infrastructure Limited with effect from 23rd July, 2007 and 1st September, 2007 respectively and Reliable Internet Services Limited amalgamated with Reliance Telecom Limited with effect from 29th September, 2007. FLAG Telecom USA Limited was merged with Yipes Holdings Inc. w.e.f. 17th December, 2007.
Issue of shares upon FCCB Conversion and resultant increased paid-up share capital
a. During the year under review, the Company had received conversion notices for 2,03,051 (40.61 %) bonds out of 5,00,000 Zero Coupon Foreign Currency Convertible Bonds of US$ 1 ,000 each aggregating to US$ 500 million. The Company had allotted 1 ,87,44,801 equity shares of Rs. 5 each to the holders of the bonds opted for conversion.
b. During the year under review, the Company had also received conversion notice for 100 (1.00%) bonds out of 10,000 Zero Coupon Foreiqn Currency Convertible Bonds of US$ 1 ,00,000 each aggregating to US$ 1 ,000 million. The Company had allotted 6,67,090 equity shares of Rs. 5 each to the holder of the bonds opted for conversion.
Due to allotment of 1,94,11,891 equity shares of Rs.5 each on conversion of FCCBs, the equity capital of the Company increased by Rs.9.71 crore and Share Premium Account increased by Rs.935.43 crore. The present paid -up equity share capital of the Company is 206,40,26,881 equity shares of Rs. 5 each aggregating to Rs. 1 ,032.01 crore.
Subsidiary Companies
During the year under review, Reliance Tech Services Private Limited, Reliance Big TV Limited, Yipes Holdings Inc, Reliance Globalcom Services Inc, Yipes Systems Inc, YTV Inc, Anupam Globalsoft (U) Limited, Lagerwood Investments Limited and Reliance Telecom Infrastructure (Cyprus) Holdings Limited became the subsidiaries of the Company
Flag Projects Pte Limited, Alsign Holdings Pte. Limited and Actaram Capital Pte. Limited which became subsidiaries during the year under review, subsequently ceased to be subsidiaries. Reliance Telephones Limited and Gateway Net Trading Pte. Limited also ceased to be subsidiaries of the Company
In terms of the approval granted by the Central Government under section 21 2(8) of the Companies Act, 1 956, a copy of the Balance Sheet, Profit and Loss Account, Report of the Board of Directors and Auditors of the subsisting subsidiaries have not been attached with the Balance Sheet of the Company. However, these documents will be made available upon request by any member of the Company interested in obtaining the same. As directed by the Central Government, the financial data of the subsidiaries have been furnished under 'Details of Subsidiaries', which forms part of the Annual Report. The annual accounts of the Company including that of subsidiaries will be kept for inspection by any member. Further, pursuant to Accounting Standard (AS-21 ) issued by the Institute of Chartered Accountants of India, Consolidated Financial Statements presented bythe Company include financial information of its subsidiaries.
Employee Stock Option Scheme:
Your Company has offered the Employee Stock Option Scheme (ESOS / Scheme) aimed to attract, retain and motivate the Employees. Pursuant to the approval of the Shareholders under Section 81 (1 A) of the Companies Act, 1 956 passed by way of postal ballot, the Company has administered and implemented ESOS in terms of the Securities & Exchange Board of India (Employee Stock Option Scheme and Employee Stock Purchase Scheme) Guidelines, 1 999 (Guidelines). On 9th March, 2008 the ESOS Compensation Committee had approved to grant upto 1 ,75,00,000 Options exercisable into equal number of fully paid up equity shares of the Company to eligible employees of the Company subsidiaries and holding company in accordance with the Scheme. The actual number of options granted to the eligible employees including non-executive independent director of the Company and its subsidiary was 1,49,91,185. No employee or Director has been granted options in excess of 1 % of the issued equity share capital of the Company.The particulars as required under Clause 1 2 of Guidelines are as follows:
a. Total grant authorised by the ESOS Compensation Committee:
1,75,00,000 Options
b. Total Options granted:
1,49,91,185
c. Pricing formula decided by ESOS Compensation Committee:
Market Price or such other price as Board/Committee may determine. Different Exercise price may apply to different Plan(s).
d. Options vested:
N.A.
e. Options exercised:
N.A.
f. Total number of equity shares arising as a result of exercise of Options:
Subject to option exercised by the employees, not exceeding 1 ,49,91 ,185 Equity Shares.
g. Options lapsed:
N. A.
h. Variation of terms of Options:
N.A.
i. Money realised by exercise of Options during the year:
N.A.
j. Total number of Options in force at the end of the year:
1,49,91,185
k. Employee wise details of Options granted to: i. Senior managerial personnel:
Shri Hasit Shukla, Company Secretary and Manager 1 ,00,000 Options.
ii. Employee who receives grant in any one year of option amounting to 5% or more of option granted during the year:
Nil
iii. Identified employees who were granted options, during any one year equal to or exceeding 1 % of the issued capital (excluding outstanding warrants and conversions) of the company at the time of grant:
Nil
1. Diluted Earnings Per Share (EPS) pursuant to issue of shares on exercise of Options calculated in accordance with Accounting Standard (AS) 20:
Rs 10.21
m. The difference between employee compensation cost using intrinsic value method and fair value of the Options and impact of this difference on
- Profits Rs 3.48 crore- EPS of the Company Re 0.02
n. Weighted- average exercise prices of Options granted during the year where exercise price is less than market price:
Rs 366.50 per option
o. Weighted- average fair values of Options granted during the year where exercise price is less than market price:
Rs 210.25 per option
p. Significant assumptions made in computation of fair value base: Black Scholes model
i. Risk-free interest rate, 7.27% p.a.
ii. Expected life, 1 year
iii. Expected volatility, 37.58%
iv. Expected dividends (yield), and 0.1386%
v. The price of the underlying share Rs 541.15 per sharein market at the time of option grant
The Company has received a certificate from the auditors of the Company that the ESOS has been implemented in accordance with the Guidelines and as per the resolution passed by the members of the Company authorising issuance of ESOS.
Fixed Deposits:
The Company has not accepted any fixed deposit during the year under review.
Directors:
In terms of Article 48 of the Articles of Association of the Company, Prof. J. Ramachandran, Director of the Company retires by rotation and being eligible offers himself for re-appointment at the ensuing Annual General Meeting.
Shri A.K. Purwarwas appointed as an Additional Director in terms of Section 260 of the Companies Act, 1 956. He holds office up to the date of the ensuing Annual General Meeting. The Company has received a notice in writing from a member proposing his candidature, as a Director liable to retire by rotation.
A brief resume of the Directors retiring by rotation as well as proposed to be appointed at the ensuing Annual General Meeting, nature of their expertise in specific functional areas and names of companies in which they hold directorship and/or membership/ chairmanships of Committees of the Board, as stipulated under Clause 49 of the listing agreement with the Stock Exchanges in India, are given in the section on Corporate Governance forming part of the Annual Report.
Directors' Responsibility Statement:
Pursuant to the requirements under Section 217(2AA) of the Companies Act, 1956 with respect to Directors' Responsibility statement, it is hereby confirmed that:
i. In the preparation of the accounts for financial year ended 31st March, 2008, the applicable accounting standards have been followed alongwith proper explanation relating to material departures;
ii. The Directors have selected such accounting policies and applied them consistently and made judgments and estimates that are reasonable and prudent so as to give a true and fair view of the state of affairs of the Company as at 31st March, 2008 and of the profit of the Company for the year ended that date;
iii. The Directors have taken proper and sufficient care for the maintenance of adequate accounting records in accordance with the provisions of the Companies Act, 1956 for safeguarding the assets of the Company and for preventing and detecting fraud and other irregularities; and
iv. The Directors have prepared the accounts for financial year ended 31st March, 2008 on a 'going concern' basis.
Group:
Pursuant to intimation received from the Promoters, the names of the Promoters and entities comprising 'group' as defined under the Monopolies and Restrictive Trade Practices ('MRTP') Act, 1969 are disclosed in the Annual Report for the purpose of the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997.
Consolidated Financial Statements:
The Audited Consolidated Financial Statements, based on the financial statements received from subsidiaries, associates as approved by their respective Board of Directors have been prepared in accordance with Accounting Standard (AS21 ) on Consolidated Financial Statements read with Accounting Standard (AS23) on Accounting for Investments in Associates.
Auditors:
M/s. Chaturvedi & Shah, Chartered Accountants and M/s. BSR & Co., Chartered Accountants, as Statutory Auditors of the Company, hold office until the conclusion of the ensuing Annual General Meeting and are eligible for re-appointment.
The Company has received letters from M/s. Chaturvedi & Shah, Chartered Accountants and M/s. BSR & Co., Chartered Accountants, to the effect that their appointment, if made, would be within the prescribed limits under section 224(1 B) of the Companies Act, 1956, and that they are not disqualified for such appointment within the meaning of section 226 of the Companies Act, 1 956.
Particulars of Employees:
In terms of the provisions of Section 217(2A) of the Act, read with the Companies (Particulars of Employees) Rules, 1 975, the names and other particulars of employees are set out in the Annexure to the Directors' Report. However, having regard to the provisions of section 21 9(1 )(b)(iv) of the Act, the Annual Report excluding the aforesaid information is being sentto allthe members of the Company and others entitled thereto. Any member interested in obtaining such particulars may write to the Company Secretary at the Registered Office of the Company.
Conservation of Energy, Technology Absorption and Foreign Exchange Earnings and Outgo:
Particulars required to be furnished underthe Companies (Disclosure of Particulars in the Report of Board of Directors) Rules, 1988 are as under:
1. Part A and B pertaining to conservation of energy and technology absorption are not applicable to the Company.
2. Total foreign exchange earnings and outgo for the financial year is as follows:
a. Total Foreign Exchange earnings Rs. 1,314.74 crore
b. Total Foreign Exchange outgo Rs. 946.67 crore
c. Activities relating to exports; Initiatives taken to increase export; development of new export markets for products and services; and export plans:
The Company has taken various initiatives for development of export markets for its international telecom services in the countries outside India to increase its foreign exchange earnings.
Corporate Governance:
The Company has adopted 'Reliance Anil Dhirubhai Ambani GroupCorporate Governance Policies and Code of Conduct' which has set out the systems, process and policies conforming to international standards. The report on Corporate Governance as stipulated under clause 49 of the listing agreement with the Stock Exchanges, forms part of the Annual Report.
A Certificate from the Auditors of the Company M/s. Chaturvedi & Shah, Chartered Accountants and M/s. BSR & Co., Chartered Accountants, conforming compliance with conditions of Corporate Governance as stipulated underthe aforesaid clause 49, is annexed to this Report.
Acknowledgements:
Your Directors would like to express their sincere appreciation of the co-operation and assistance received from shareholders, bankers, regulatory bodies and other business constituents during the year under review. Your Directors also wish to place on record their deep sense of appreciation for the commitment displayed by all executives, officers and staff, resulting in the successful performance of the Company during the year.
For and on behalf of the Board of Directors
Mumbai Anil D. Ambani30th April, 2008 Chairman
MANAGEMENT DISCUSSION AND ANALYSIS
Forward looking statements:
Statements in this Management Discussion and Analysis of Financial Condition and Results of Operations describing the Company's objectives, expectations or predictions may be forward looking within the meaning of applicable securities laws and regulations. Forward-looking statements are based on certain assumptions and expectations of future events. The Company cannot guarantee that these assumptions and expectations are accurate or will be realised. The Company assumes no responsibility to publicly amend, modify or revise forward-looking statements, on the basis of any subsequent developments, information or events. Actual results may differ materially from those expressed in the statement. Important factors that could influence the Company's operations include cost of inter connection charges, determination of tariff and such other charges and levies by the regulatory authority, changes in government regulations, tax laws, economic developments within and outside the country and such other factors.
The following discussions on our financial condition and results of operations should be read together with our audited consolidated financial statements and the notes to those statements included in the Annual Report. The following discussions are based on our audited consolidated financial statements for the financial year ended 31srMarch, 2008, which have been prepared in accordance with Indian GAAP and on information available from other financial records of the Company and its subsidiaries. The most significant accounting conventions and principles of consolidation used by us, and the accounting policies followed by us in the preparation of our financial statements, are extracted from our consolidated financial statements and set out in this section.
Unless otherwise specified or the context otherwise requires, aff references herein to 'we'; 'us'; 'our'; 'the Company'; 'Reliance'; 'RCOM' or 'Reliance Communications' are to Reliance Communications Limited and its subsidiaries.
Overall review:
We remained India's larqest integrated fully converged communications service provider in the private sector with an individual, enterprise and carrier customer base of over 48 million as on 31 1 March, 2008, including 45.8 million wireless customers representing a market share of 17.9% of the Indian wireless market.
Strategic Initiatives:
In our quest to position ourselves as a global player, the Company acquired the US-based Yipes Holdings, Inc. ('Yipes'), penetrating the lucrative Rs 400,000 crore (S 100 bn) global enterprise data market.
* Yipes is strongly positioned in Metro Ethernet based enterprise service, by far the highest growth segment in the US datacom market, with an annual growth rate of over 30%.
* Yipes has strategic network presence in the top 14 US metros, which account for 40% of the total US datacom market.
* Yipes also has nearly 1 ,000 enterprise customers and provides mission critical communications platforms to communities of interest within some key verticals.
We have consolidated our Global telecommunications business and operations under a new umbrella brand, namely, 'Reliance Globalcom'. This new global entity brings under its fold a diverse portfolio of communications business services, including Global Voice, Manaqed Network, Carrier Ethernet and Fiber Capacity. Reliance Globalcom, which is structured to serve the existing and emerging demands of our global customers, represents significant value for the shareholders.
The Company initiated further restructuring of its passive infrastructure, demerging it from across different businesses, and vesting it into Reliance Infratel Limited (formerly Reliance Telecom Infrastructure Limited).
On 11th January, 2008, the Company received start-up spectrum to launch nationwide GSM services under its existing Unified Access Service License (UASL). The grant of GSM spectrum to Reliance Communications in 14 service areas reaffirms the Company's stance on UASL being a Technology Neutral license.
Reliance Communications, through its wholly owned subsidiary Reliance Telecom Limited (RTL), already offers GSM services in 8 service areas. RTL has also received start up spectrum for providing CDMA services in Assam and North East service areas. Accordingly, the Company together with RTL will, in due course, offer nation wide GSM and CDMA services.
The launch of nationwide GSM services, slated for the end of 2008, will enable the Company to effectively target the 6 million strong GSM subscriber market every month. It will also enable the Company to address the requirements of the existing 1 92.3 million (as on March, 2008) GSM customers.
The Company is in the advanced stages of testing the launch of its DTH and IPTV initiatives.
We have acquired Uganda-based company Anupam Globalsoft (U) Limited, holding Public Infrastructure Provider License and Public Service Provider License to offer Mobile, Fixed Line, Internet, National and International Long Distance services, in addition to WiMax and Wifi services, marking our entry in Uganda. The Uganda-based company has received Spectrum allocation and plans to launch its Mobile services by end of year 2008.
We have also acquired controlling stake in eWave World, a UK headquartered telco focused on the rapidly developing market for wireless telephony services using the WiMAX technology standard. This marks a significant step forward in our global growth strategy to directly reach out to millions of customers - both Corporate and Individual - through a best-in-class future proof Last Mile Network.
Industry Structure and Regulatory Developments
Industry structure:
The total base of landline and wireless subscribers in India surged by a whopping 46 per cent during the year ended 31 It March, 2008 to reach 300.51 million, according to the Telecom Regulatory Authority of India (TRAI).
The number of Internet subscribers also increased to 10.8 million during the year, with the broadband subscriber base reaching 3.47 million.
Regulatory developments
1. Phasing out of Access Deficit Charges (ADC) w.e.f. 11April, 2008: In continuation of its yearly exercise for regulating ADC regime, TRAI has issued a 9th Amendment to IUC regulation on 28th March, 2008. As conveyed in its earlier regulations on IUC/ ADC, the TRAI has phased out the ADC in the domestic sector with effect from 1ItApril,2008. However, the ADC on incoming International calls will continue at a reduced rate of Re 0.50 per minute till 30t' September, 2008. It is proposed that the support to BSN L rural wireline connections be given through the USO fund. The TRAI has envisaged a support of Rs 2,000 crore per annum for a period of 3 years for BSNL.
2. Mobile Number Portability: The TRAI came out with its recommendation on Mobile Number Portability in March 2006. It recommended introducing number portability within 1 2 months' time from the date of acceptance of the proposal by the Department of Telecommunications (DoT). The government accepted the recommendations of TRAI in November 2007. The number portability is yet to be decided by the DoT.
3. 3G and Broadband Wireless Access policy (BWA): The TRAI came out with recommendations on Spectrum allocation for 3G and BWA technologies in September 2006. The government has declared the policy guidelines on 3G and Broadband Wireless access in November 2007. The spectrum for these services will be auctioned as recommended by TRAL Spectrum for 3G services will be allotted in 1920-1980 MHz band paired with 21 10- 21 70 MHz band i.e. IMT 2000 band. The detailed guidelines are being worked out by DoT. For BWA spectrum, the government will auction spectrum in 2.3- 2.4 GHz and 2.5-2.69GHz band.
4. Permission to operate on dual technology under UASL and no capping of number of licenses in a service area: Based on TRAI recommendations, the DoT had permitted the UAS licensees to operate on dual technology after paying the amount equivalent to that being paid for getting a new license. Reliance Communication became the first company whose licenses got amended in line with the above policy, after payment of an amount of Rs 1,651.57 crore. In January 2008, RCOM was allocated 4.4 MHz GSM spectrum for 14 circles. New licenses have been issued for Unified Access Services. About 120 licenses in various circles have been issued so far.
5. Unsolicited Commercial Call Regulation: The TRAI has come up with stringent guidelines on dealing with unsolicited commercial calls. For the enforcement of these guidelines, a National Do Not Call Registry (NDNC) has been set up. A service provider in the event of not taking necessary action after the first complaint made by a user would be charged Rs 5,000 while in case of second such non-compliance the service provider would be charged Rs 20,000.
6. Domestic Leased Circuit Regulation: The TRAI has issued a regulation on Domestic leased circuits which imposes an obligation on service providers to share them with other service providers in a non-discriminatory manner. In case a service provider is not able to share a leased circuit, the reason for the same has to be communicated to the requesting service provider in writing.
7. Consumer Protection and Grievance Redressal Regulation, 2007: The TRAI has come up with a regulation on consumer protection and redressal of grievance in May 2007. The key highlights of this regulation are - maintenance of a 24 X 7 call center, appointment of nodal officer and Appellate Authority by the service provider and a root cause analysis of the complaints forwarded by TRAI under section 1 9 of the regulation. Service providers have also been asked to maintain a Manual of Practice indicating certain information. The Manual of Practice should be available in three lanquaqes En5lish, Hindi and a regional language - at all the customer service centers.
8. Active Infrastructure sharing: The DoT has come up with a policy on active infrastructure sharing based on TRAI's recommendation on Infrastructure sharing in March 2008. The service providers have been allowed to share the Antenna, node B, Radio Access Network and transmission system. Sharing of spectrum has not been allowed.
9. Access to Cable landing station: TRAI has come up with a Regulation -'International Telecommunication Access to Essential facilities at Cable Landing Stations Regulations 2007' which provides forthe non-discriminatory, fair and open access at the cable landing stations. As per the Regulation, all the cable landing station owners have to file a Reference Interconnect Offer (RIO) in which they must specify the terms and conditions for Access facilitation and co location facilities. The RIO has to be approved by TRAL The regulatory authority has approved the Reference Interconnect Offer of all the three undersea cable owners, including Reliance Communications.
10. DTH Quality of Service (QoS) regulation: TRAI has come up with a regulation on QoS for DTH service providers. The regulation is effective from 11 December, 2007. As per the regulation, the set top box will have to be provided on hire purchase or rental basis or outright purchase at the option of the subscriber. Also tariff of a subscriber can not be changed within six months of offering of a particular tariff plan. Post paid subscribers have to be issued bill details.
11. Tariff for Non CAS areas: Through a Telecom tariff order, TRAI has fixed up ceiling tariff for distribution of TV channels in Non CAS as well.
12. New numbering series for Mobile operators: The DoT has allotted 90 and 91 levels for UASL Operators. RCOM has been allotted 90 level number series in the new 14 GSM Circles.
Key Developments in the Company
Wireless business:
Network Expansion: We undertook our largest network expansion during the year. A total of 12,000 sites were deployed, taking our total coverage to 20,000 towns. To support our network expansion, a comprehensive plan was executed including communication (Total Network campaign), distribution expansion, dedicated company manpower structure (WIN project), customized products (Home Zone Tariff) and separate business volume monitoring.
Classic Range of Handsets: Our own branded handset range, Classic, was quick to gain the second position amongst handset brands in the country, overtaking long established brands in the market. In May, 2007 we created a national record by selling over 1 million Classic handsets in a week's time - the largest number of single brand handsets ever sold in such a short time. Subsequently, the Classic range was expanded to include Colour and Colour FM range of handsets. We also launched the Classic handset range for our GSM operations during the year.
LG Range of Handsets: We expanded the LG range of Colour and Colour with FM feature Mobile handset during the third quarter of 2007-08. Subsequently, we expanded the range to introduce features rich with camera, video recording and Bluetooth facilities in handsets. Sellinq prices of these handsets were competitively priced and offered excellent upgrade opportunity for existing customers.
BlackBerry: Reliance was the first CDMA operator in the country to launch BlackBerry phones. We launched the BlackBerry 8830 World Edition Smartphone in September, 2007, and quickly went on to add BlackBerry Pearl. Till today, we are the only operator in the country to offer BlackBerry in CDMA technology. Along with CDMA, Blackberry was also launched for our GSM operations. Today, Reliance is the only operator in the world to offer BlackBerry mail services in Pre-paid platform.
World Roaming: To offer worldwide Voice and Data Roaming for our Blackberry and high-end customers, we tied up with leading operators across the world for dual network roaming. Today, Reliance offers International Roaming to
230 countries and 430 networks, with full-fledged Data Roaming Services across 50 countries and 95 networks.
Range of Unlimited products: We launched our Unlimited platform after additional network capacity was built up during the year. The first product launched was Unlimited Local across Pre-paid mobile, Post-paid mobile and Fixed Wireless Phones. After half a million customers in the unlimited product, we have now launched our Unlimited STD product. These products offer complete 'peace of mind' for heavy individual users, Corporates and SME segment etc and create a very strong Reliance Community of users.
Association with Cricket: The Indian customer has extremely strong association with the game of cricket, and we had a very strong tie-up with the game during 2007-08. Reliance became the Title Sponsor of the first ICC Twenty20 World Cup and ICC Under-1 9 World Cup. Fortunately, India won both the tournaments and we derived a lot of mileage from these tournaments.
Rural Telephony: The Government of India extended the Rural Direct Exchange Lines (RDEL) Scheme up to March 2008. This Opportunitywas fully leveraged by oursales and distribution teams in rural areas. With this programme, we have achieved a household penetration of 15 per cent in Rural areas as per Scheme.
Data Card Business: Our Data Card customer base and business doubled during 2007-08. This came as a result of strong bundling with laptop manufacturers, increased distribution and retail activity and active product demonstration to target segment. Besides maintaining majority share in this segment, ourARPU also continues to be significantly higher than our competitors.
Expansion into Hinterland: With our coverage expansion during the year, we set up a comprehensive approach to address the rural market. This comprised of dedicated internal organisation, distribution expansion and special products like Home Zone Tariffs. Today, rural contributes a significant percentage of total monthly additions, and over 1000 exclusive rural distributors have been appointed during the year.
Long distance voice services
The Company continues to occupy leadership position in the long distance voice business across wholesale, enterprise and consumer markets.
Through its offshore subsidiaries, the Company is meeting the growing demand of the Information Technology Enabled Services and Enterprise sector outside India by introducing new products like Global Managed Contact Center Services, Global Audio Conferencing and Disaster Recovery.
The Company expanded its retail presence into more countries. The Company offers virtual international calling services in the U.S.A., Canada, U.K., Australia, New Zealand, Hong Kong and Malaysia. The Company launched Reliance Passport suite of services that allows customers to roam cost effectively in several countries.
Global mobile services
The Company acquired 90 per cent stake in Anupam Globalsoft (U) Limited, Uganda-based company holding Public Infrastructure Provider License (PIPL) and Public Service Provider License (PSPL) issued by Uganda Communications Commission. Underthe existing Licenses, the Companytargets to offer Mobile, Fixed Line, Internet, National and International Long Distance services, in addition to WiMax and Wifi services in Uganda. The Uganda-based company has received Spectrum allocation and plans to launch its Mobile services by end of 2008.
Global data services
The Company continues to be leading provider of international connectivity and data services to telecom operators, content providers, internet communities and enterprises around the globe.
The Company acquired the US based Yipes Holdings Inc. through its subsidiary Reliance Globalcom (formerly, FLAG Telecom). Yipes is the leading provider of managed Ethernet and application delivery services for the global enterprise and has over 1 ,000 enterprise customers primarily based in the U.S.
The Company has established Managed Storage Services Operations Center in Mumbai, and signed a bilateral agreement with US based GlassHouse Technologies, an independent IT infrastructure consulting and services firm providing managed IT services directly to enterprise customers.
The Company is increasing its penetration of the Middle East on top of the FALCON cable system. The Company has one of the deepest networks and established Network to Network Interconnect (for IPLC, Internet, VPN and Global Ethernet Services) in Bahrain, Saudi Arabia and the U.A.E. during the year.
The Company has awarded the contract for building the Next Generation Network Submarine cable, a multi-terabit, new generation system. Meanwhile, we have also begun work on implementing the Hawk and Eagle systems, the former connecting Egypt and France, and the latter Japan and the U.S.
Broadband
Network coverage: With the increased focus on directly connecting buildings in the top 44 cities in India, our Broadband business now has more than 787,000 buildings directly connected to our network, recording more than 60% growth in the network coverage during the year.
During the year, Broadband business augmented its building connectivity program with the deployment of WiMAX 802.1 6d based last mile access technology. Our Broadband business currently serves top 8 cities in the country using this wireless technology also.
Content and value added services:
The Company continued to sustain significant growth in mobile data and content services. With tariff rates for voice services constantly under downward pressure, we have been successful in seeking out new non-voice services to boost revenues, improve profitability, and help in reducing churn of subscribers.
The Company continued to populate the market with data capable('Reliance Mobile World') handsets at the entry level and lowcostwireless data modem cards forInternet connectivity anytime, anywhere. With the increased growth of mobile subscribers in tier 2 and tier 3 markets, the Company successfully adopted a dualprong strategy of promoting content services over interactive voice platforms, in addition to the cost-effective data network.
The Company continues to enjoy market leadership position with the highest penetration of usage for such services in the country, with over 28.3 Million users across various mobile content services such as Reliance Mobile World, Reliance CallerTunes, DIAL 51 234 voice interactive services and SMS to 51234 based content services.
The Company's leadership position in Mobile Advertising (a fast emerging area in the world) was recognised by the Industry peers - Fair & Lovely Scholarship campaign on mobiles for Hindustan Unilever was recognised and awarded for the Best Use of Mobile Marketing - Direct Response Category campaign Mobile Marketing Association in Los Angeles.
Opportunities and Challenges
Opportunities:
Entry into GSM: During the year under review, Reliance reached a historic landmarkwhen it obtained permission as well as spectrum to launch GSM services in 14 telecom circles. Reliance is making preparations to roll out network and will launch GSM services in a phased manner by the end of this calendar year.
Offer Dual Technology: Our Pan-India UAS License places us in the unique position of being able to offer our subscribers the unique and special benefits of dual technology. For example, while CDMA technology will give consumers the benefits of data and VAS, GSM will enable Reliance subscribers to access wider range of handsets and functional features, including roaming.
Enhance CDMA mobility: While offering dualtechnology, Reliance will also benefit from the massive network execution already completed in CDMA during 2007-2008. This will enable the Company to offer highly attractive tariffs and products, leveraging the available capacity.
HR Opportunities - Employer Brand: The events of the last year (permission to offer GSM services under UASL, network expansion, enhanced brand visibility) have made the Company highly sought after as an employer. This employer brand appeal has been further enhanced by implementation of HR practices such as ESOPs and flexible worktimings besides core working hours. The Company is, therefore, in a strong position to attract best talent in India and abroad.
Association with Bollywood and Cricket thereby attracting youth: The association with ICC and other Cricket tournaments, and also with leading Bollywood events have made the Company and its brand much sought after by the youth segment. This will enable the Companyto increase its business in this highly profitable and growing market segment.
ADC removal and Mobile Number Portability (MNP): The removal of ADC will provide an extra fund to pool to increase rural volumes and penetration in a focused manner. The Company has already voluntarily taken aggressive steps to provide substantial discounts on acquisition of rural subscribers, in line with the suggestion made byTRAI while notifying removal of ADC. Similarly, introduction of MNP, which is slated to be introduced in first half of 2009, will provide the Company with a unique opportunity of attracting subscribers from other operators on to its own dual technology platform.
Challenges
Entry of many new competitors:
The year 2008 - 09 will witness the entry of several new players in the mobile industry. It is also possible that some of the players who have acquired license recently will enter into tie-ups with leading international service providers. These events will intensify competition and may lead to pressure on tariff. The Company is uniquely positioned to meet the situation with its superior and world class network roll-out and expansion plans.
Entry of Mobile Virtual Network Operator (MVNO) / Brand franchisees: It is possible that the Government may progressively relax MVNO norms, and more players may access to Indian markets through this route. These operators may put pressure on tariffs.
Risks and concerns
1. Some of the licences are subject to regulatory compliance and Terms and conditions.
The rules and regulations, issued by the government and regulatory authorities, having jurisdiction over the Company's operations and licenses, schedules and obligations require it to meet specified conditions, network build-out requirements. However, the Company does not perceive any default on this account.
2. Rapid technological changes may increase competition and render the Company's technologies, products or services obsolete.
The telecommunication services industry is characterised by rapid technological change and significant capital requirements. However, the Company is constantly assessing such changes in the technologies and taking immediate action whenever necessitated.
3. The Company may be adversely affected by changes in tariff structures for services.
The Company is subject to regulations on its tariff structures. There is no assurance that the Company's business, financial condition and result of operations will not be materially affected by any government mandated or other tarrif adjustments in future.
4. The Company faces significant and intense competition in its markets, which could result in decreases in current and potential customers, revenues and profitability.
The Company faces significant competition in its markets. In particular, competition is expected to intensify amongst providers of mobile telecommunication services, and this will continue to drive prices for services and handsets lower.
Financial Performance - Overview
Results of operations:
The Audited Consolidated Financial Results are given for the Financial year ended on 31 It March, 2008. This is the second reporting year of consolidated operations of the Company; the previous year's figures are for 15 months period, hence not comparable.
Revenues and operating expenses:
The Company earned total revenues of Rs 1 9,067.76 crore (US$ 4,764.56 million) and the net profit after tax recorded by the Company was Rs.5,401.14 crore (US$ 1 ,349.61 million). The Company incurred total operating expenses of Rs 10,868.69 crore (US$ 2,715.81 million).
Operating profit before finance charges, depreciation and amortisation, exceptional items and provision against fixed assets (EBITDA)
The Company earned EBITDA of Rs 8,1 99.07 crore (US$ 2,048.74 million). The EBITDA margin for the year under review is 43%.
Financial charges:
Net finance charges were gain of Rs 399.70 crore (US$ 99.88 million). This was mainly due to gain on foreign currency conversion and treasury incomes.
Depreciation and amortisation:
Total of such charges was Rs 2,805.26 crore (US$ 700.96 million).
Profit before tax:
The profit before tax was Rs 7,076.29 crore (US$ 1,768.19 million). The provision for taxes was Rs 283.62 crore (US$ 70.87 million). The net profit after tax was Rs 5,401.14 crore (US$ 1,349.61 million).
Balance sheet:
As at 31 It March, 2008, the Company had total assets of Rs 77,459.34 crore (US$ 1 9,355.1 6 million). Stakeholders equity was Rs 29,026.33 crore (US$ 7,252.96 million), while net debt (excluding cash and cash equivalents) was Rs 9,825.02 crore (US$ 2,455.03 million), giving a net debt to equity ratio of 0.34 times.
Segment Wise Performance:
1. Wireless Segment
Customer acquisition
During the year, the Company added 18 million wireless customers (net additions). The customer base grew by 64% during the year under review. As at 31st March, 2008, the Company had 48 million wireless customers on its network. During the year under review, the Company reached out aggressively to rural areas on the back of a major network expansion that contributed to the Company's strong customer acquisition.
The Company consolidated its Classic brand as the second largest handset brand in the country. In addition, the Company rejuvenated its handset portfolio by increasing focus on the LG brand, with a series of offerings at progressively higher price points based on features. The Company has also entered into Handset Bundled offers with leading handset sellers like Nokia, Samsung and Spice.
During the year, the Company continued to pioneer tariff innovations. In January, 2008, the Company was the first to announce a simple and unified tariff structure of Re.1 on all mobile calls. Again, in February, 2008 the Company launched a highly attractive price point for its Lifetime proposition at Rs 299.
ARPU: 340 minutes of use averaged Rs 460 per month per subscriber giving a revenue of Re. 0.74 per minute. Nonvoice revenue was 6.68% of ARPU.
Even while overall voice revenue remained under pressure, our focus to stimulate revenue in launching innovative tariffs, driving mobile usage and easy migration to prepaid, leveraged our market position in the convergent telecom businesses.
Revenues and profit
Revenues for the financial year ended 31st March, 2008 were Rs. 15,213.54 crore (US$ 3,801 .48 million). EBITDA during the year was Rs. 6,084.09 crore (US$ 1 ,520.26 million). Earning before Interest and Tax (EBIT) during the year was Rs. 4,125.10 crore (US$ 1,030.76 million).
2. Global Segment
Minutes of use ILD and NLD operations
Operations in ILD and NLD maintained consistent traffic growth rates, in-line with the growth of the overall market. ILD minutes of use annually were around 7 billion. NLD minutes of use annuallywere around 23 billion. The Company maintained its leadership position forILD inbound India traffic with a marketshare of around 35%. Duringtheyear, Reliance India Call and Reliance Global Call achieved a milestone of 1.5 million international customers. Reliance India Call continued to be the largest retail service with over 40% market share in the U.S.A. for India Calling.
Revenues and profit
Revenues for the financial year ended 31ItMarch, 2008 were Rs. 5,475.06 crore (US$ 1 ,368.08 million). EBITDA during the year was Rs. 1 ,403 crore (US$ 350.57 million). Earning before Interest and Tax (EBIT) during the yearwas Rs. 837.1 2 crore (US$ 209.18 million).
3. Broadband Segment
We maintained our position as Premium Integrated Solutions Provider for Top Corporates in the Broadband segment. Our Broadband business maintained its leadership in Centrex, Vitual Private Network and International Data Centre products.
The Company's Broadband segment continued to maintain its growth path and gained significantly during the year even in the midst of aggressive competition in the data and voice segments, and especially in the internet bandwidth segment, from many other telecom service providers. Of a current portfolio of more than 35 products, our Broadband business has not only positioned larger number of products within the top corporate but also increased its share of wallet.
New products launched during the year included One Office Duo, FMC VPN, Hosted Call Centre Solutions, Aggregated Dedicated Internet Access, Telecommute, etc.
Broadband's innovative services assurance model of 'TechCheck' gained further impetus during the year 2007-08 in providing pro-active feedback to its subscribers on the service levels provided by the Company. Customers have rated Broadband Products and Services at a high customer satisfaction and delight rating.
Broadband's Business IT Systems are ISO 27001 :2005 Certified (an Information Security Management System Standard).
Wireline
Our Optical Fiber Cable network with 1,17,000 + route-km in totality [inter-city + intra-city] and Broadband provide seamless last mile connectivity.
Our transport network is one of the biggest networks in the world, having approx. 20,000+ nodes currently and additional 20,000 nodes will be added in 2008-2009.Customer Base
Customer acquisition kept momentum with the increase in network coverage during the year. Net additions during the year grew by more than 65%. During the year, the Company has acquired close to 4,08,000 customer circuits, including approximately 2,98,000 voice lines and 1,10,000 enterprise data circuits.
As the Company's Broadband business is currently serving mainly enterprises, the revenue per line reflects the total portfolio of services and solutions being delivered to its customers. Our revenue per line has remained well above industry averages, on account of our mainly enterprise customer base and our successful cross-sell of services to our customers.
Revenues and profit
Revenues forthe financialyear ended 31 1 March, 2008 were Rs 1,786.73 crore (US$ 446.46 million). EBITDA during the year was Rs 865.2 crore (US$ 216.19 million). Earning before Interest and Tax (EBIT) during the year was Rs.626.28 crore (US$ 156.49 million).
Reliance Communications Infrastructure Limited (RCIL)
Our Broadband Internet Data Centre (IDC) services (Reliance Data Centre) owned by RCIL, a wholly owned subsidiary, from its IDCs located in Mumbai and Bangalore. Broadband currently has IDC capacity of 2,50,000 sq ft and is proposing to build more IDCs to further enhance the capacity. Broadband IDCs are market leaders within their space having an estimated market share of close to 60%.
RCIL also provides wireless multimedia services through 'Reliance Mobile World', a wireless data application platform offering more than 150 applications and wireless internet access services through 'Reliance Net Connect'.
The Infrastructure facilities of RCIL are interlaced and integrated with wireless network of the Company. With a view to gain synergy in the business operations, the Network Fibre undertaking together with construction machinerywas transferred to the Company during the year.
Operations
Revenues and operating expenses
RCIL earned total revenues of Rs 3,622.69 crore (US$ 905.22 million) during the year as compared to Rs 1 ,323.1 5 crore (US$ 307.00 million) for the previous year. RCIL incurred total operating expenses of Rs 3,31 5.22 crore (US$ 828.39 million as compared to Rs 1 ,001 .25 crore (US$ 250.19 million).
Net Profit
The net profit after tax recorded by RCIL was Rs 621 .26 crore (US$ 155.24 million) as compared to loss of Rs 506.93 crore (US$ 117.62 million) in the previous year.
Balance sheet
As at 31 It March, 2008, RCIL had total assets of Rs 4,906.30 crore (US$ 1,225.96 million). Shareholder equity was Rs 2,246.22 crore (US$ 561.24 million)
Reliance Telecom Limited
Reliance Telecom Limited (RTL), is a wholly-owned subsidiary of the Company. RTL operates in Madhya Pradesh, West Bengal, Himachal Pradesh, Orissa, Bihar, Assam and Northeast offering
GSM services. Durinq the year, RTL offered GSM service also in Kolkata Metro Circle with effect from 29th September, 2007 pursuant to amalgamation of Reliable Internet Services Limited with RTL.
Operations
During the year under review, RTL completed a major network expansion increasing its coverage to 2,906 towns. This enabled the RTLto significantly scale up its acquisitions, and RTL achieved subscriber growth of 107% during the year. RTL revolutionized the Lifetime proposition by pricing it at Rs 222, which was a key driver in its acquisition strategy.
Revenues and operating expenses
RTL earned total revenues of Rs 1 ,361 .95 crore (US$ 340.32 million) during the year as compared to Rs. 874.19 crore (US$ 218.43 million). The RTL incurred total operating expenses of Rs 1 ,079.46 crore (US$ 269.73 million) as compared to Rs 480.97 crore (US$ 1 1 1 .59 million) in the previous year.
Net Profit
The net profit aftertax recorded by RTLwas Rs 46.82 crore (US$ 11.70 million) as compared to Rs 211.26 crore (US$ 49.02 million) in the previous year.
Balance sheet
As at 31 It March, 2008, RTL had total assets of Rs 1 ,976.67 crore (US$ 493.92 million). Shareholders equity was Rs 398.99 crore (US$ 99.70 million).
Reliance Infratel Limited (RITL)
Reliance Infratel Limited became one of the largesttower portfolios with about 30,295 towers and over 1 ,21 ,1 80 tenancy slots subsequent to vesting of Passive Infrastructure of the Reliance Communications and Reliance Telecom Limited
RITL has passive infrastructure network in all 22 telecom service areas covering 23,000 towns and 5,00,000 villages, further expanding to about 25,000 towns and 6,00,000 villages, an effort that cannot be easily replicated.
RITL is best positioned to attract tenants for:
* High quality portfolio, capable of housing multiple tenants
* Potential to target up to 7 tenants on each tower
* Existing tower capacity to increase from 4 tenants to 7 tenants with only marginal Capex
Revenues and operating expenses
RITL earned total revenues of Rs 1 ,456.62 crore (US$ 363.97 million) during its very first year of its commercial operations. The Company incurred total operating expenses of Rs 782.05 crore (US$ 195.41 million).
Net Profit
The net profit after tax recorded by RITL was Rs 320.58 crore (US$ 80.10 million).
Balance sheet
As at 31 1 March, 2008, RITL had total assets of Rs 1 1 ,720.50 crore (US$ 2,928.66 million). Shareholders equity was Rs 5,110.69 crore (US$ 1,277.03 million).
Outlook
The Company is very well positioned to capitalise on growth opportunities in the converged telecom market supported with integrated composite telecom infrastructure setup. The Company will be able to leverage its strengths in all the operating service areas across its business groups. The Company's strength and leadership is inspired by:
* Enriched human resources and talent repository;
* Growth potential and track record of ability to penetrate into the market with cutting edge;
* Expansion of network and covering the untapped rural areas;
* Optimum utilisation of future technology compliant assets;
* International presence with owned submarine network and gateways.
The Company has consistently demonstrated its leadership with several 'Reliance Firsts' and introduction of many innovative products, services leading to enhanced customer delight.
Adequacy of internal control
The Company has built adequate systems of internal controls towards achieving efficiency and effectiveness in operations, optimum utilisation of resources, and effective monitoring thereof as well as compliance with all applicable laws.
The internal control mechanism comprises a well-defined organisation structure, documented policy guidelines, predetermined authority levels and processes commensurate with the level of responsibility.
The Management Audit Team undertakes extensive checks and reviews through external firms of chartered accountants, who provide independent and professional observations. Audit Committee of the Board reviews major
internal audit reports and periodically reviews the adequacy of internal controls.
Risk Management Framework:
The Company has instituted a Risk Management framework which comprises the identification of potential risk areas, evaluation of intensity, mitigation plans and procedures for the risk management and policies formulated both atthe enterprise and atthe Operating level. The framework seeks to facilitate building a common understanding of the exposure to the various risks and uncertainties at an early stage, for timely response and their effective mitigation.
Human resource and employees relations:
During the year an innovative and first of its kind Employee Stock Options Scheme (ESOS) was implemented and options were granted to employees for recognizing their loyalty and performance. The stock option grants would infuse ownership amongst employees since they would also benefit from their continued contribution to the Company.
Many other organisation development initiatives like revised designation structure for all employees were introduced, which contributed enhancing the motivation and thus productivity of our internal stakeholders.
During the year the Company was successfully able to meet the manpower requirements emerging from our expanding business. The manpower as on 31 ' March, 2008 was 36,650 across all business.
Our Company is geared to meetthese challenges. Various retention schemes have been implemented. The meritocracy, performance driven and entrepreneurial culture in the Company is also a big retention measure. We have also started the process of role sculpting which would lead to further optimizing of manpower costs.
The overall human resource outlook is positive and we would be able to effectively achieve the desired objectives.
The Company has developed an environment of harmonious and cordial relations with its employees.
Information technology
1 . Reliance Technology Innovation Centre (RTIC):- Overview
RTIC is instrumental in evaluating multiple vendor equipment and testing the Interoperability with existing network elements. RTIC has a well established Lab, which is an exact replica of the RCOM network, in a reduced scale. RTIC also conducts the database audit of the systems to enable a smooth deployment without initial hitches that follow any major deployment. All the network elements are acceptance tested after installation and certified before commercial deployment.
Handset testing
Allthe mobile devices including Mobile handsets, SIM/ RUIM cards, data cards, FWP/ FWT and modems go through rigorous and automated lab testing process, drive test, field testing and certification before deployed in the network.
GSM systems
The interop testing of the GSM system with existing Network elements is nearing completion.
2. RTIC development division
The following unique RTIC products have been launched during the financial year:
One Office Duo (Fixed-Mobile Converged (FMC) and Virtual Private Network (VPN)) - India's first fixed-Mobile converged VPN (CUG) service.
This service will be used by Enterprise post-paid customers with Reliance Mobile, Fixed Wireless and Fixed line connections. Reliance PABX as well as Centrex customers can also use this service. Even non-Reliance customers can be part of VPN for call termination. The users will be part of a VPN and can use short dialing codes. They enjoy concessional tariff within the group, thereby significantly reducing the overall cost of the communication within the enterprise. The enterprise customers can manage their own VPN by adding, deleting users and granting them different calling permissions.
Inter-standard roaming
Reliance Communication launched the World phone, by which the Reliance CDMA customer can roam in the GSM network anywhere in the world with the same Directory number.
INRich
IN Rich is an Intelligent Network system, hosting Variety of Services targeting Wireless / Wire line customers as well as Enterprise domains. The service provides facilities for call restrictions (within SDCA, Intra circle, N LD, ILD, etc) to various customers. It provides much needed facilities for PCO subscribers, like the mobility restriction, Voucher Management, CustomerAccount Management, Recharge and Balance Enquiry through IVR, 1 6Khz metering from Network and Fraud Management. This is a high capacity system (2 Million BHCA) catering to both wire line and Wireless customers.
Achievements and Awards
The Company's focus on Information Technology (IT) is demonstrated by more than 5,600 person-years of rich experience across various domains, with more than 13% of the IT team members having more than 9 years of experience.
The IT team's innovation and delivery continues to win recognition for its ability to use information technology for enabling and enhancing business value. The key accolades won by the Company include the following:
* SAP ACE Awards 2007 for Customer Excellence in the Best Telecommunications Sector Implementation Category.
* 2007 CIO 100 Award (2nd year in a row) for innovation in Enterprise IT.
* CIO 100 Smart Infrastructure Award for exceptional use of network technology deployed to further business objectives,reduce spending, improve profits.
* CTO Forum - Hall of Fame Award given to CIO for having made significant contribution to organisation.
* Symantec 2007 Visionary Award for technology innovation and business value impact in the areas of High Availability, Backup and Recovery.
* Government of Maharashtra, Directorate of Industries honored the Company as IT Service Provider for Maharashtra Information Technology Award for the year 2007.
* The Company was selected in NASSCOM's 100 IT Innovators-2007 for creating exciting IP and using business model and process innovation to realize significant business benefits and extend these advantages to their customers.
* NetApp Innovation 2007 award (Enterprise Infrastructure Category for Business Impact and Innovation).
The Company continues to excel in creating advertisements for its products and services. Reliance Mobile was recently awarded 1 3
ABBY awards for its advertising campaigns overthe last 1 2 months. Some of our advertising campaigns which won top honors at ABBY's are Apun Ka Sapna, Bol India Bol and Network. ABBY is the industry goldstandard for creative excellence and is adjudged by 'Advertising Agencies Association of India' (AAAI).
During the year, the Company continued to invest in IT to increase efficiency, scale, availability and uptime of all mission and business critical systems. Notable achievements include creation of valueadded solutions for services like IPTV and DTH, international long distance calling, optimisation of the collection and invoice processes in the ERP system, enhancement of revenue assurance and fraud control system, significant automation of back-office processes.
Capitalising on the robust foundations already laid, the Company will continue investments into IT to drive the vision of managing scale and growth to newer heights. Special emphasis will be given to the following areas:
* Increased implementation of 'Green computing' principles to reduce the Company's carbon footprint- reduction of energy and waste in the existing systems in addition to evaluating environmental attributes while selecting new IT equipment.
* Introduction of GSM-based services.
* Enhancement of all back office operations like HR management, supply chain and financial processes to maintain world class standards.
* Enhancement of business continuity processes to recover out of unforeseen situations.
* Continued emphasis on design and implementation of control systems that enable the Company to deliver benchmark level quality in the area of information risk management.
* Increased usage of convergent IT architecture with reusable components.
* Creation of Loyalty Program Management system to track and offer benefits to loyal customers.
Inflation up on food prices
India's benchmark inflation, based on the wholesale price index (WPI), rose slightly in the first week of September as against expectations of a decline, due largely to rising prices of a few essential food articles, the Government said. The annual, point-to-point inflation increased to 12.14% in the week ended September 6, as against 12.1% in the previous week, the Commerce & Industry Ministry said in a statement. Inflation was expected to fall in a range of 11.9-12.07%. The annual rate of inflation stood at 3.46% as on September 8, 2007. The WPI for All Commodities rose by 0.1% to 241.1 from 240.8 in the previous week.
The index for Primary Articles gained 1% to 251.7, with the index for Food Articles group rising by 1.4% to 240.6 due to higher prices of fruits & vegetables (6%), urad and wheat (3% each) and mutton (1%). The annual rate of inflation for Primary Articles stood at 11.27% in the week ended Sept. 6. It was 6.65% in the comparable period last year. The annual rate of inflation for Food Articles was 6.32% versus 4.91% a year ago. The Government revised the inflation rate for the week ended July 12, to 12.13% from the provisional estimate of 11.89%. The WPI for the same period stood revised at 239.5 compared to the earlier forecast of 239.0.
Rupee makes a comeback
The rupee bounced back against the US dollar, as stocks surged across the world in the wake of multiple regulatory actions to revive confidence in financial markets and defuse tension in the global credit markets. On Friday, the Indian currency had the biggest intra-day rally in nearly two months after the US government stepped up efforts to ease the strain in the credit markets and the world's leading central banks continued to boost liquidity in money markets. The rupee rose 1.4% to 45.83 per dollar, its biggest gain since July 23 after the benchmark BSE Sensex had its biggest gain in almost two months. The index rallied by nearly 5.5% to 14,042 while the NSE Nifty jumped 5.1% to 4,245. The rupee touched an intra-day high of 45.76 and a low of 46.41, reflecting the underlying volatility in the foreign exchange markets. Four of the 10 most-active Asian currencies, excluding the yen rose against the dollar. Earlier in the week, the rupee almost fell below the 47 per dollar mark on sustained buying by foreign banks and a sharp drop in the stock market. The rupee dropped 0.3% on the week. Gains in the Indian currency were tempered by speculation that importers, including state-run oil refiners will purchase dollars to pay for crude oil, as the commodity rebounded from a seven-month low.
Telecom sector still growing
The worldwide telecommunications market is on pace to reach US$2 trillion in 2008, a 7.6% increase from 2007 revenue of US$1.8 trillion, according to Gartner, Inc. The industry does face challenges as growth in the fixed voice sector and in the most developed countries has slowed or even begun to shrink.
"Revenue from telecom services has traditionally dominated the market, accounting for four out of every five dollars earned in the sector," said Will Hahn, principal research analyst at Gartner. "We forecast that this historic proportion will now shrink, an indication that legacy revenue is no longer sufficient for carriers to justify their investments and that the growing equipment sector is being deployed to support new and converged services, as well."
Revenue in the telecom service segment is expected to reach US$1.6 trillion in 2008 and account for 81% of overall telecom revenue. In 2007, total telecom service revenue was US$1.49 trillion, four times higher than total telecom equipment revenue at US$353bn. Gartner forecasts that by 2012, the service segment will have a CAGR of 4.4%, compared with 8.7% for the equipment segment. As a result, the relative proportions of the two segments will finally begin to move downward, closer to 3-to-1.
Gartner predicts that by 2012, the ratio of mobile to fixed connections will exceed 4-to-1. "We now forecast that revenue in the mobile sector will top US$1 trillion by 2010," said Hahn. "Our breakdown of services clearly shows that fixed voice is in decline, but mobile voice, though currently growing, will also stagnate as a proportion of the market by 2012. The baton has clearly been passed to data services in the legacy sector."
Is this the great depression of modern era ?
Wall Street, which for long has been the symbol of the US' superpower status, came crashing down, as two of its storied financial firms became history, and another one was rescued by the government from the brink of a collapse. The shocking events, which sent global financial markets into a tailspin, came just a few days after Washington's bailout of Freddie Mac and Fannie Mae, and could change the financial landscape in the US. Put on the backfoot by the alarming and disastrous developments on Wall Street, the Bush regime launched a multi-pronged assault to salvage the rapidly deteriorating situation. By the close of trading on Friday, Washington was still putting together a mega rescue package to get to the root of the credit crisis and restore sanity in financial markets. And, though stock markets across the world cheered the efforts of governments and regulators to stem the financial firestorm, doubts persisted over the fate of Wall Street and its larger ramifications for the global economy.
It all started with the 158-year old Lehman Brothers filing for bankruptcy as it failed to find any buyers and Washington refused to lend a helping hand. Fearing a similar fate, Merrill Lynch decided to sell itself to Bank of America. It didn't stop there, as insurance giant AIG too almost blew up. But, unlike Lehman, it was a little more fortunate, as the Federal Reserve lent it $80bn for two years in return for an 80% stake. Amid all the gloom, Morgan weighed its options, and kicked off merger talks with Wachovia and China's sovereign wealth fund. Washington Mutual too put itself on the block. The contagion was not restricted to the US alone. Across the Atlantic, the British government too had to engineer the rescue of HBOS, the biggest housing mortgage lender in the UK, by asking Lloyd TSB to acquire it. Another British bank Barclays agreed to purchase Lehman's core US businesses after dropping a plan to buy the whole of it. Similar deals were being contemplated for buying Lehman's various businesses in Asia and Europe.
One of the biggest money market funds imposed a seven-day freeze on investor redemptions after the net asset value of its shares fell below $1. The rates on loans that banks charge each other rapidly rose in the turmoil. The London interbank offered rate, or LIBOR, jumped by 3.33 percentage points, to 6.44%, on its overnight dollar rate, its biggest increase ever. Yields on three-month Treasury bills fell to their lowest level since daily records began in 1954. Trading was suspended on Russia’s stock markets when they went into a free-fall that was not halted even by a government injection of $44bn into the country’s three biggest banks.
In the midst of it all, the central banks swung into action to inject billions of dollars in liquidity to unclog the stress in credit markets. The world's top 10 banks and financial firms formed a mega fund to ease the credit crunch. But, the Fed decided to keep interest rates unchanged, pledging to take action when the need arises. The Bank of Japan too left its benchmark interest rate steady. However, China cut interest rates and lowered the reserve requirement for small banks. China also took a series of other steps to bolster its sagging stock markets. In India, the RBI too had to move in to boost liquidity, which worsened due to the outflows towards advance tax numbers. The Finance Minister threw his weight behind Indian banks, saying that they are well regulated and were largely unaffected by the western financial turmoil. ICICI Bank's share took a hit amid news of $80mn exposure to Lehman, but the bank's top management said the bank was safe and sound.
Stocks across the world took a severe beating in the early part of the week, but staged a smart rebound after regulators in the US and UK banned short selling in financial companies. AIG's rescue and talk of a comprehensive program to cleanse the US financial system also helped in the turnaround. Crude oil and gold were highly volatile. Gold initially rallied as investors rushed to safe-haven assets like precious metals and government bonds, as equities remained under pressure. The dollar weakened early on in the face of the crippling financial mess. But, by the end of the week, trend across these markets reversed amid growing optimism that the US government's move to come out with a wider bailout plan for its battered financial markets will prevent further pain and restore confidence among global investors. As a result, crude oil had its biggest three-day rally in almost a decade, while gold futures dropped the most in a week and the dollar rose the most against the yen since April.
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How the Subprime crisis began
If you lost your money in the market crash of January 2008, here's the route to your loss, in chronological order.
2001-2005: House prices in the US begin to rise rapidly. Banks lend aggressively and create a subprime industry.
Sub-prime lending refers to lending (at slightly higher interest rates) to people who may not be eligible for a loan under normal circumstances. Maybe they don't have a regular job or income, or have defaulted in the past.
Banks traditionally did not lend to such people due to high risk of default. But since these loans were mortgaged against property and property prices were rising continuously, banks started doing so. If customers defaulted, they good sell the mortgaged property.
2005: The booming housing market halted abruptly in many parts of the US.
2006: Prices are flat, home sales fall.
February 2007: Sub-prime industry collapses in the US; more than 25 sub-prime lenders declare bankruptcy, announce significant losses, or put themselves up for sale.
While they were lending, banks did not factor in the possibility of a fall in property prices. When the Federal Bank (the US equivalent of RBI) started increasing interest rates, the sub-prime borrowers started defaulting and banks started selling off the mortgaged properties. As more and more properties came into the market for selling, the property prices fell.
August 2007: Many leading mortgage lenders in the US filed for bankruptcy
March 2008: Bear Sterns falls.
September 2008: Lehman Brothers file for bankruptcy. Merrill Lynch sells off to Bank of America.
Between 2001 and 2006, the US financial markets had developed a new product - a bond securitised against the mortgages.
In simple terms it means that the mortgage banks borrowed money against the mortgages on the condition that they would repay to lenders as soon as they recovered their mortgages. The lenders in this case were financial institutions (like Bear Sterns, Lehman and Merrill Lynch) who in turn sold retail bonds to individuals.
Sadly, the repayment never happened. And institutions like Bear Sterns, Lehman, Merrill Lynch and AIG were the casualties. Since the mortgages were not honoured, the banks could not repay these financial institutions who in turn could not repay retail investors.
Rupee rises
Ends at 45.80/82
Rupee staged a late rally on Friday, strengthening past 46 per dollar on aggressive dollar sales by exporters and as a 5.5 percent surge in local stocks eased some fears about foreign fund outflows.
Rupee ended at 45.80/82 per dollar, 1.4 percent stronger than Thursday's close of 46.42/43 as it posted its biggest daily gain in two months. On Tuesday, it had fallen to a two-year low of 46.99
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