King Kong? BSNL is Indian telecom's 800-pound gorilla

You probably didn't need an investment banker to tell you this, but somebody's got to do the job: ICICI Securities (I-Sec)-saddled with the onerous responsibility of "synergy consultant"-has tabled two options for the merger of Mahanagar Telephone Nigam Ltd. (MTNL) and Bharat Sanchar Nigam Ltd. (BSNL). Either BSNL buys out MTNL or MTNL picks up 51 per cent of BSNL, if not all of it. That, of course, is the simpler part-making the recommendations. Getting somebody to make the decision is turning out to be the tougher part-a meeting scheduled last fortnight to thrash out the options was postponed, with the outgoing Department of Telecommunications (DOT) secretary Nripendra Mishra preferring to let his successor do the honours (till that successor is appointed, it secretary Brijesh Kumar will fill in).

On paper, it would appear logical for bsnl to buy into MTNL (the government owns all of BSNL and 56.25 per cent in MTNL, which is listed domestically as well as on the New York Stock Exchange). Whilst MTNL is confined to Delhi and Mumbai, BSNL already has a pan-Indian footprint, with a presence in 5,200 cities and 5.4 lakh villages. Naturally, BSNL would have more subscribers too: 46 million, as against mtnl's 4.84 million. As far as investments go too, BSNL is stepping on the gas, with a proposed capital expenditure of Rs 25,000 crore a year for the next three years-and this comes in the wake of the Rs 32,000 crore-plus spent over the past three years. The short point: BSNL can simply go ahead and acquire the government's stake in MTNL.

Government sources point out that the intricacies and modalities of various options, valuations and swap ratios will come up only later. "Right now, opinion is being sought from key stakeholders (BSNL and MTNL)." R.S.P. Sinha, Chairman & Managing Director, MTNL, appears to have his problems with MTNL being acquired. "Is BSNL's acquisition of the government's stake in MTNL to be called a merger?" is his favourite question these days. "A merger should be the route-I am okay with a straight or reverse merger."

You could argue that the hairsplitting about whether the marriage will be a merger or an acquisition is secondary (though MTNL's 53,000 employees and BSNL's 3.5 lakh workforce may disagree); after all, the purpose of the amalgamation is to create a bigger, more efficient giant that can dance. "The two PSUs have not performed well-in the last four years, their share of expansions has been only 20 per cent, with 80 per cent coming from private players, of a total of 50 million lines," points out Dayanidhi Maran, Union Minister for Communications & it. "I want MTNL and BSNL to achieve a target of 50 per cent (80 million lines) in the next three years." That's great, but will somebody bring them together first?

-Kumarkaushalam

AMBUSH
The Perils Of A Long Teaser

To promote their daily, slated for a September release, the Zee-Dainik Bhaskar combine retained Rediffusion to develop a teaser campaign. The agency did one with potential readers with duct tape over their mouth and the punchline, "Speak up, it's in your DNA", and blitzed it across some 150 hoardings in Mumbai. In just a few days, Bennett, Coleman's (publisher of The Times of India) agency Enterprise Nexus piggy-backed on the curiosity created with its own version showing the tape peeled off. The ads were for Maharashtra Times. Zee has taken BCCI to court for Rs 100 crore in damages; the court has asked the company to hold its rip-off; but the damage is done. Moral: the perils associated with a long teaser are almost the same as that of launching a competitor to TOI in Mumbai.

-Abir Pal

SECOND
Carbon Currency
There's money in environmental soundness, as Gujarat Fluorochemicals is discovering.

There's money in carbon. Just ask Gujarat Fluorochemicals (GFL) that stands to make anything upwards of $21 million (Rs 92.4 crore) a year (its own capacity and market dynamics are the only constraints in a euro 10-billion-by-2008, Rs 56,000-crore, market) from it. The carbon in question is carbon credits that companies can earn by reducing emissions of greenhouse gases. Companies can trade in these as a commodity under the United Nation's Framework Convention for Climate Change (UNFCC).

Vadodara-based refrigerant-gas manufacturer GFL has become the first Indian company, and the third in the world to have an emission-reduction project certified as a Clean Development Mechanism (CDM) by the Executive Board of the CDM established under the Kyoto Protocol. GFL makes HCFC 22, also known as Green Gas or Top Gas, a coolant widely used in air-conditioning and refrigeration applications. In the process, it generates HFC 23, another fluorochemical, as a by-product. HFC 23 is a potent greenhouse gas with a global warming potential of 11,700 (the global warming potential, measured as the ratio of the warming or 'radiative forcing' that would result from the emission of one kilogram of the greenhouse gas to that from the emission of one kg of co2 over a period of say, 100 years). GFL's CDM initiative involves the thermal destruction of HFC 23. With the CDM certification, GFL will be able to sell its carbon emission reductions (CERs, popularly referred to as carbon credits; one CER is the reduction of a tonne of co2) to companies in developed economies that can offset it against the greenhouse gases they produce (the Kyoto Protocol places a legally binding cap on such emissions by industries in developed countries). GFL will likely generate three million CERs a year, and the number could increase as the company scales up production of HCFC 22. The CDM initiative, according to Deepak Asher, Vice President (Corporate Finance), GFL, will "add a new healthy revenue stream".

There are differing estimates on the value of a CER. The National Commission on Energy Policy in the us recommends a ceiling price of $7 (Rs 308), while the high-profile McCain-Lieberman bill in the us Senate (it missed being passed narrowly) mentioned the band $6-17 (Rs 264-748). Estimates suggest that, were the US to sign the Kyoto Protocol, the cost for American firms by 2010 would be $51 (Rs 2,244). And as previously mentioned in this article, the trade in CERs is expected to grow into a euro 10 billion a year industry by 2008.

If the trend catches on, the fluctuating price of a carbon credit may soon compete with that of commodities such as gold and cotton for the attention of speculators.

-Roshni Jayakar

BUSINESS ON THE EDGE
Corporate Colours
A Mumbai gen-nexter launches a unique décor initiative.

BP Ergo's Piramal: Now what does the colour of this workspace signify?

If Aparna Piramal has her way, the term corporate colours would soon have an entirely different (and a far more significant) meaning. In December 2002, the 29-year-old daughter of Dilip and Gita Piramal took charge as executive director of BP Ergo, the Rs 130-crore office furniture and interiors division of family-flagship Blow Plast. An MBA from Harvard Business School, Piramal was convinced that the workplace was a strategic tool for organisational change and that the colours used in it had an impact on employees' moods and motivation levels. She embarked on a journey to find out what colours work, and in which workplaces. Her research took her across the country; she met architects, designers, CEOs, managers; she also spent a lot of time with colour consultants from Freedom Tree Design, a global firm.

Now, Piramal has come up with three themes, and associated colours, for three types of firms. Story telling is her theme for big brand manufacturers, television channels and music firms; connectivity for companies that work across time zones; and community for companies that like to position the workplace as a home away from home. There are sub-themes and colours for them as well: transparent material, special-effect paint and ephemeral blues for progressive brands; blue, beige and grey, the colours of respectability for software firms.

"It will take some time to get corporates to use colours in ideal combinations," says Piramal who will, over the next two months, hold workshops to explain her theory. Still, companies such as IBM, Nilkamal Plastics and Airtel have bought into the colour-themes, and bought furniture from BP Ergo. As they do teach you at Harvard, if it is helping move stock it is probably a good sales and marketing strategy.

-Roshni Jayakar

BORDERLINE
If Only...

Win-win for all: It pays to be an MP

What if the government were to be treated like any other employer and MPS like employees? For starters, Finance Minister P. Chidambaram may have re-thought his Fringe Benefits Tax (FBT). Here's why. MPS earn Rs 30.6 lakh every year as salary and perquisites. They paid Rs 62,854.44 as tax on this amount last year. This year, they stand to pay far less as tax on salary (Rs 31,840). However, under the FBT regime, their employer, that is the Government of India, will have to pay Rs 1,73,349 as tax on perquisites (on constituency allowance of Rs 1,20,000 a year, on 20 per cent of their daily travel allowance of Rs 2,00,000 a year, on 10 per cent of telephone allowance of Rs 2,00,000 a year, and so on). Ah, to have had the pleasure of having the shoe on the other foot, even if it is only hypothetical.

-Ashish Gupta

Oil At $100
A what-if hypothesis.

Who is saying this?

Investment bank Goldman Sachs is. In a recent report, it says: "Crude prices might have entered a super-spike period that can push them up to an astronomical $105 (Rs 4,620) a barrel."

Is this possible?

Very much, says Subir Raha, Chairman and Managing Director, ONGC. He adds that prices came close to $100 (Rs 4,400) a barrel during the Iranian revolution of 1979. Over the past two years, prices have nearly doubled. Analysts warn that a large supply dislocation from a major oil producer is all it will take for prices to cross the $100 barrier.

What will be the macro-economic impact of this on India?

India imports nearly 70 per cent of its crude requirements. Last year, 2004-05, its crude import bill was around Rs 1,25,000 crore. If the price of crude touches $105 a barrel, this could exceed Rs 3,00,000 crore. Inflation, too, will skyrocket, and GDP growth rates could plummet.

And the micro-economic?

Petrol at Rs 80 a litre and diesel at Rs 60 a litre. Maybe it's time to take up cycling.

-Ashish Gupta