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Despite
what bhupendra Kumar Modi may say about his telecom venture, Spice
Telecom is a sitting duck. For at least 11 years now, the company,
which has cellular operations in Punjab and Karnataka, with 1.45
million subscribers, has been in play, thanks largely to the estrangement
of Modi and his foreign partners, Distacom (it holds a 42 per
cent stake in Spice), AIG (20 per cent) and Hong Kong-based Darby
(15 per cent). More worryingly for Modi, the pre-emptive clause
in the joint venture agreement between his promoting company,
Modi Well Vest, and Distacom, which kept the foreign partners
from selling their stake without Modi's consent, expired recently.
Small wonder, then, that the Ruias of Essar have directly approached
the three foreign partners for a possible acquisition of their
stake. Modi is hopping mad. "Essar wants to eliminate competition
by creating confusion," he told BT from New York. "(The
Ruias) can't buy out our shareholders because Essar is already
in the Punjab circle (via Hutch India, where Essar
has a 26.4 per cent stake, post consolidation)." That apart,
Modi still insists that his foreign partners will need his consent
to offload their stake.
It's easy to see why the Ruias want Spice.
With a tele-density of 21 and 11 per cent, respectively, Punjab
and Karnataka promise substantial growth. Besides, for Essar,
the move makes strategic sense. It not only expands its footprint
within the country, but also offers it Spice's 900-mhz spectrum,
which is said to allow a more cost-efficient roll-out compared
to the 1,800-mhz band that comes with newer licences. But that's
only half the story. Essar's game plan may be far more ambitious.
Its telecom business is estimated to be worth $2 billion (Rs 8,800
crore). If it can beef it up by adding a couple of more lucrative
circles, it can easily hawk the business as a package to a global
major that hasn't yet managed a toehold in the booming Indian
cellular market. Think Vodafone, Japan's NTT, or even France's
Orange.
While the game plan sounds
wonderful on paper, pulling it off is a totally different issue.
Spice's valuation of $300-600 million (Rs 1,320-2,640 crore) is
just one problem. There are other regulatory hurdles that Essar
must negotiate. As per the current licence conditions, a company
cannot own more than 10 per cent stake in a rival operator in
the same circle. That means Punjab, like Modi says, may prove
to be a problem. From that stems another issue: While buying AIG
and Darby's cumulative 35 per cent stake may not be a problem
for the Ruias, convincing Distacom to sell its stake minus Punjab
(should there be a problem) won't be easy. Distacom has, in the
past, made it known that it is not interested in a piecemeal sale
of its stake.
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| Pinstripe raiders: Essar Group's Shashi
(L) and Ravi Ruia |
Interestingly enough, Modi himself is talking
of buying out his foreign partners. As a first step, Modi says,
he will hike his stake to 51 per cent and then rope in a financial
partner to buy the remaining 49 per cent. "We've got the
whole plan laid out," claims Modi. "I can raise money,
$100 million (Rs 440 crore) easily." But like an industry
observer says, Distacom and the other partners would be only too
happy if Modi puts real money on the table. Right now, despite
his claims, doing so looks difficult, given that "his track
record has been marred by broken partnerships and strained ties",
says the observer. In fact, Spice's two circles are under two
different managements: Modi controls Punjab and Distacom, Karnataka.
Meanwhile, the Ruias are going ahead with
their plan. They've re-hired Pramod Saxena (their Delhi circle's
first CEO a decade ago), who is said to understand Modi's methods,
thanks to his stint in Motorola, a technology vendor to Spice.
Essar may also manage to cross the regulatory hurdle by structuring
the deal in such a way that it meets the regulatory requirements
and yet wields effective control. If that happens, Modi would
have little choice but to follow his partners out of the company.
Unless of course he decides to go down fighting.
-Kumarkaushalam
WEATHERVANE
Betting On The Met
Millions of farmers,
and marketers, across the country look to the Indian Meteorological
Department to plan their seasonal strategies. A normal and well-distributed
monsoon means a surge in growth. This year, the Met has predicted
a normal monsoon, buoying hopes of a 7 per cent growth in GDP.
Just how accurate have been the Met's forecasts? In recent years,
except in 2002, it has been within the accepted error margin of
4 per cent. Not bad, considering that it has to factor in 16 very
complex "predictors" such as the Northern Hemisphere
temperature, sea surface pressure at Darwin (Australia) and Eurasian
snow cover.
-Supriya Shrinate
SECOND
Misreading The Signals
Indian Railways uses signalling systems that
are as old as the organisation itself. The cost of revamp: Rs
12,000 crore. But the big picture appears to be missing.
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| Another signal failure? The IR an unenviable
record of 10,000 a month |
The
Indian Railways (IR) desperately needs to overhaul its signalling
& telecommunications (S&T) systems. It suffers an average
of 10,000 signalling failures every month. But the leviathan organisation
seems quite blasé about them. Asserts a railway official:
"In the entire history of Indian Railways, not a single accident
can be linked to the failure of signalling."
Such technicalities can be of little consolation
to the families of the 84 passengers who died and the 279 who
were injured in the 325 accidents, or one every 27 hours, IR suffered
in 2003-04. Says Alok Bansal, Senior Transport Planner, World
Bank: "The Indian Railways lacks skilled people to maintain
its S&T system properly."
The major thrust of the Railways' S&T
upgrade plan has been on the replacement of old systems with an
electronic interlocking system (a 10-year-old technology based
on micro-processors) and the panel interlocking system (a 50-year-old
technology based on electro-mechanical functioning). "Around
2,700 railway stations-out of a total of 7,031 stations in 2003-04-still
don't have modern S&T systems," says an IR official,
adding: "We're changing mechanical levers at 300 stations
every year and hope to have a completely new system in place by
2014." (See graphic). But here, too, what comes through is
the absence of a bigger picture. IR's stated goal is to establish
a network of electronic interlocking systems (which costs Rs 1.7
crore a piece), but it continues to implement the panel interlocking
projects (at Rs 1.5 crore), which were sanctioned earlier. Why?
No answers are forthcoming.
Instead, an official says: "The Swedish
Railways observed the electronic interlocking system for 10 years
before fully adopting it. For IR, however, the migration will
be much faster. In the last two years alone, the number of stations
covered by the electronic system has jumped from 10 to 76."
Simple arithmetic will show that at this rate of progress, it
will take close to 200 years to cover all the 7,031 stations in
the country. The cost at today's prices: Rs 12,000 crore.
So, is there no hope for the rail traveller?
Looks like it, but we continue to live in hope.
-Kumarkaushalam
The
Guv Plays It Safe
Never mind D-Street. RBI's credit policy is
pro-growth.
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| RBI's Reddy: Keeping a watchful eye
on price stability and growth |
As
India's principal banker, Yaga Venugopal Reddy's is a tough act.
He must keep prices (that is, inflation) under check, even as
he creates a monetary environment where investment (that is, growth)
booms. While that is an everyday job for the Reserve Bank of India's
governor, there's an annual event when he gets to signal the direction
of the economy-the announcement of the credit policy. This year's,
unveiled on April 28, indicates that the central bank would rather
err on the side of caution than risk pushing prices up in the
economy. Therefore, in a largely uneventful policy, Governor Reddy
has increased the reverse repo rate (that is, the interest rate
the RBI pays banks for lending it money against government securities)
by 25 basis points to 5 per cent. Says Reddy: "We have given
equal emphasis to price stability and growth, and are committed
to maintaining financial stability."
Will the increase in the repo rate hurt retail
consumers? Unlikely. As Finance Minister P. Chidambaram pointed
out shortly after the credit policy announcement, there's enough
money sloshing around in the banking system to keep retail interest
rates from rising. If that's the case, why did Reddy need to up
the repo rate in the first place? Because of two reasons: One,
hardening of interest rates in a slowing down us economy and,
two, rising oil prices. It's easy to see how the latter affects
India (we import almost all our oil), but what about the first?
The US is the world's biggest market for almost every product
and service, and a slowdown there inevitably affects economies
around the world, including India's. At the moment, though, the
Indian economy's growth looks promising. For 2005-06, the RBI
has projected a 7 per cent growth and economic think-tank, the
NCAER, a higher 7.2 per cent. Of course, given that monetary review
is now a quarterly event, Reddy will be watching closely.
-Roshni Jayakar
PHARMA
Para
IV, They Wrote
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| Sun's Shanghvi: Getting bolder |
Depending
on your risk appetite, you would either call it the coming of
age of an industry or simply a sign of desperation. But there's
no denying that more and more Indian pharma companies are going
in for para IV filings, which challenge patents held by the innovator
company. How does a para IV filing help? If successful, it allows
the company to sell a generic copy of a patented and branded drug.
And if the company is the first to file a para IV challenge (and
win), it also gets a 180-day marketing exclusivity. But it's a
tricky game to play. Ask Ranbaxy (which has about 12 first-to-file
para IV filings), Dr Reddy's Labs (26 para IV filings) or, more
recently, Dilip Shanghvi's Sun Pharma. us-based Wyeth and Germany's
Altana have sued Sun for trying to sell their $3-billion (Rs 13,200-crore)
anti-ulcer drug, Protonix. Unless Sun is able to prove that its
generic copy doesn't violate any of innovator Altana's patents,
it will only end up with a huge legal bill and nothing in revenues.
-E. Kumar Sharma
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