Subash Menon, founder-chairman and managing director of Bangalore-headquartered telecom software product firm Subex, speaks to Bibhu Ranjan Mishra about the impact of the global slowdown on the Indian telecom sector and IT industry.
Has the global slowdown affected the telecom sector?
Unlike the situation in 2001, most telecom service providers are under-leveraged at this point of time. They aren't very dependent on external funding. The only way they could get affected seriously is if consumption of telecom services drops significantly.
The phone has become a necessity today. In fact, in times of crisis, people call more and there is higher call value (volume). So as long as the consumption level of telephone services does not drop, the companies will not get affected.
But some telecom firms are finding it hard to ramp up their operations due to credit crunch?
Telcos have not been depending much on funds. For instance, AT&T, which went for an overnight funding selling its commercial papers, was looking at raising funds for working capital. That has also now been sorted out because of the intervention of the US government.
Then why are most IT firms, with exposure to the telecom sector, complaining of a slowdown?
Most IT service providers work with telecom equipment companies like Ericsson, Nokia and Siemens. Right now, the problem is confined to telecom equipment makers, not to telecom service providers. Subex has nothing to do with equipment vendors. We sell our licences directly to the telecom service providers.
Are telecom companies going ahead with their expansion plans?
Most of the telcos are quite aggressive as far as their expansion plans are concerned. British Telecom, which is our largest client, has just come out with a new project called Fibre To The Cabinet (FTTC). They want to roll out FTTC all over the UK with an investment of close to £5 billion, for which the pilot has already started.
More From This Section
What kind of opportunities do you foresee?
We will have multiple opportunities. The moment they draw out the lines to different places, they need to have provisioning; activation and inventory management has to happen and data integrity has to be checked to ensure that all network assets are properly tracked.
In any service that they go ahead with, there will be revenue assurance issues which means revenue assurance protection will be required. So we will have multiple opportunities. But all these investments will spread over multiple number or years.
During the last couple of years, you made a couple of big acquisitions. Now there appears to be a lull...
Yes. I don't think in the next three-four quarters, we will make any new acquisition. It took a while for us to consolidate the last acquisition. And by the time when we got rid of those issues and became ready for the next one (acquisition), the financial market has gone for a toss.
Because, we need to raise money to acquire. We will wait till the market condition improves, and this will also give us enough time to completely settle down and extract the benefits of the last acquisition.
In the recent past, the promoters have increased the stake in the company?
I raised my holding in the company because I got a better price, and because of the market condition.
Besides, our performance was not very good last year. But that does not mean that the promoters' holding will stay in that level. It may change at some point of time. Currently, I hold about 10 per cent in the company.
You are also the chairman of Nasscom product forum. Do you think software product sector in India is moving in the right direction?
Clearly, there are many many more software product companies which are coming on the scene.
As per the last Nasscom report, there are about 371 product companies in India, of which 200-odd companies came into existence in the last two years. Over the next six-seven years, there will be many more companies who would be coming to the product space.
But a very few of these companies survive in the long-run?
In product business, 'infant mortality' rate is very high, and many companies will die for variety of reasons. But more companies will die because they are in the product space, not in services. The risk is higher in products and challenges are very different.
But clearly at the end of six-seven years, there will be decent number of software product firms with significant revenues. It might so happen that at that point of time, the top-20 product companies may contribute about 90 per cent of the total product revenue like the services business. But that is the nature of the business.