Bill it to service

SMARTSHARE

It's the drowning man who thinks most keenly about air; the absence of my broadband connection sparked off these thoughts about telecom. Among all infrastructure industries, this has the fastest, most certain growth and the most investments.

But like every other infrastructure industry, it faces key issues across regulation, technology and service delivery standards. Changes in any of these could make a huge difference. Right now, it's difficult to make calls on profitability.

There's also an ownership churn and the number of unlisted players makes it almost impossible to hazard guesses as to investment opportunities. All the telecom service providers are in M&A courtships and intra-group consolidations; all have long-term IPO ambitions.

Bharti and a couple of the Tata service companies (TTSL Maharashtra and VSNL) are listed, as is MTNL. Among the unlisted, BSNL and Reliance Infocomm are 800-pound gorillas.

The bottlenecks in policy pertain to funding, to spectrum allocation, to technology-neutral treatments of services, ADCs, changes in treatment of WLL and VPN services etc. At some stage, any or all of these could spark renewed litigation.

The service provider model is very simple in theory: raise money, pay for licences and build networks, build consumer brands like FMCGs, offer value-added services, become a cash cow.

It can take years though. In India, companies are still at the first two stages. How do you value such a model? Punt and hope. The growth rate in subscribers is the only number with some certainty "" overall it's 2.5 million a month and accelerating.

Bharti Televentures (BTL) went cash-positive in 2004-05, and logged Rs 461 crore profits on Rs 2,413 crore turnover in the April-June 2005 quarter. Reliance Infocomm says it's cash-positive. VSNL and MTNL are surviving and VSNL is aggressively expanding.

My guess is valuations for 2-3 years would revolve around market value to sales. Sales growth is high. BTL goes for about 144 times its Q1, earnings and the Q1 sales (Rs 2,413 crore ) to market cap (roughly Rs 65,000 crore) ratio is about 27. Simply annualising this is unfair. The 2005-06 full-year results will be better than 4xQ1 sales and 4xQ1 profits. BTL is the market-leader with big market shares in fixed and GSM.

Building a brand however is a problem for most Indian TSPs. Their service standards suck. I subscribe to four TSPs: every one has different glitches, hence four.

In January I had to make 12 requests before one of my TSPs agreed to transfer two phones to a new address. I relinquished one phone and kept the other, a DSL broadband.

In August, my broadband was disconnected once every week, for "non-payment" of bills "" though the relevant cheques had already been realised! Restoration took one to two days and an average of six (paid) calls to customer service, which was unfailingly polite and unfailingly unhelpful.

After the fourth runaround, I asked that my subscription be terminated at the end of the September billing cycle. Broadband was cut off on September 24 "" the reason given was an outstanding bill on the phone I'd relinquished in January. This may be true "" at the time of writing, eight months later, I haven't yet received the bill in question.

On its website, right next to the Airtel logo, my former telecom service provider says it aims "to be globally admired for telecom services that delight customers". Its customer service norms srike me as an odd way to build brand value and delight customers "" and remember, BTL is the best of the lot!