china versus the rest of the world. The country's relentless export
growth over the last decade, when exports rose from $121 billion
(Rs 3,75,100 crore at the then exchange rate) in 1994 to a whopping
$593.4 billion (Rs 26,70,300 crore) in 2004, and its stubborn
refusal to do anything about its currency yuan's artificial exchange
rate (it has been pegged at about 8.28 to a us dollar for the
last 10 years) have brought rival economies together to push Beijing
into allowing at least a partial float of the yuan. The latest
warning came from the US, which has threatened fresh across-the-board
taxes of 27.5 per cent on Chinese exports to the us unless Beijing
revalues the yuan in the next six months.
Will China relent? Unlikely. This is the
second time that the US has threatened China with tariff barriers.
It made similar noises in September 2003 that Beijing simply ignored.
But then, things have only gotten worse since for China's trading
partners. The US, for example, has a trade deficit of $175 billion
(Rs 7,70,000 crore) with China. Not only is it a quarter of America's
total trade deficit, but also an unsustainable figure. Moreover,
the US this time around has the full support of the European Union
and other countries in its demand for revaluation of the yuan.
Says Surjit Bhalla, a leading Delhi-based economist: "It
has now become a prestige issue for the us after failing to get
its way for two years through all legitimate means. Moreover,
they have the total support of the European Union and Japan."
That the yuan's peg to the dollar has heavily loaded the dice
in favour of China is not in doubt. In the last decade, as dozens
of global currencies appreciated between 15 per cent and 40 per
cent against the greenback (the Indian rupee too has become dearer
by 12 per cent in the last two years alone), the yuan continued
to remain artificially weak. That, in effect, has turbo-charged
the Chinese export engine. One example: China's apparel exports,
which soared 545 per cent last year to $245.93 billion (Rs 11,06,685
crore). With quotas gone starting this year, the surge has only
become more pronounced. China's textile exports during January-April
2005 jumped 19 per cent to $22.4 billion over the same period
last year. Says S.P. Oswal, Chairman, Vardhaman Group, a leading
textile exporter: "A revaluation of the yuan will only remove
the unfair competitive advantage that China has over all other
Just how much will a stronger yuan help exporters
from other low-cost countries like India? Let's first consider
some numbers coming out of China. According to its National Bureau
of Statistics, a 3 to 5 per cent appreciation of the yuan would
lead to a 10 per cent drop in Chinese exports-that's about $59
billion (Rs 2,60,920 crore). Therefore, in a range of sectors-from
footwear to leather goods to electrical machinery and equipment-other
exporters could increase their share. The benefits would be greater
if the US actually lived up to its threat of duty restrictions
on Chinese exports. "In fact, with less price competition
from China, Indian exports may be able to fetch better profits,"
says O.P. Garg, President of exporters' association FIEO.
That said, it would be nigh impossible for
India or any other low-cost country to catch up with China-let
alone knock it off its top perch. China's lead is simply too wide.
China exports around $97 billion (Rs 4,26,800 crore) worth of
textiles, compared to India's measly $6 billion (Rs 26,400 crore).
In footwear, China has a 67 per cent share of the US market versus
India's 2.5 per cent. Its footwear exports to the US at $8 billion
(Rs 35,200 crore) are 10 times India's.
That apart, China has a huge advantage over
India in terms of manufacturing capacities and the quality of
infrastructure and bureaucracy. So, even if the us and its friends
manage to force China into letting the yuan float, the gains for
other exporting countries will at best be marginal. Of course,
it remains to be seen if China is willing to offer that elbow
room to start with.
To Pay Or Not To
Should telecom companies have to pay for 3G
|3G services: They'll have to wait
it on Ratan Tata, the venerable chairman of the Tata Group. It
was he who set the cat among the pigeons by suggesting recently
that telecom companies in India should pay (in his estimate, Rs
1,500 crore plus revenue share) for the spectrum they would need
to offer 3G services, which promise to bring high-speed data and
video to mobile phones. Tata's suggestion was in response to the
industry regulator TRAI's recommendations that 3G spectrum be
made available on a revenue-share basis, free of initial cost.
While by suggesting an entry free Tata may have upset others in
the industry (for once, the GSM and CDMA lobbies were united in
expressing their dismay), he has a point. Spectrum is a scarce
resource in any country, especially India. More than 60 per cent
of the total spectrum is hogged by the defence forces, leaving
very little for civilian use. Besides, 3G has unfortunately been
a golden goose for governments elsewhere in the world. The major
European countries alone made in excess of $125 billion (Rs 5,50,000
crore at the then exchange rate) when they auctioned 3G licences
in the early 2000s (see The 3G Gold Mine). The question now is,
should the Indian government make a killing on the 3G spectrum
At the heart of the question lies the very
viability of 3G services. Take Europe, for example. Prohibitively
high 3G licence fees almost killed the industry. Within a year
of the auctions, there were 80,000 job cuts in the industry; market
value of the major telcos fell by an estimated $600 billion (Rs
28,20,000 crore at the then exchange rate) by the middle of 2001;
and some operators even returned their licences, and wrote off
their losses. It's only now, five years after the auctions, that
3G services are taking off, as operators see average revenue per
user (ARPU) stabilising and feel the need to offer data services
to grow revenues.
In India, similar fees can deal a body blow
to an industry that's managed to become one of the fastest growing
in the world simply because of low tariffs. No doubt, operators
like Bharti Tele-Ventures have managed to report bumper profits,
but its primary markets are in urban India. To move into semi-urban
and rural markets, it will have to raise fresh capital, mainly
via debt. To service the debt, it will have to increase its rates,
thereby hurting demand. The story isn't any different for the
other players, with their low net worths and regional presence.
Says Kanwalinder Singh, President, Qualcomm India & saarc:
"India must strike a balance between meeting its growth objectives
and a fair way of charging the licence." Adds a PriceWaterhouseCoopers
telecom analyst: "Any kind of entry fee is bound to be passed
on to customers."
Because telecom has been one of India's happiest
stories, the government is loath to do anything that will affect
its growth. Indeed, three days after TRAI came out with its recommendations,
the Union Minister for Telecommunications & it, Dayanidhi
Maran, told Business Today (see "Highly-priced Spectrum Will
Hurt Consumers" on page 22): "We have to be a little
careful on this (the Tata suggestion). We don't want a licence
Raj." So, a European model can be ruled out as can the Russian
model, where the 3G spectrum is offered free to operators willing
to invest in the networks.
A revenue-share model, therefore, seems to
make a lot more sense. It's not only easy on the operators, but
also ensures a steady revenue stream for the government, since
the typical licence has a life of between 15 years and 20 years.
In a country where telecom penetration is still a pathetic 91.3
per 1,000 people, there's a lot of ground the industry needs to
cover. More importantly, in a country with one of the worst infrastructure
sectors, telecom is a shining exception. Let's keep it that way.
The Indian 7-Eleven
|24x7: The convenience of shopping,
or no FDI, experimenting in Retail India is moving apace. The
newest store on the block is a 7-Eleven clone from Samir Modi,
scion of the K.K. Modi family. Christened 24x7, the store plans
to offer round-the-clock convenience to shoppers. It will offer
everything from dal chawal (rice and lentils) in a box to cut
fruits and vegetables to courier facility and film processing.
"It's about adding value in the lives of people whose days
are getting longer," says Modi. It will cost Modi, whose
family owns Godfrey Phillips, Rs 1 crore a pop, since most of
the store equipment is being imported. The first 24x7, which boasts
of an owl as its logo, will open in Delhi on June 3. By year-end,
Modi plans to have 10 stores between Delhi and Mumbai, and 300
by the end of 2010.
Will Hurt Consumers"
|"Spectrum is a scarce asset. I don't
want it to be landed on somebody's lap"
days after the telecom regulator, TRAI, came out with its recommendations
on, among other things, spectrum allocations, Union Minister for
Telecom & it, Dayanidhi Maran,
spoke to BT's on
the spectrum controversy, Reliance Infocomm, and his future plans,
which include creating a subscriber base of 250 million by 2007,
extensive broadband connectivity, and an Indian-language browser.
What do you think of Ratan Tata's suggestion
that telcos pay an entry fee (Rs 1,500 crore) for 3G spectrum?
I got a sneak preview of Ratan Tata's letter
from the newspapers. It came in the newspapers before it came
to me (laughs). We have to be a little careful with this. I don't
want a licence Raj. And the very idea of India as a success story
is its low cost of tariff. Highly priced spectrum will result
in an increased cost for consumers. Why should the consumer pay
so much? You cannot have a monopolistic approach.
Endorsing DoT's stand, Trai has suggested
technology-neutrality in spectrum allocation. What do you think?
I am not the deciding factor on that, the
WPC (the Wireless Planning Commission) is. We've set up certain
terms of references that TRAI needed to follow. TRAI's recommendations
will be taken into consideration based on our terms of references.
And we will come out with a policy that is technology-neutral,
and which is within the world standards. Spectrum is a scarce
national asset. I don't want this resource to be landed on somebody's
How long will it take you to approve these
recommendations (on spectrum)?
We are going to have discussions with the
players. Their feedback is important. I want to ensure that my
department takes correct decisions.
Would you like to comment on (TRAI chief)
Pradip Baijal's report card?
I don't want to. Each one of us is here to
do a job.
Are you happy with the status of institutionalised
processes and infrastructure that have been framed to support
your 2007 targets?
I'm very upset with the international bandwidth
prices. Broadband is expensive in India because of the cartelisation
of international gateways. We've repeatedly recommended to TRAI
to work on it, but the regulator has not been able to do anything
on it efficiently till this moment.
Issues governing Reliance Infocomm continue
to loom large over the telecom landscape. Earlier you carried
out the threat of licence...
(Interrupts) Me? Not me. I'll never do it.
I never threaten anyone (laughs)... I'm afraid of ...
Okay, you let Reliance off the hook after
telling them to pay a fine of Rs 150 crore for international call
That's because of a norm. I think the Reliance
issue is settled. They paid the fine.
But they can still challenge this (TDSAT
judgement) in the Supreme Court.
They are free to do it. India is a democracy.
The case is over as far as I am concerned. I've other important
things to do.
As the industry looks headed for a consolidation,
we are seeing a spurt in predatory and hostile bids. Do you think
such a scenario is good for the health of the industry?
No one can stop it. That's part of (free market)
|Star's Rupert Murdoch: Mr Deep Pockets
the government giving Tata-Star and Sun TV direct-to-home (DTH)
ventures clearance last month, a bloody battle for television
subscribers is about to break out. At present there are less than
two million DTH subscribers, with the state-owned Doordarshan
accounting for 75 per cent of them and Zee TV's Dish TV, the rest.
However, Media Partners Asia, a Hong Kong-based consultancy, projects
that the DTH market will grow to seven million by 2010. Inevitably,
DTH's growth will come at the cost of the 45-million cable &
satellite TV market. What will be the decisive factors in the
DTH battle? Price and content. Already, in anticipation of competition
that should come end of this year, Dish TV has slashed entry price
by half to Rs 3,990 and is offering 75 channels without any monthly
fee (its complete bouquet of 120 channels is available for an
additional Rs 1,000 a month). Big cable TV distributors such as
InCablenet, Siti Cable and Hathway are digitising their metro
networks in response to the DTH threat. Indeed, nearly 17 million
cable households are already receiving DTH quality signal. "The
fight will be between digital cable and DTH as both address a
common market," notes Ashok Mansukhani of the Hindujas' InCablenet.
Let the battles begin.
Is there room for another 100 channels?
|Problem of plenty: The viewer is going
to be spoilt for choice
Try and digest
this: there are already 265 or so television channels on air in
India and, according to a new report by investment bank J.P. Morgan,
another 100 could get added over the next three years. Is there
room enough for all? "In a boom time like this, new players
will naturally come in," rationalises SandeepViz, President
of media buying agency Optimum Media Solutions (OMS). Advertising
on television, currently at Rs 4,700-crore, is growing at a healthy
annual clip of 15 per cent. What's also heartening is that the
often-ignored business of TV distribution, where revenues are
estimated at Rs 6,000 crore, will only get a boost with the advent
of four new players in direct-to-home (DTH) television and, sooner
or later, of conditional access systems (CAS) for cable TV.
Still, 400 channels seems like a crazy number.
"Only 10 per cent of those will survive, but then like in
any industry, a lot of them will want to have a go at it,"
points out OMS' Viz. It is a no-brainer that channels from cross-media
and cross-platform conglomerates will survive. For the rest, the
trick will be to be a niche player, in terms of both geography
and content. That alone will generate consumer pull and ensure
currency with advertisers in an already clogged cable TV market,
where (fortunately) just a third of the 45 million subscribers
are digitally connected to receive around 200 channels, and that
too with a set-top box. A direct fallout of the channel explosion
is the practice of a huge "carriage fee" that most new
channels, like Jagran's Channel 7 and Disney's two kids channels,
have had to cough up to cable operators to be available on prime
band. "But DTH is now opening up a fantastic platform for
niche channels, those who don't want to be on mass cable distribution,
but would rather build their business slowly as DTH proliferates,"
says L.V. Krishnan, Head of tam. With two more DTH players, Software
Technology Park and Essel Shyam, awaiting government clearance
(proposals from the Tata-Star combine and Sun TV have already
been cleared), only time will tell how many (channels) is too