New Business Model for Addressing the Energy Cost/Quality Issues of Telcos In Rural India

A typical cost of ownership (TCO) percentages for the components of Base Station System (BSS)- comprising of BTS/BSC- for an Indian Telco is shown in the adjoining figure. One could easily make out the 3 big ticket cost items from there-they are telecom equipment, power (16% of BSS TCO), and civil work in that order. As Indian Telcos take the next leap forward in terms of reaching out to rural markets (average rural teledensity being 19%), they are grappling with the challenges of reducing the TCO for the rural operations. Rural markets are low-ARPU market segments and thus the solutions for the rural market need to have a fundamentally different cost structure for the business model to become sustainable. Telco’s passive network (towers, shelter, ac equipment, diesel electric generators, battery and electrical connections) sharing is already in vogue; soon to be followed by the active network (base transceiver station, microwave, radio equipment, antennas etc) sharing, which will further drive down the cost on account of telecom equipment in a 'coverage' rather than 'capacity' driven fragmented rural telecom market.
Another big ticket cost item for Telcos is Power. Power in rural India poses a dual challenge. Apart from the higher consumption costs, Telcos are also grappling with the issue of lack of uninterrupted supply which is affecting their QoS to the customers severely. Various solutions like solar power etc have been talked about but the CAPEX associated with the solar power solution is prohibitive and hence has not been picked up much.
Here is my thought in terms of creating a new solar energy based business model which will directly address the second biggest cost item for the Indian Telcos.
No, it’s not about Telcos installing the solar panels. This would require making a huge capital investments upfront and being able to reap the benefits only after 15-20 years. We all know that selling solar installations to Telcos, though a good clean technology, does not necessarily make a good business case given the ROI imperatives. An Alternate approach is where the Telcos (where vertically integrated) or the Tower Sharing Company (TSC) could form a joint outsourced Solar PowCo (Power Generation/distribution Company), similar to the existing Tower Sharing Companies. This PowCo can then sell Solar Power Purchasing Agreements (SPPAs) to all the participating Telcos/TSC in that circle. This PowCo would then install and manage the solar installations with a committed power uptake from all the participating Telcos/TSC at a fixed price for a pre-defined period (say 10 years).To finance the investment in solar installations, PowCo would re-package the SPPAs and sell them to the investors. Investors then become the legal owners of the installations and thus reap the rebates and tax benefits associated with the green energy. SPPA payments would give the investors the same return on investments as any other energy. What does the PowCo get in return?. The PowCo gets paid fees by the investor for developing, monitoring and servicing the SPPAs.

This has a potential to bring down the TCO for power by almost 30-40% making Telcos so much more competitive in the rural market segment. SunEdisson has been successfully operating similar kind of model for other sectors of US economy. Reliance, Tata being the Power and the Telco Companies could have a head start with this business model.

Why Publishing Cost Of Production (MCP) Would Be A Game Changer

As service industry grows in India, companies are innovating newer products/services and coming out with differentiated offerings to the market. Innovation is not only expected to trigger demand for newer products/services (topline) but also help sustain the margins (bottomline) in recession squeezed markets...marketeers seem to have (re) discovered the mantra to help boost the sagging sales/morales of their sales teams...so the key is to come up with 'non-commoditised' product or service offering to the market...

However the important dimension to this emerging story, from the consumer point of view is- how do i -a consumer- assess the 'fair price' or 'right value for money' for the non-commoditised product/services, before i make a decision in favour of or against buying that product/service
This question becomes extremely important especially for markets like India (and majority others for that matter) where the print and organised electronic media, supposedly an educater/emancipator of the masses, is bought over by the manufacturers of these goods and services (sponsored and paid news is (not so) unique feature of Indian democracy!!)...Consumer movements in India too have become dysfunctional and Govt is perpetually faced with a dilemma of whether or not to regulate the 'market forces'(!) and thus ensure fair price for the end consumer...

To me the answer lies in a simple change (first proposed in ninetees by an eminent Indian economist late Prof M.G. Bokare), which could be brought about by an act of parliament whereby a manufacturer will be mandatorily required to publish per unit cost of production along with MRP on every article they sell in the market. So one would have MCP (Max Cost of Production) and MRP (Max Retail Price) clearly dispalyed on e.g. bottle of mineral water or hotel bill..(fortunately, Cost Accounting practices have evolved enough in last decade to make this per unit cost calculation quite possible now)
What are the benefits:- there are many but the most important one, from a consumer perspective-with increasing number of non-commoditised (read innovative) products/services flooding the markets, consumer will precisely know the per unit cost of prodution (MCP) and the premium they are being asked to pay (MRP) over and above the cost price..Consumer will pay the premium if they really think its worth the benefits....going forward, this will definately ensure a fair pricing by the manufacturers of the goods/services or else consumer will make an 'informed decision' of not buying the product/service...real power to the consumer!!

Microfinance Driven Emerging Business Models for Low Income Housing In India

A cursory look at the housing finance statistics underlines the compelling need for urban low income housing in India and explains the emergence of microfinance based new business models in this sector...despite liberal credit regime and the associated average 35%+ rate of urban housing finance growth in last decade, about 21 million (2.1 Crore) urban Indian population still can't afford to own a house..the reason..not so diifcult to comprehend...over 80% of urban housholds in India earn less than 220USD a month (@11,000INR at current conversion rate)...a houshold earning INR 11000 can only qualify for INR 4,50,000 worth of loan as per the housing finance guidelines (individual is entitled to home loan upto max 40 times his/her monthly income)...with INR 4,50000, one can hardly dream of owning a decent home in any tier I/II cities in India..clearly, there is an untapped customer base of @2 crore urbanites willing to buy a property in Indian cities....from the supply side, the housing finance companies have 2 major issues to deal with, before they open up the credit line to these potential buyers-1) high cost-to-serve ratio and 2) potential credit risk associated with perceived higher levels of defaults in this segment....

Demand slowdown in high income housing segment in last 2 quarters of 2008-09, , has compelled the housing finance and the realty developer companies to think in terms of innovative business models, which would help extend the credit line to these low income urbanites and at the same time address finance companys' concerns regarding issues such as high cost-to-serve ratio and defaults on repayments...The emerging business model is based on intermediary role of Self Help Groups (SHG-Bachat Gat), Mutually Aided Co-Op Societies(MACS/Daily Collections) as well as internal or external Micro Finance Companies (MFI) to bear the risk to recovery and also reduce high cost to serve ratio..MFIs are assumed to be performing the job of customer aggregation, first level screening and the critical debt recovery.. thus making this model sustainable...another supply side parameter impending this business model could be high land cost in urban areas...however thanks to demand slowdown in realty sector and the indications on part of Government to look at FSI relatd policy changes, land prices have seen some correction to the tune of @20-30% in most urban centres providing much needed impetus to low income housing in india...

GDP Growth and Inflation Heading In Different Directions-What Policy Options Should Be Exercised?

The unusual combination of spiralling prices due to commodity driven inflation on one side and the credit crunch on the other has left many Govts worldwide in a unique situation these days. As the talk of slowdown becomes frequent, I'm tempted to look at series of policy mesures taken to avoid recession by the then Govts facing Asian crisis and the dotcom bust in late ninetees and compare with the present situation. Unfortunately the comparison ends there itself. The Principal reason being- both these crises in ninetees affected GDP growth and the inflation in much the same way. Central Banks could then resort to cutting the interest rates to bolster spending without bothering too much about the inflationary trends, not any more. Many developing as well as developed economies are reeling under double-digit inflation so the option of cutting the interest rate is no longer feasible. On the other hand, high interest rates are taking toll on industrial investment plans.. What are the options before policy makers?

My thinking is- from the time this crisis erupted last year, western economies have managed to stay away from deep recession on account of sustained export growth into emerging economies...obviously their policy stimulus would be/should be to sustain and improve this. For developing countries like India and China, the policy stimulus essentially has to be around sustaining the domestic consumtion boom led by domestic manufacturers/service providers
On the fiscal stimuli front, an important and a bold policy measure to consider would be to pronounce lower tax rate outlook for next 3-5 years period. This would go long way in instillng the confidence in the investors who generally in times like this, based on the perception of tougher fiscal policy ahead, are bent upon improving cash flows in longer term....

Strategy Dimension of Karnataka Elections 2008

Years ago, when i first came to UK and was coming out of Heathrow, an HSBC advertisement caught my attention...the message was 'Global Bank Local Culture'....

Since then, every time i looked at India and its federated polity and wondered why state after state was being captured by regional parties...importantly what could be the cure from national parties perspective...i was reminded of this message i had seen before....i felt 2 major national parties in India need to get this as a part of their startegy.....

Arun Jaitley's campaign strategy for Karnataka, i thought, was a clever mix of local culture (personified by B S Yedi) plus other issues such as betrayal, price rise etc...many people would recall NDTV corespondent repeatedly asking BJP leaders to explain the riddle about national party positioning and projecting itelf as a regional outfit-with BSY as its local Chieftain- in Karnataka.

I also think 'paanch karod Gujrati' stuff last year was no different....this strategy won him Gujarat last time and Karnataka this time around....

Question i have in mind is- Would Arun have similar 'mix' for MP, Chattisgarh and Rajasthan as well? or given these states have incumbent BJP Govts, he'd go for something different?......