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w w w. f i n a n c i a l e x p re s s . c o m

l TUESDAY l NOVEMBER 6 l 2012

Political rally on reforms signals new pragmatism


t was always obvious, at least to the non-political, that a 10%-inflation-5%-economic-growth combination wasnt the best plank to fight for re-election, but the manner in which the Congress party appearstohavereadthewritingonthewallistrulybreathtaking.Sundays rally , in the capitals historical Ramlila groundslast seen as the battlegroundforAnna-Hazaresanti-Congressagitationwasnotjustashow by the Congress to take on the combined opposition and to try and divert attention from all the graft charges that have dogged it for a long time. It may well be true that, unlike perhaps Anna Hazares more spontaneous crowds, those at the Ramlila grounds on Sunday were bussed in by enthusiastic Congress leaders, but thats missing the point. And that point is: when was the last time the Congress party , or even the BJP for that matter, actively campaigned in favour of reforms, with FDI aayi, khushaali laayi banners at that. Even in 1991, when the Congress was in a more comfortable situation in Parliament and within its coalition, it never actively , or honestly , debated reforms. Years of mollycoddling PSUs, and India Inc along with them, resulted in a situation where India Inc (and PSU Inc) was so dramatically inefficient, you had a Bombay Club of top industrialists who were arguing caution while opening up the economy . Yet, while lowering import duties, you never hadaNarasimhaRaooraManmohanSinghtalkingof howhighimport duties were hurting the consumer, condemning her to a life of sub-standard goods. While an attempt was made to cut subsidies, at no point was the public treated to arguments made in most economists circles, that a rupeespentininvestmentsdidmoreforpovertyalleviationthanarupee spent on subsidies which, in any case, never reached the people. Sundays rally saw Manmohan Singh make the intellectual link between economic reforms and poverty alleviation but, far more importantly , saw Sonia Gandhi reiterate this. No one used heavy duty data to make this pointpoverty fell the fastest in high growth years and development-spend also rose the fastest (http://goo.gl/IqNDK)but the fact thatthepoliticalclassendorsedthepointwasabigstep.Noone,itistrue, emphasised the fact that the current laws, like the APMC Act, hurt the farmers, but when heir-apparent Rahul Gandhi blamed the system for their plight and said that food processing benefited farmers, he was getting a buy-in of the sort not seen too often in Indias democratic politics. Not quite Obama-Romney , but its a start nevertheless.

Rallying on reforms

RationalExpectations

Government hiked annual charges in lieu of no upfront fees but insisting on both together is asking for trouble
iving advice on what stocks to buy and what stocks to sell is pretty dicey, but when its a sure shot that may not be such a bad idealike Reliances stock will do better if the government raises the gas price RIL gets. Telecom is one such sure shot, and heres the advice: till the government changes its policy, youre going to make a loss each extra day you hold on to telecom stocks. Apart from the dismal economic conditions, the messed up government policy is the main reason why there are such few takers for next weeks auctions that look certain to be a washout given the number of players participating is really low. A good place to begin is the R30,000 crorea third of this from PSUs BSNL and MTNLthat the EGoM wants telcos to pay for the extra spectrum they have (table 1). While telcos argue they got the extra spectrum as a result of bona fide government policy, this is missing the pointafter all, Uninor can claim it got its licences out of government policy that everyone in the government argued (some still do!) was bona fide till the Supreme Court ruled otherwise. The question is whether the government got compensated for, say, giving spectrum worth R5,000 crore for an upfront payment of

Killing the telecom goose

just R1,651 crore. cannot have large upfront Turns out, the governmoney and also have ment did get compensatlarge annual surcharges. ed. Heres why: when telTo put this in perspective, cos were given this extra take the example of a firm spectrum without being that buys 5 MHz at todays charged an upfront aucreserve pricesthis will tion-type fee, the governcost it R14,000 crore. Typiment raised the spectrum cally, this telco should be usage charge (SUC) SUNIL JAIN earning R15,000 crore of which telcos pay apart annual revenues, which from the 6-8% annual limeans it will pay R1,450 cence fee. The SUC was 2% of adjusted crore of licence/spectrum fees. But to gross revenues (AGR) when telcos bepay R14,000 crore of upfront charges, gan their operations with 4.4 MHz of the telco will be incurring finance spectrum, rose to 3% of AGR when telcharges of a similar nature. In other cos had up to 6.2 MHz of spectrum, 4% words, telcos are being asked to double for 8 MHz of spectrum, and so on. Sadtheir payments which, based on toly, Trai provides data for SUC paydays ebitda margins, means a 40-50% ments only from 2008 onwards while cut in these margins. firms started getting extra spectrum How this leaves industry no money 7-8 years earlier, but even data since to finance themselves can best be seen 2008 shows telcos paid R17,248 of specfrom some real-life industry numbers. trum till June 2012. Considering that Gross revenues for industry were the SUC should have been just 2%, this about R1,60,000 crore in FY12 and means telcos have already paid up roughly R49,000 crore of this was given R9,463 crore extra (table 2) for this exout to telcos by way of inter-connectra spectrumconsidering telco lition usage charges, leaving an AGR of cences still have some years to expire, R1,10,000 crore. Subtract the licence this number could conceivably go up fee/spectrum charges (also from Trai to around R20,000 crore. data), then around 20% for sales and Which brings us to the larger point marketing and another 5% for staff of the auctions and government costs. You then need to subtract the greed. If the government wants large costs of operating the networktelcos money upfront, let it take this; but it can either own their networks or hire

it out. For ease of calculations, assume the network is leased. The industry has around 4.5 lakh towers and each gets a rental of around R62,000 per month, giving you opex costs of around R33,500 crore. All of which leaves you with an ebitda of R22,600 crore, or around 14.3% (table 3). Now lets move to the auctions, where the government has put a base price of R14,000 crore per 5 MHz of spectrum. Trai has recommended multiples of this for other bandsa multiple of 2, for instance, is suggested for 900 MHz spectrum. Based on industrys current spectrum holdings, this is worth R2,10,000 crore. Given this involves a financing cost (and were not even talking amortisation yet) of R21,000 crore, were left with under R2,000 crore of our ebitda. Bring in the R1,80,000 crore of current industry debt taken to fund capex, and were seriously out of the money. Hopefully, once the results of next weeks auctions seep in, the government will figure this out and revert to a more sensible telecom policy. Otherwise, with telcos starved for cash, the big broadband rush we are looking forward to will never happen. Nor will the big productivity hike that is contingent upon this. sunil.jain@expressindia.com

The worlds future depends on how this turns out


he traditional Indian response to a US election has been to side with candidates who prefer freer trade (Republicans mostly) and thosewhotendtobealotmorestrategicintheirapproachtoanIndo-US partnership (which Democrat President would give India the kind of nuclear deal George Bush did?). Increasingly, however, with a greater Indian stake in globalisation, the metric by which to judge a redstate-blue-statecontestistoseewhichcandidatewillbebetterfortheUS, for thats where Indias future lies. A Democrat Obama may be more certaintotryandrestrictoffshoringtoIndiathanaRepublicanRomney ,but if the US economy recovers to full potential under Obama, theres a lot more money to be made by India. Obamas track record, going by that yardstick, is certainly more promising. From an economy that was losing 800,000 jobs a month when he assumed office and an economy that was contracting 9% on an annualised basis back then, the US has come a long way with the economy growing 2% in Q3 2012. While Obamas $800 billion stimulus certainly prevented the Greater Depression from taking place, the Dodd-Frank legislationensuredUSbankswentthroughare-makingprocessthathas left them far stronger than in 2008 when, after Lehman, many looked in danger of going the dominos way . But while Obamacare has done a lot to bring in 40 million people under health insurance, it remains true the President has not addressed Medicares huge and galloping costs. Obamasanswersonfiscalcorrectionlookequallyunconvincingandthefact that he spent so much time attacking Romneys corporate background only suggest industry bashing comes naturally to the Obamaites. On the other hand, while you have the obviously successful businessman Romney, his tax proposals are even vaguertax cuts along with a huge jump in defence spending adds $7 trillion to the deficit in 10 years. While Romney has pledged to eliminate tax loopholes, he hasnt specified which and thats easier said than done. Romneys promise to declare China a currency manipulator the day he assumes office may sound music to jingoistic Indian ears, but lets face it, putting antidumping duties on Chinese imports will benefit a Vietnam or a Bangladesh far more than it will India given how little weve done for textile industries, for instance. Of far greater importance, especially for the medium-term, is the leadership changea week after the next US President is declaredacross Indias border. How the new Chinese leadership tackles Chinas slowdown may have an even more profound impact on the world, and Indias, growth prospects.

Obama vs Romney

WATCH THAT EBITDA DISAPPEAR


for extra spectrum
Bharti Vodafone Idea RCom Total, including others
Source: EGoM, industry

1) Govt wants R30,000 cr R crore 6,200 3,800 2,800 3,600 30,000

2) But firms already paid R9,463 cr for this


(March 08 to June 12)

3) Industry ebitda is already very low


1,59,628 1,10,931 48,696 9,823 5,159 31,926 7,981 1,03,585 33,480 1,37,065 22,562 14.34

R crore 1 Gross revenue (wireless) (R cr) Aggregate Spectrum Excess 2 AGR (wireless) (R cr) gross revenue charges collected* 3 Interconnection cost (1)-(2) (R cr) 4 Licence fee (R cr) Bharti 1,24,434 6,118 3,629 5 Spectrum fee (R cr) Vodafone 80,656 3,810 2,197 6 Sales & marketing (R cr) 20% of GR Idea 50,853 2,358 1,341 7 Staff cost (R cr) 5% of GR RCom 38,142 1,015 253 8 Total cost (3+4+5+6+7) (R cr) Numbers of towers Total, including others 3,89,234 17,248 9,463 9 Total opex cost* (R cr) 10 Total cost (8+9) (R cr) * For 4.4 MHz, spectrum charges are 2% of AGR. But as you get 11 Industry ebitda (R cr) more spectrum, rates raised progressively to 3% for 6.2 MHz of spectrum, 4% for 8.2 MHz of spectrum, and so on. Only data for 12 Industry ebitda %
2008-12 available with Trai. By the time the licences come to an end, the extra payment could well exceed R20,000 crore

4) Charging high entry fee along with high annual fees will kill industry
R crore Cost of spectrum currently held by industry at EGoM/Trai formula* Additional interest cost@9.75% pa Ebitda left to service existing debt (R cr) Total industry debt (R cr) Interest payment@8% (R cr) Shortfall (R cr) 2,11,400 20,611.5 1,950.97 1,80,000 14,400 -12,449

Source: Trai, authors calculations

*Based on 4,50,000 towers@R62,000 monthly rental Source: Trai, industry

* Based on industry having to pay R14,000 crore per 5 MHz of 1800 MHz. And after that, the Trai recommended multiple has been used for other bands Source: Authors calculations

Employers begin favouring Asian universities


And pass-outs from top Chinese institutions start becoming the most sought-after by global businesses
among the favourites. And within these ties are not only giving stiff competiuniversities, the Chinese appear to be tion to their counterparts in Japan but taking major strides. also to all the rest in Asia. The Peking The Peking University just misses Universitys leap to the 11th rank has the top 10 and is ranked 11th. The Fu- taken it almost to the top 10, which is dan University is placed at the 28th. clearly an impressive achievement. Further down, Shanghai Jiao Tong What is particularly noteworthy is University is ranked 44th, while Ts- the achievement recorded by the Chiinghua University is at 84. nese universities in a short period of Looked at in a countrytime. Till about 15 years specific view for Asia, ago, very few employers Japan has three universiwould have rated graduties in the top 100: Tokyo ates from mainland uniInstitute of Technology versities as their top pref(14), University of Tokyo erences. China was a (23) and Kyoto University destination for higher (47). Waseda University, studies for only those asKeio University, Osaka piring to learn Mandarin University and Hitotand bequeathed with gensobashi University feaAMITENDU erous scholarships from ture in the overall list. The Chinese government. PALIT the National University of But the situation appears Singapore (36) and Hong to be changing fast with Kong University of Science and Tech- Peking, Fudan, Shanghai Jiaotong and nology (44) are among the top 50. The Tsinghua, giving their global competisole Indian institute in the top 50 is the tors a run for their monies. These not Indian Institute of Science (35). The In- only feature among the worlds top unidian School of Business (148) just versities in terms of education and remakes the list. search parameters, but are also Results of surveys are always influ- favourites with employers. enced by their design and composiApart from the efforts of these unition. No doubt, the present one has al- versities in securing higher standards, so been similarly influenced. a few other factors have influenced Notwithstanding these caveats, some their recognition. The first is, of trends are unmistakable. course, Asias robust economic Asian universities are increasingly prospects and Chinas own economic becoming favourites of employers. progress. With most global businesses And among these, the Chinese univer- pinning their hopes on Asian operasities are shaping well. These universi- tions, the tendency is to hire graduates Potential graduates watch out for rankings of universities for determining their preferences. But there is little research on the employability of these graduates once they pass out. If getting a good job is one of the most, if not the most important objective of a graduate qualification, which university and institute pass-outs are most valuable for employers? The 2012 Global Employability Survey prepared by Emerging, a French consulting firm, and Trendence, a German research institute specialising in human resource recruitment, has some interesting findings on the premium attached to graduates in the job market. The survey has a bottom-up approach. Instead of identifying universities and asking industries to rank their preferences for pass-outs from these places, a large sample of recruiters, CEOs and business managers were asked to select the universities and institutes from where they prefer choosing their recruits. Some of the results are expected. Graduates from top-notch universities and business schools in the US and Europe are among the favourites of employers. Harvard, Yale, Stanford, MIT, Columbia and Princeton from the US, and Oxford, Cambridge and Imperial College from the UK feature in the top 10. The US and Europe dominate the 150 universities and business schools reflected in the employability survey . What is interesting is the steady emergence of some Asian universities capable of performing better in Asian circumstances. These requirements are best met by students from Asian universities. Among these, with China clearly being the topmost in the radar of most global businesses, pass-outs from top Chinese universities are most sought after. The demand for these graduates is also high because of their knowledge of Mandarin. Chinas economic rise has ensured that businesses all over the world pay heed to the importance of doing business in Mandarin. Such qualifications now are obvious additional assets. The final factor influencing acceptability and recognition of Chinese universities in global yardsticks is their increasing internationalisation. Over the years, Chinas best universities have invited foreign faculties and opened their doors to foreign students. They have also allowed foreign universities to set up campuses in the mainland. These have produced benefits purely from the sense of Chinese universities becoming more closely integrated in the global education system. It would hardly be surprising if in the near future Chinese universities become distinct favourites of potential graduates too, given how employers are fancying them. The author is a visiting senior research fellow at the Institute of South Asian Studies in the National University of Singapore. He can be reached at isasap@nus.edu.sg. Views are personal

Canvassing China

ANDROID ALERT
Android could be the undoing of not only Apple, but even Samsung, which is currently heavily reliant on it
DESPITE the much-hyped and well-received recent release of Apples iPhone 5, not to mention the superlative sales figures of the iPhone 4S, iOSs marketshare is still a paltry 14.9% in the third quarter of 2012, according to IDC. Apples iOS system is a distant second to market-leader Android, which, with a 75% marketshareup from57.5%thepreviousyearhasconsolidated anear-insurmountablelead.GooglesstrategywithAndroid,of making it available to a wide range of phone makers (and hence a wide range of pricepoints),iskeytothisleadconversely ,Applespolicyof pricingits phones for high-end niche customers is the reason behind its crawling rise in marketshare (from 13.8% in Q3FY11 to 14.9% in Q3FY12). The availability of Android has enabled other phone makers like Samsung to eat into Apples marketshare in the hardware space as well. Samsung firstovertookAppleasthetopsmartphonesellerinQ3FY11,with20%of worldwide sales compared to Apples 14.5%. These numbers stand at 31.3% for Samsung and 15% for Apple a year on. Several analysts, including those from IDC, argue that Apple needs to changeitsstrategyitneedstoreleasecheaperproductsandgetoutof its niche if it wants to survive. The iPad Mini was such an attempt in the tablet market; Apple needs similar thinking in the smartphone space. Interestingly ,however,analystsalsosaythatSamsungseasyrideusingAndroid could be its downfall in the medium term. With its acquisition of MotorolaMobility ,Googlesaimisanin-housephonecoupledwithitsAndroidsoftware,atwhichpointitcouldwithdrawAndroidsusefromSamsungandtherest,orofferthemawatereddownversion.If Samsungwants to remain on top, it will soon have to develop its own operating system.

LETTERS TO THE EDITOR


Reshuffle well done, now work
This refers to the editorial Reshuffling tired deck (FE, October 29). Prime Minister Manmohan Singh has reshuffled his Cabinet brick by brick. The new formation process has been done successfully even amid many corruption charges against some of the politicos in the UPA government. But the Cabinet reshuffle has clearly shown the political maturity and astuteness of the UPA government. Definitely, this

reshuffle will add more teeth to the government functioning. Also, it is time non-performing and corrupt ministers are shown the door. Further, the role played by finance minister P Chidambaram in matters of putting the Indian economy on the right path amid the global meltdown is commendable. Besides, the governments social sector programmesfor which plenty of money has been allocatedare praiseworthy. At the same time, the government has tough tasks ahead. Employment generation, speeding up of infrastructure works and strengthening relations with our neighbours like China and Pakistan are the things the government should be doing immediately.

Haldia port vs Bengal


Referring to the decision of the private cargo handler ARG-LDA to pull out of the Haldia Dock Complex following the West Bengal governments indifference to ensure law and order at the port, your editorial Bengal in the dock (FE, November 2) has explained the importance of the port and its deterioration over the years. Will your editorial open the eyes of Ms Mamata Banerjee? Bengals glory is to be restored. If the situation continues like this, it will turn to be

worse than the previous one. For supporting people, the government needs to support things that will benefit them. And the Haldia port needs to be restored to the position for which it was intended to serve not only West Bengal but also Bihar, Bhutan and the Northeast. People should realise the danger and raise their voice so that the Centre and the state join hands to set things right with not only Haldia port but also West Bengal as a whole.

Jacob Sahayam, Thiruvananthapuram

PLEASE SEND YOUR LETTERS TO:


The Editor,The Financial Express, 9&10 Bahadur Shah Zafar Marg, New Delhi-110 002 or e-mail at: feletters@expressindia.com or fax at Delhi: 91-11-23702044

P Senthil Saravana Durai, Mumbai

REGD. No: DL-21048/03-05 R.N.I. No. 26750/74 Printed and published by RC Malhotra on behalf of M/s The Indian Express Limited and printed at The Indian Express Limited Press, A-8, Sector-7, Noida-201301 and published at Express Building, 9-10, Bahadur Shah Zafar Marg, New Delhi. Phone: 011-23702100, Fax: 011-23702044. (Air Surcharge: Rs. 2.00 Ranchi & Guwahati; Rs. 5.00 Imphal; Rs. 6.00 Kathmandu) Chairman of the Board: Viveck Goenka Group Editor-in-Chief: Shekhar Gupta Managing Editor: MK Venu Executive Editor (News): Subhomoy Bhattacharjee* (*Responsible for selection of news under the PRB Act ) Copyright: The Indian Express Limited. All rights reserved. Reproduction in any manner, electronic or otherwise, in whole or in part, without prior written permission is prohibited.

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