Reliance Communications President and CEO, Prakash Bajpai says that the Enterprise Business' new scheme of handset at Rs 777 will be an aid to the next level of market penetration. The handset would be available in all sectors - induviduals and SME's.
Rel Comm will invest about USD 2.5 billion in network expansion, while a significant part of it will be invested in broadband expansion. They have a capex plan of USD 3.5 billion for network expansion.
Excerpts from the exclusive interview with Prakash Bajpai :
Q: Could you start of by telling us about the new handset that Relcomm has come out with? What sort of response have you seen and have you built even more on your CDMA market share?
A: These handsets will bring in a never before experience for the customer and the value is tremendous. We worked hard with our manufacturing and technology partners to pack in all the features and cut down the cost so that we can penetrate to the next level of affordability.
This will create the next level of market expansion and also create lot of value for the enterprise business customers as well.
Q: What kind of penetration do you expect the Rs 777 plan to achieve and do tell us about margin picture you expect if this becomes a big success for you because of the kind of cost you would incur and would you be able to hold that 40% plus kind of margin picture?
A: The overall business has been rapidly expanding because the volume is an important part of this matrix and so as you take the value offering whether it is mobile or enterprise broadband solutions. So as you penetrate deeper and serve more customers from one integrated network that we have, there is scope not only to maintain the margins but also grow it continuously. So all of these products, whether they are mobile or broadband solution are part of the solution and value that you are carrying to the market at all times.
Q: Which markets in specific are you focusing this handset? Is it the smaller towns and cities and could you quantify the initial response you have got?
A: It will go to all the segments of the market. When you package solutions like close reserve groups it creates compelling value for businesses as well as individual customers. It will be applicable for urban markets as well as the rural market. These kinds of value products get consumed in all the segments of the market.
Q: What kind of network expansion targets have you set for the next 1-2 years? What are your capex plans?
A: Our Chairman has already given the guidance that there will be approximately USD 2.5 billion investment going into network expansion. This includes the wireless expansion to more towns but at the same time significant portion will also go towards broadband infrastructure expansion.
So in the last couple of years we are focused on the broadband network around the business districts and now it will be expanded to more business districts because the broadband service still has a very poor penetration and therefore there is huge scope of expansion not only of mobile services but for broadband services as well.
Q: At a time when you are about to get quite aggressive on the GSM roll out front, how do you read Bharti’s recent cut in prepaid with their new plan and do you think we are moving to even lower price points in the GSM business going forward?
A: I think the price points are becoming an important part of the value creation and eventually it will be through various tariff plans through various packages and products. What one is trying to do is create a superior and competitive value and it is an ongoing affair and all of us will be partaking in that. So there will be offers and solutions coming from different parts of the industry components.
Q: Is there scope for Reliance Communications as well to drive prices a bit lower?
A: Both the prices or the value will be commensurately matched, so whether you offer more value in the same price or same value in lower price points, you will keep on creating competitiveness in the market.
Q: What sort of revenue growth you expect for the broadband side along with all the capex that you pointed out?
A: In the last year alone itself you have seen that we have more than doubled the business while focusing on the enterprise broadband alone. Our margins have very significantly expanded nearly 6 times and we actually are right now running margins at 45% for the last year. Infact in the last quarter we did around 49% which is the industry leading margin and if you look at the Q4 order booking it was nearly Rs 737 crore which has more than doubled the level of activity that we used to do in the previous years. Now this is partly because the CXOs and the CEOs of the large corporations and the mid-sized companies are increasingly becoming more and more depended on the IT and networking their businesses.
So if you continue to create solutions and provide them high quality services they do create a lot more reliability, quality of services, the SLAs and as we continue to provide them we want to continue to do more of the same, build more networks, connect more buildings and create larger portfolio of our product and services innovation so there is no really limit to. This business has really just begun and it has huge scope of expansion and growth.
Q: At what stage of rollout are your DTH and IPTV plans now and can you set some targets for us there?
A: These are very much in the works right now at the backside. We plan to launch on a nationwide basis of the DTH network by the end of the year and IPTV network will be rolled out atleast in the few metros. At this time there is lot of work going on that and obviously IPTV type of network creates value for the residential customer and gives them a superior TV viewing experience in an interactive and personalized way but you really need to have fibre broadband connected to larger and larger number of buildings.
We are now nearly half a million building connected with the fibre broadband connectivity and we plan to take it to approximately 1.6 million building in the next year and with that we will have a large market which can really take the benefit of such a premium technology.
Reliance Communications for overseas listing of FLAG
Reliance Communication has decided for overseas public offer for its international communication subsidiary FLAG Telecom, for which it has shortlisted four merchant bankers.
Sources said Goldman Sachs, Deutsche Bank, Morgan Stanley and UBS were shortlisted for the process, which would see RCOM divesting 10-15 per cent equity.
FLAG Telecom will be listed on the London Stock Exchange.
FLAG is a 100 per cent subsidiary of Reliance Communication. The proceeds raised from the IPO will be used to part finance expansion plans announced last year, which include laying 50,000 km fresh undersea cable in regions where there is dearth of international bandwidth. The expansion plan could entail an investment of about 1.5 billion dollar (nearly Rs 70 billion).
The company had, in December last year, announced that it would build the world's largest next generation undersea cable network with an investment of USD 1.5 billion (about Rs 7,000 crore) over the next three years.The network Flag Next Generation Network (Flag NGN) spanning 1,15,000 km, will connect 60 countries and five billion people across four continents.
It will be the first network to connect Southeast Asia and second to connect Africa. PTI MST KM 03261245 DEL
Demerger Of Passive Infrastructure Division Reliance Communications And Reliance Telecom Approved By The Bombay High Court
The Hon'ble High Court of Judicature at Bombay approved the Scheme of Arrangement between Reliance Communications Limited (RCOM) and Reliance Telecom Limited (RTL) and Reliance Telecom Infrastructure Limited (RTIL) by way of demerger of the Passive Infrastructure inter alia consisting of the wireless towers (CDMA and GSM) and related infrastructure of RCOM and RTL to RTIL. RTIL is a subsidiary of RCOM.
The demerger of passive infrastructure would benefit the respective companies and the stakeholders on account of:
- Reduced set-up and operating costs resulting in cost efficiency coupled with a greater financial flexibility;
- Segregation of the business of providing telecommunication services and the business of providing the Passive Infrastructure facilities, thereby enabling the companies to concentrate on its core business activities;
- Improved quality of services to its customers by establishing highest service standards through operational agreements; and
- Promote high valued standalone business by conversion of cost-centric assets to revenue-centric ones by sharing of the Passive Infrastructure of the Resulting Company with other wireless service providers operating in the same field.
Background:
Reliance Communications Limited (RCOM) is part of the Reliance - Anil Dhirubhai Ambani Group. RCOM is India's largest integrated communications service provider in the private sector with over 32 million individual consumer, enterprise, and carrier customers.
We operate pan-India across the full spectrum of wireless, wireline, and long distance, voice, data, and internet communication services. We also have an extensive international presence through the provision of long distance voice, data and internet services and submarine cable network infrastructure globally.
DEMERGER : TOWER BUSINESS
In the recent past, there has been news of telecom companies in India (specially in the private sector) hiving off their tower business by creating separate subsidiaries to accommodate the same. We must ry and gauge the rationale behind the companies doing so, as also the valuation aspect of the same.
" Why to de-merge tower business? "
There are a number of benefits that are linked to this strategic move:
*Asset light business model: *By hiving off of the telecom towers, Cellular Mobile Service Providers (CMSPs) can embrace an asset light model. This will lead to improvement in asset turnover and utilisation ratios.
*Expanding services:* By demerging a non-core business like tower management, CMSPs can be more focused on marketing and branding of their telecom services that could lead to a faster expansion of the subscriber base translating into increased sales.
*Faster expansion of services:* With companies not having to worry about the setting up of towers and their maintenance, there will be a faster roll out services to areas that the companies wish to bring under their coverage. Also they will be spared from the burden and costs associated with the set up and maintenance of these towers as currently these (towers) do not generate any independent revenues for these companies.
*Understanding the tower business*
Currently, there are no major Indian players into the telecom tower management business. As such, we can pick on the US based " American Tower Corporation " to get further details on the working of this business.
The tower management business flows like this.
The CMSP approaches the tower company with its network requirement in terms of the required height of the equipment for transmitting signals and number of antenna locations. This can be called as the coverage goal. Once the requirements are in place, the next step is to locate the tower or rooftop site that best suits the need of the CMSP. This can again be attained with the aid of tools that help to zero in on the site that best fits the coverage requirements. This is followed by a
feasibility study and some other legal and procedural formalities on the satisfactory completion of which the CMSP is successfully able to extend coverage to that area.
Such accelerated coverage is a win-win situation for both the CMSP as also the tower companies. The CMSP can, depending on its financial strength and requirements, launch/extend its services to areas that are currently off-coverage and the telecom tower company is able to leverage its assets better to generate higher return on assets as the incremental costs associated with adding a tenant to a wireless site are minimal.
The companies generate revenue by leasing out the towers and as a result their main source of revenue is on account of lease rentals and management of these towers. While the revenue is recurring in nature owing to the long standing agreements that these companies have with their clients (CMSPs), it is the ability of the company to generate incremental revenues on the towers that matters the most. As stated earlier, the costs associated with adding on an additional customer to the tower are very low and as such their revenues contribute straight to operating profits. However, due to the high depreciation and sales and general expenses, the net profit margins for these companies continue to remain low.
" Financial snapshot of US tower companies "
*Valuations*
As telecom tower companies have huge depreciation, as is visible in the large differences between operating and net profit margins in the table above, it would not be feasible to value such companies on a 'price to earnings' multiple. Similarly, the use of 'price to book value' is also not very desirable, as the assets will continue to generate income long after they have been written off. In the given scenario, we believe it would be good to use the 'price to cash earnings' or 'price to sales' ratios for valuing such businesses.
*How does it impact us?*
Many Indian CMSPs have announced to tread a similar path by spinning off their towers into a separate subsidiary that may be listed subsequently on the Indian bourses. While an understanding of the valuations of American tower companies (as enumerated above) will not give a true picture of the kind of valuations that Indian tower companies will command (as a matter of fact, US telecom tower companies currently trade are premium valuations as
compared to telecom companies), it could serve as a good starting point for evaluating the domestic companies in the future – both in terms of financial performance and valuations.