Reliance Comm.'s Ambani: DoT turn now

Anil Ambani's decision to provide GSM services in Mumbai and Delhi has sparked off a debate since his company, Reliance Infocomm, already has a significant presence through the CDMA platform. Newspaper reports have suggested that the Department of Telecommunications (dot) isn't likely to give the go ahead to Ambani's Reliance Communications to provide GSM services in Delhi and Mumbai. Reliance operates CDMA services in these two cities, and in 21 circles altogether. The big question: If an operator provides services under one technology, can it provide services in the same circle under a different technology? The short answer: Unified licences (for fixed and mobile) given to wireless operators are technology-neutral and don't discriminate between services. For instance, Reliance operates GSM services in eight circles, and it provides CDMA services, too, in those same circles, points out a telecom industry official. Both the state-owned telecom undertakings, BSNL and MTNL, provide GSM as well as CDMA services in the circles they operate in (although it must be said that their CDMA presence is small compared to their GSM play).

The real issue, point out industry observers, revolves around spectrum and its availability. This means that if there is adequate spectrum in Mumbai and Delhi, then another operator will be allowed to commence services. "If spectrum is not in short supply, even other existing players can provide services under a different technological platform. However, that will be left to dot to decide," explains the industry official.

Reliance provides GSM services in Kolkata, West Bengal, Assam, the entire North East, Madhya Pradesh, Himachal Pradesh, Bihar and Orissa. The total subscriber base is a little over 2 million. Mumbai and Delhi fit into the plans since the two alone account for about a fifth of India's total wireless subscriber base. Reliance Telecom, the company that runs the GSM operations, has been in the business for close to a decade now and is now a part of the listed company, Reliance Communications. If the government insists that Reliance will have to migrate its existing CDMA users in Mumbai and Delhi to the GSM platform, there will be a big cost to it, which Reliance is understandably looking to avoid. "We are committed to pursuing the world's leading technologies, whether CDMA or GSM, to provide the best and competitive services to our 22 million subscribers," says a Reliance Communications' spokesperson.

As far as Mumbai and Delhi are concerned, the issue relates to the allocation of spectrum in the 1,800-mhz band and if Reliance can get spectrum here, then it is reasonably sure that Reliance will not have to vacate its existing spectrum. Industry estimates suggest that Reliance will need around Rs 1,000 crore to commence services in Delhi and Mumbai. There is a cost advantage that will accrue since Reliance has basic infrastructure in place in these two cities. Also, the two cities have historically had a high average revenue per user, a key indicator of the financial soundness of an operator. Again, if Reliance gets the go-ahead from the government, the other issue is that of allowing other operators to get on to a new technological platform; for instance will Tata Teleservices, a CDMA player, be allowed to provide services on the GSM platform?

Meanwhile, CDMA technology provider Qualcomm has made it clear that it will not reduce royalties, a demand apparently made by Reliance Communications. Tata Tele appears to be in agreement, suggesting that Qualcomm should focus on lowering handset costs instead. Ambani may find himself alone in his demand for lower royalties, and it remains to be seen how big a role will that stand-off have in Reliance pursuing its GSM game plan for the two big metros.

-Krishna Gopalan

Trade Barriers
Pakistan gives Least Favoured Nation status to India.

Two steps forward, one step back. This describes India's relationship with Pakistan. While cross-border human traffic has increased with the restarting of the bus service between the two countries, Pakistan has applied the brakes on the goods front. South Asia Free Trade Ageement (SAFTA), the regional trade agreement between South Asian countries under the umbrella of the South Asia Association for Regional Cooperation (SAARC), kicked in on June 30, but without Pakistan extending the Most Favoured Nation (MFN) status to India, a concession that would have provided preferential access to Indian goods. Pakistan has steadfastly refused to untangle trade issues from the vexed Kashmir issue on the grounds that yielding to such concessions, multilateral in nature nonetheless, would amount to softening its position on Kashmir, and which might carry a political cost on the domestic front.

And so, Pakistan has informed the SAARC secretariat that while it will offer preferential access to all other SAARC member countries for 4,800 items, India will enjoy free access only for 773 items. The Indian government, meanwhile, is yet to decide on its course of action in the wake of Pakistan's move.

With Pakistan unwilling to do anything that could be perceived as weakening its stand on Kashmir, the prospect of free trade has been sacrificed at the altar of populism.

-Balaji Chandramouli

Fearing Mittal's Mettle
Do Indian promoters need to be wary of the global predator?

Ratan Tata: Need he worry?

Trust L.N. Mittal to shake up things. After creating Arcelor-Mittal, a steel behemoth that controls roughly 10 per cent of global production, the President of the merged entity casually let on that he would now be training his sights on the emerging markets of India and China. In a country that boasts just a handful of mega-steel capacities, that statement would have been taken in utter seriousness, and with some trepidation by promoters of Indian steel companies. It sure did energise Ratan Tata, Chairman, Tata Steel, into action. At the Tata Steel Annual General Meeting (AGM) held last fortnight, he proposed to hike the holding of Tata Sons in Tata Steel from 26.67 per cent to 33.6 per cent. "We will raise the promoters' holding so that it acts as a deterrent to takeovers," Tata told shareholders at the AGM.

Is Tata the only Indian promoter who is threatened by Mittal's rampaging ambitions? In the steel sector, most groups don't need to be as worried. For instance, the promoters of Jindal Stainless own close to 41 per cent of the company, whilst the Ruias of Essar Steel are sitting pretty with 75 per cent. The only other large company in the metals space where the promoters' holding is low is the A.V. Birla Group company, Hindalco, where it stands at 26.87 per cent. Chairman Kumar Mangalam Birla recognises the need to prop up that figure. "The group is constantly increasing its stake in its companies through the creeping acquisition route," he says. True enough, the promoter holding in the aluminum giant had increased from 25.95 per cent last September to 26.87 per cent by end-March.

Tata may be a bit wary of predators like Mittal, but market analysts welcome such a dream deal. "A consolidation of this kind would benefit everyone in the industry as it helps in stabilising prices," says Shankar Sharma, Director, First Global. However, as Mittal pointed out on his India visit last fortnight, India is a market that is crying out for new capacity-creation, and consolidation is hardly an imperative at this stage.

For the Tatas, meantime, the steel company isn't the only one that's precariously perched on the shareholding front. At Tata Tea and Tata Chemicals, for instance, the promoter holding is just under 29 per cent. Of course there are companies like TCS, where the Tatas are safely sitting on 83.69 per cent of the company's equity. The Tatas, for their part, have been quietly shoring up their stakes in their flagship companies over the recent past. At VSNL, for instance, where the promoter stake stands at 45 per cent, Tata Sons picked up a 1 per cent stake in the company between June 28 and 30. But the Tatas-and any Indian business group for that matter-shouldn't shudder at the prospect of predators prowling around simply because hostile takeovers aren't exactly encouraged in India. "Even Mittal may not resort to something like that in India," says an investment banker on the condition of anonymity. Not yet.

-Krishna Gopalan

Can UTI Find Its Groove?
Yes, but it's got some serious competition to reckon with.

UTI's Sinha: Rejigging to grow at a faster pace

For most people in the ministry of Finance, North Block (where the ministry is housed) is a long, long way from Dalal Street (and not just in terms of distance). Not for seasoned bureaucrat U.K. Sinha, who was at one time in-charge of capital markets in the finance ministry. Six months into his new mandate as head honcho of UTI Asset Management Company, which has Rs 30,000 crore worth of assets under management (AUM), the Indian Administrative Service officer is getting to actually feel what it's like to be at ground zero.

Till eight years ago, UTI was the undisputed leader in mutual fund territory as the eminently-bankable Unit Trust of India. Then things suddenly went horribly wrong and its flagship scheme us-64 got caught out in a asset-liability mismatch. With thousands of crores of investor money at stake, the government intervened, bailed out US-64 and broke up UTI into two parts. UTI AMC was eventually born. Today, in its new avatar the mutual fund has been putting up a brave show, but is feeling the heat from private sector competition. Prudential ICICI AMC (AUM as on June 2006: Rs 30,143 crore) has already displaced UTI AMC from its top slot. And the fastest growing of the pack, Anil Ambani's Reliance Mutual Fund (AUM: Rs 26,300 crore), is hot on UTI's heels.

"The immediate task is to retain our leadership," says U.K. Sinha, Chairman of UTI AMC, who has 18 more months to achieve that goal. Global consultants Ernst & Young, McKinsey and Boston Consulting Group have all been called in to make presentations at UTI's Bandra-Kurla office (in Mumbai's suburban commercial district) to outline their game plan to revamp UTI and its business strategy.

Some of those recommendations are being acted on. For instance, international operations will be a major focus area. Currently UTI manages four offshore funds with assets of $150 million (Rs 690 crore), three of which are equity funds. "We are now looking for a big ticket investment of $250-500 million (Rs 1,150-2,300 crore) in new funds," says Sinha. UTI is already in talks with a mid-size European Bank for a co-branded infrastructure fund with a combined corpus of $200-300 million (Rs 920-1,380 crore). Sinha adds that UTI is also in the process of launching an India-dedicated diversified or infrastructure offshore fund in Japan with a size of $500 million. By the end of 2006-07 Sinha wants UTI's international funds to be managing assets worth close to $1 billion (Rs 4,500 crore).

Then, there's the domestic market. Plans are afoot to launch a gold exchange traded fund and a real estate fund once the regulator prescribes the guidelines. "We will also be launching our global Titan index fund in consultation with our overseas investment advisor State Street Global Advisors (SSGA) for domestic investors. This should hit the market three months after getting approvals," says Sinha. On the distribution side, UTI has tied up with 12 public sector banks. And the results have shown. In 2005-06, the bank distribution helped the AMC to garner over 1 per cent, or Rs 372 crore, of the total incremental AUM, compared to just Rs 81 crore in the previous year. The postal distribution channel is also playing its part; it helped garner Rs 50 crore last year. UTI has also tied up with HCL Infosystems to roll out a low-cost franchisee model involving investor touch points. "We are setting up 300 investors touch-points that will sell UTI AMC products in tier-II and tier-III