Tag: Airtel | Vivek Kaul

2 June, 2016

Why MTNL Cannot Be Turned Around

Normally I don’t write on individual companies, so today’s column is a bit of an exception to that. Today I plan to discuss the annual results of the government owned Mahanagar Telephone Nigam Ltd.(MTNL), and why it cannot be turned around.

The cue for this column lies in the fact that for the period of January to March 2016, the company made a profit of Rs 174.58 crore. The results were declared on May 30, 2016. On the same day, the telecom minister, Ravi Shankar Prasad, told The Economic Times, that the telecom department is “also working on to improve state-run Mahanagar Telephone Nigam Ltd. (MTNL)”.

Does that mean MTNL can be turned around? The answer is no. There is a fundamental problem with the way the company is run, and I have my doubts on whether that can be corrected. But before we get into that, let me first try and explain how did the company end up with a profit of Rs 174.58 crore during the last three months of 2015-2016.

There were basically two entries that helped the company come up with a net profit. The other income for the period stood at Rs 580.60 crore. Other income essentially means the money that a company earns from activities other than the normal business operations.

The company earned Rs 458.04 crore from surrendering the spectrum it used for its CDMA operations, back to the government. The company discontinued its CDMA operations from March 1, 2016, onwards. Further, taxes of Rs 492.96 crore for an earlier period have been written back. These two items essentially helped the firm come up with a net profit of Rs 174.58 crore.

The annual loss of the firm for 2015-2016 stood at Rs 2,012.24 crore. This is lower than the losses of Rs 2,901.16 crore in 2014-2015. This has been achieved through the surrendering of the CDMA spectrum and a tax write back. If these two things hadn’t happened, the losses of the company in 2015-2016, would have been similar to the losses in 2014-2015.

Now let’s talk about the fundamental problem that the company faces and why the telecom minister Ravi Shanker Prasad, cannot turnaround the company, despite his best intentions. Allow me to explain.

For the year 2015-2016, the company’s income from operations (which does not include its other income) stood at Rs 3,197.40 crore. Of this, Rs 2,310.76 crore went towards employee benefits. A further, Rs 343.68 crore went towards employee benefits for retirement. Hence, of the Rs 3,197.40 crore operational income of the company, a total of Rs 2,654.44 crore went towards employee benefits.

This basically means that 83% of the company’s income from operations went towards meeting employee cost. This is not an anomaly. In 2014-2015, employee cost formed around 78% of the company’s income from operations. Hence, employee cost as a proportion of income from operations has gone up by a whopping 500 basis points during the course of just one financial year. One basis point is one hundredth of a percentage.

How does this compare with competition? Let’s look at the numbers of Bharti Airtel. In 2015-2016. The income from operations of the company stood at Rs 60,300.2 crore. This is close to 19 times the total income from operations of MTNL.

And how much money did the company spend on employee benefits? Rs 1,869.3 crore. This is nearly 30% lower than the employee benefits expenses of MTNL. So what does this mean? It means that Airtel earned 19 times MTNL’s income from operations by spending 30% lesser on its employees.

Further, Airtel’s employee cost in 2015-2016 was 3.1% of its income from operations. MTNL’s was at 83%. And how did things look for Airtel in 2014-2015? The employee benefit expenses of Airtel were at 3.05% of its income from operations. For MTNL, the figure was 78%. Hence, the employee benefit costs of Airtel went up by 5 basis points, during the course of one financial year, whereas that of MTNL went up by 500 basis points.

This is what MTNL is competing against. For it to be viable, the employee cost as a proportion of income from operations, will have to come down dramatically. That can only happen in two ways—salaries being slashed or employees being fired. The first option can be ruled out. The second option will have its own share of costs.

Actually, there is a third way as well i.e. if the company manages to increase its income from operations. But given the brand image that the company has among consumers that seems to be difficult. As they used to say in the good old days when MTNL was a monopoly, MTNL equals Mera Telephone Nahi Lagta. The company had a branding problem back then as well, but the consumer did not have choice. Now he does and he has executed it.

Also, MTNL operates in Delhi and Mumbai, the two biggest and the two toughest telephone markets in the country. While it goes about restructuring (assuming that it does), the other companies won’t be sitting idle doing nothing. While excuses can still be made for keeping Bharat Sanchar Nigam Ltd(BSNL) going, there is none to keep MTNL running.

It’s time the government shuts down the company and starts monetising its assets. MTNL has offices in premier areas of Mumbai and Delhi. In Mumbai, two offices in Prabhadevi (Central Mumbai) and Cumbala Hill (South Mumbai) can be sold at a very good price. The money thus earned could be spent towards improving the physical infrastructure of the country.

It’s time the country stopped subsidising the lives of a fe

It’s time the country stopped subsidising the lives of a few thousand individuals that MTNL employs.

The column originally appeared in the Vivek Kaul Diary on June 2, 2016

20 December, 2012

Why Samsung is the new Nokia

Vivek Kaul
I grew up reading The Indian Express. But a few years back my parents started subscribing to The Times of India after my mother complained once too often that “Express main masala nahi hai!”
The fall of The Indian Express along with The Statesman which used to be two very good newspapers (Express still is. And I haven’t read Statesman in a while, though at a point of time it was regarded the best English newspaper in Asia) are nowhere in the reckoning now, as far as the number of readers is concerned.
What happened? To some extent the papers remained stuck to their past glory and did not see the rise of the new Indian middle class, which along with hardcore news also wanted a dash of masala every morning. They wanted to know how the Congress party was screwing up the country but they also wanted to know whether Amitabh and Rekha smiled when their eyes met at a film industry party.
The Times of India was the only newspaper which caught on to this trend (or should we say created it), raked in the moolah and got way ahead of almost all its competitors in the race.
So what is the point of I am trying to make? Incumbents who are firmly entrenched in their businesses more often than not fail to see the rise of a new category. The most recent example of the same is Nokia, which after being the top mobile phone brand in the world for a period of nearly 14 years has lost out to Samsung.
And the reason for this is very simple. Nokia did not see the smart phone. There are loads of other examples of existing companies that did not see the rise of a new category.
Sony invented the walkman but allowed Apple to walkway with the MP3 player market. RCA which was big radio manufacturer had earlier allowed Sony to walkaway with the pocket radio market. Southwest Airlines created an entirely new low cost airline market which gradually spread to all other parts of the world. Incumbents like Panam, Delta, Singapore Airlines and British Airways did not spot this opportunity.
In India Hindustan Lever Ltd did not spot the low cost detergent market, Nirma did that. Amabassador and Premier Padmini which were the only two car companies in India did not see the rise of the small car market which Maruti Suzuki captured. More recently Maruti did not spot the growing demand for diesel cars and continued to be primarily a company which manufactured petrol cars. It lost out in the process.
Bharti Beetel, revolutionised the landline phone market in India with the introduction of push button phones. But it got into the mobile phone market very late. And this was a huge business opportunity missed given that Bharti Airtel became the largest mobile phone company in India and could have easily bundled Beetel mobile phones along with Airtel mobile phone connections. An entire first generation of Indian mobile phone users could have ended up using Beetel mobile phones. Kodak a company which invented digital photography went bankrupt recently. And BBC, the most respected news organisation in the world did not see the rise of the concept of 24 hour news and left it to CNN to capture that market.
As marketing consultants Al and Laura Ries,write in War In the Boardroom, “The biggest mistake of logical management types is their failure to see the rise of a new category. They seem to believe that categories are firmly fixed and a new one seldom arises.”
And why is that? The answer lies in the fact that incumbent companies are too cued into what they are doing at that point of time. A brilliant example is Kodak. How could a company which invented digital photography go bankrupt because of it? Mark Johnson explains this phenomenon in Seizing the White Space – Business Model Innovation for Growth and Renewal. As he writes “In 1975, Kodak engineer, Steve Sasson invented the first camera, which captured low-resolution black-and-white images and transferred them to a TV. Perhaps fatally, he dubbed it “filmless photography” when he demonstrated the device for various leaders at the company.”
Sasson was asked to keep quiet about his invention. This was because Kodak was the biggest producer of photo films at that point of time. And any invention that did not use photo films would have hit the core business of the company. So Kodak ignored the segment. By the time it realised the importance of the segment other companies like Canon had already jumped in and become big players. Also by then brand Canon had come to be associated very strongly with the digital camera whereas Kodak continued to be associated with the old photo film.
The same would have stood true for Beetel in India. They would have been making good money on selling landline phones and wouldn’t have seen any sense in entering the nascent mobile phone market in India where calls were priced at Rs 16 per minute. And by the time the market took off brands like Nokia would have been firmly entrenched. Amabssador and Premier Padmini fell victim to the same thing.
Another excellent example of this is Xerox. “Just think of Xerox’s Palo Alto Research Center, which famously owned the technologies that helped catapult Apple (the graphical user interface, the mouse), Adobe (post script graphical technology) and 3Com (Ethernet technology) to success,” writes Johnson.
But Xerox executives were busy selling the photocopier. They did not have time for these small tinkerings that seemed to have been happening in their company labs. The photocopiers brought in all the money and their attention was firmly focussed on them.
Sony is a really interesting example in this trend. Sony had created the Walkman and the entire market of listening to music anywhere and everywhere. But they somehow failed to latch onto the MP3 player market which was captured by the likes of Apple iPod. An MP3 player was just an extension of the Walkman.
Other than being an electronics company Sony had also morphed into a music company owning the rights to the music of some of the biggest pop and rockstars. Hence Sony supporting MP3 technology would mean one of the biggest music companies in the world supporting the free copying and distribution of music because that was what MP3 was all about.
And with this logic which might have seemed perfectly fine at that point of time Sony lost out to Apple in the MP3 space. Also, over the years music became free anyway.
Getting back to where we started, Nokia made the same mistake. It did not see the rise of the smart phone category as other players like Samsung and Apple did. And the reason was simple. Even though smart phones have been around for a while only now have they really taken over the market because they are robust enough. Hence, as long as the basic phones of Nokia were selling well, as they were till a couple of years back, it had no real interest in thinking about the smart phone market.
By the time the company caught on with the launch of Lumia other international players like Samsung and Apple already had a major presence in the market. In India the smart phone space has loads of local players like Micromax battling for the market as well.
And so Nokia lost the race!
The interesting thing is that Samsung will also will lose the race when the next evolution in the mobile phone space happens. It will be too focused on the smart phone.
The article originally appeared on www.firstpost.com on December 20, 2012
(Vivek Kaul is a writer. He can be reached at [email protected])

19 May, 2012

What Mamata can learn from Surf, BBC, Sony and Nokia

Vivek Kaul

Vidhu Vinod Chopra the producer of the superhit 3 Idiots made a movie called 1942:A Love Story which was released in 1994. The movie had soulful songs and could have been a big comeback for the great R D Burman. But alas that never happened. Pancham da died of a heart attack before the movie was released.
The movie set during the days of the British Raj starts as a love story between the hero Anil Kapoor and the heroine Manisha Koirala, who keep singing all the beautiful songs composed by Burman in the first half of the movie. But throughout the first half all the characters other than the hero and the heroine keep saying this one line “shubhankar da aa rahe hain”, building the expectations of the audience for his arrival.
Shubhankar da (played by Jackie Shoff) finally arrives around 30 seconds before the interval. Until that moment the movie was a love story. Then on it becomes a movie on the freedom struggle, which in this day and age would have been called a political thriller.
As was the case in the movie, there comes a time in life of individuals as well businesses when the story has to change. The past has to be dumped and made insignificant and a new story needs to emerge.
This is something that Mamata Banerjee, rabble rouser par excellence and the only angry young man in the country with the days of Bachchan long gone, needs to realize. She built her career and life around trying to throw out the Left Parties out of West Bengal and finally after more than two decades of hard work and sheer persistence she succeeded.
If ever there was an example of an individual not giving up and finally succeeding she was it. But after becoming the Chief Minister of West Bengal what is her story? She still seems to be working on the same story of rabble rousing against the Left everywhere all the time, and holding them responsible for everything that is happening in the state of West Bengal. From rapes of women to lack of governance!
The irony of course is that she is the government now. Her level of paranoia against the Left is reaching extreme proportions now. Most recently she called the students of Jadhavpur University CPI-M cadres. As she said “They are the CPI-M cadres. I am not going to reply. I will give reply to questions from common people. I am sorry to say you belong to CPI-M. You are SFI (Student Federation of India, the student wing of CPI-M) cadres. We know all of you.”
While Bengal may be full of CPI-M cadres this is like stretching it a little too much. It is time that Mamata Banerjee changed her anti-left story.
There are a few things that Banerjee can learn from businesses from around the world which experience this phenomenon time and again. Some learn and adapt, others don’t and for some others by the time they realise that things have changed, it’s already too late.
Take the case of Nokia, the largest mobile phone manufacturer in the world. The company started in 1865 as a groundwood pulp mill. It gradually became an industrial conglomerate and among other things produced paper products, tyres, footwear, communication cables and consumer electronics.
In the early 1990s the company realised that its story had to change. It decided to concentrate on the telecommunication business. It gradually sold out a host of its other businesses. The change of story helped the company become the largest mobile phone manufacturer in the world.
But the company missed out on the smart phone revolution completely. By the time it changed its story and started concentrating on smart phones, other companies had already moved in and captured the market. A host of smaller companies from Micromax to Karbon Mobiles and many more are giving Nokia a run for its money in the Indian market.
Why did this happen? For the simple reason, like Mamata, the company remained attached to its earlier story.
There are other such examples as well. When it came to reliable trustworthy news there wasn’t a bigger brand than the British Broadcasting Corporation(BBC). The company did not see the story changing and the rise of 24hour news channels. CNN grabbed the opportunity and broadcast the Gulf War live into homes. Sony is another great example. The company changed the entire music business with the launch of the Walkman. But failed to see the story changing and handed over the mp 3 player market to the likes of Apple, on a platter.
Bharti Beetel which revolutionised land line phones in India by launching push button phones failed to see the story changing and remained stuck to selling push button phones, when more and more consumers were moving to mobile phones. Ironically, its sister company Airtel became the biggest mobile phone company in India.
The company has recently started selling mobile phones. Now imagine, during the days when Airtel was a growing company, Bharti could have sold its own mobile phones (under the Beetel brand) to consumers who bought an Airtel connection and thus could have been one of the biggest mobile phone companies in India.
Those who do see the story changing and change their stories accordingly benefit from it. An oft quoted example is that of Nirma and Wheel. The Nirma detergent started selling at Rs 3.50 per kg at a time when Hindustan Lever’s (now Hindustan Unilever) Surf used to sell for around Rs 15 per kg. The low price of Nirma made it accessible to consumers, who till then really couldn’t afford the luxury of washing clothes using a detergent and had to use soap instead.
To Hindustan Lever’s credit they did not remain stuck in their past, realised that the story had to change, and thus went ahead and launched their Nirma killer “Wheel” detergent, which eventually beat the sales of Nirma.
The moral of the story from all these examples from Surf to Nokia to Sony to Bharti is simple. At times in lives of individuals as well as companies the story that had worked previously needs to be dumped. It is time for Mamata to come up with a new story. She is no longer in the opposition when blaming the Left for every problem in the state of West Bengal was her story. Now she is where the Left was earlier.
If she doesn’t change her story and come up with a new one, her innings as a Chief Minister is going to be a short lived on. The people of West Bengal need to know what does the new Mamata stand for?
(The article originally appeared on www.firstpost.com on May 19,2012. http://www.firstpost.com/politics/what-mamata-can-learn-from-surf-bbc-sony-and-nokia-314738.html)
(Vivek Kaul is a writer and can be reached at [email protected])