Unit 4 Telecom

7/28/2019 Unit 4 Telecom

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COST OF CAPITAL AND VALUE BASED REGULATION-A CASE STUDY OF INDIAN TELECOM SECTOR

INTRODUCTION

In the regulated telecom scenario, cost of capital will be one single unifying factor using which the

enterprise as well as the regulator would aim at value creation. In a way, we can call it value

convergence in that all stake holders in the regulatory process strive towards value creation at the

end. This can be visualized in the figure-1 which shows various inter linkages in the process of value

creation by the stake holders in the regulatory system.

Evaluating A Company's Capital StructureJuly 02 2012| Filed Under Bonds,Investing Basics

For stock investors that favor companies with good fundamentals, a "strong" balance sheet is an

important consideration for investing in a company's stock. The strength of a company's balance

sheet can be evaluated by three broad categories of investment-quality measurements:working

capital adequacy,asset performanceandcapital structure. In this article, we'll look at evaluating

balance sheet strength based on the composition of a company's capital structure.

A company's capitalization (not to be confused withmarket capitalization) describes the composition

of a company's permanent or long-term capital, which consists of a combination of debt and equity.

A healthy proportion of equity capital, as opposed to debt capital, in a company's capital structure is

an indication of financial fitness.

Is There an Optimal Debt-Equity Relationship?

In financial terms, debt is a good example of the proverbial two-edged sword. Astute use ofleverage

(debt) increases the amount of financial resources available to a company for growth and expansion.

The assumption is that management can earn more on borrowed funds than it pays in interest

expense and fees on these funds. However, as successful as this formula may seem, it does require

that a company maintain a solid record of complying with its various borrowing commitments.

Capital Ratios and Indicators

In general, analysts use three different ratios to assess the financial strength of a company's

capitalization structure. The first two, the so-calleddebtanddebt/equity ratios, are popular

measurements; however, it's the capitalization ratio that delivers the key insights to evaluating a

company's capital position.

Additional Evaluative Debt-Equity ConsiderationsCompanies in an aggressive acquisition mode can rack up a large amount of purchasedgoodwillin
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their balance sheets. Investors need to be alert to the impact ofintangibleson the equity

component of a company's capitalization. A material amount of intangible assets need to be

considered carefully for its potential negative effect as a deduction (or impairment) of equity, which,

as a consequence, will adversely affect the capitalization ratio.

Capital structure

Parker Conrad

A company's capital structure refers to the relative proportions ofequity(raising money by selling

shares) anddebt(raising money by borrowing) which the company uses to finance its activities.

A company's capital structure can have an enormous impact on its earnings per share, taxes, andinterest payments, even though it is relatively easy for companies to change capital structures - I.E.,

to pay off debt by selling new shares, or to borrow money and buy back shares. As a result, valuation

metrics which are not "capital structure neutral" -- ie, which are impacted by capital structure --

make it difficult to compare one company to another.

Earnings, for example, are not capital structure neutral because of the impact of taxes and interest.

As a result, investors use metrics such asEBITandEBITDAinstead - profitability metrics which

exclude the components of a company's earnings impacted by its capital structure - to compare

companies and understand the fundamental earnings potential of the business.

Foreign direct investment in telecom sectorThe liberalization measures post-1990 have changed with foreign investments radically, now

portfolio as well as Foreign Direct Investment are not only allowed but also actively encouraged.

During the decade of the nineties, the 'ceilings' on FDI in different sectors were progressively raised.

In 2001, 100 per cent foreign investments were allowed in several industrial sectors. Also, 100 per

cent Foreign Direct Investment is allowed in almost all the infrastructure sectors.

FDI can enter India through two possible channels:

* The automatic route under which companies receiving Foreign Direct Investment need to inform

the Reserve Bank of India within 30 days of receipt of funds and issuance of shares to the foreign

investor

* For sectors that are not covered under the automatic route, prior approval is needed from the

Foreign Investment Promotion Board (FIPB).

The foreign direct investment in telecom has been hiked up from 49% to 74%. This move is positivefor the sector , as it require investments of Rs 700900 million over the next 5 years. FDI inflow by
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2004 was 9950.94 cores in telecom. Countries like Europe, Korea, and Japan telecom are likely to

enter India, as India is seen as fastest growing telecom market in world.

Their is restrictions related to remote access, transfer of network information outside India and

international transit routing of Indian traffic. It has been decided to enchance the FDI in telecom

services in areas like basic telecom, cellular unified access services, Nat /intranet, long distance Vast,

public mobile, radio service & gmdcs.

DOT will have the authority to restrict the license company from operating in any of the sensitive

areas of the country.

Effect of FDI in telecom

Telecom service at Subsidized prices FDI inflows will allow multiple benefits such as technology transfer, market access and

organizational skills.

In India where 70% of population still resides in rural areas, there is a dire need ofinfrastructure in telecom, which FDI can provide.

Foreign currency flowing in the country Harmonious relationship with country from which foreign investment is being made There will be increase in competition with local players, which will benefit consumers

It will have a multiplier effect

Telecommunication facility at reasonable price, affordable to many More technological inflow, will improve voice & data quality Free flow of capital is good for Indian consumer

Doubts in the new FDI regulation

According to the policy, majority of directors and board members including, chairman, MDand CEO will be resident of India.

foreign firm owns 74 per cent of the Indian telecom, it still has to appoint the chairman,managing director and CEO "in consultation with serious Indian investors", and a serious

Indian investor is defined as someone who owns at least 10 per cent of the firm's equity -

why even bother to invest in India if someone else decides who's going to run the firm?

At a time when the country's police/investigative arms find it impossible to trace people attimes, telecom firms "must provide traceable identity of their subscribers".

The policy says "No accounting information will be send outside India" imagine a foreigninvester wants to check the usage pattern, clouding, he will not be able do it so India will be

seen as a black hole for foreign BPO.


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It also says that network cannot be managed from overseas & the ironical part is that India isfighting tooth and nil to win Contract to maintain global network out of India

No wonder it has been one year since the announcement of an increase in FDI limits in telecom from

49% to 74% has been made , and there are still no taker.

Telecom Services :: Network DeploymentAirmech Engineersmodular Network Deployment Services are directly geared to the needs of the

clients whether they are equipment vendors, service providers, carriers, or other end users. Our goal

is to help clients remain focused on their core business: delivering quality service to their customers.

Airmech Engineers suite of network deployment services covers every aspect from Telecom field

engineering, Telecom project engineering and Telecom equipment installation, to Telecomtraffic

integration, test and turn-up, and cut over. Detailed engineering is the key to network deployment

and doing the job correctly from the beginning saves money and time.

In addition to these key services, Airmech can provide expert project management. Our staff is well

equipped to drive the schedule, resolve issues, and meet the budget. We also assist clients in solving

tough technical and logistical challenges.

Along with our Telecom field engineering services, we send a certified Airmech Networks engineer

to the site to gather the information needed for Telecom Tower space planning, Telecom Tower

installation design and Telecom Tower project engineering. The engineer performs a site-readiness

check to verify the site is prepared to receive equipment and commence installation.

The project engineering specification becomes the basis for inventory management, installation, and

testing, and is an excellent reference source for telecom operations and maintenance crews.

Airmech provides the expertise required to deploy, expand, and upgradeTelecom networks. Fast

deployment in large volumes involves a heavy ramp-up of resources that must be prepared for in

advance and this can be very costly if not managed with the necessary experience.

Airmech has developed a service delivery concept using a professional mix of local, in-house

capabilities and subcontractors. We can manage these capabilities in a way that has proven to be

successful and results in a very high degree of customer satisfaction. Our project management

service will keep our customers very well informed on the progress. When our customers want to

control the overall project and perhaps also take care of network design,

Airmech can offer support in the form of deploying and integrating on a node-by-node level.The Network Deployment service is delivered according to the following service deliverables


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1. Telecom Project Management

2. Telecom Site Acquisition

3. Telecom Civil Works

4. Telecom Installation

5. Telecom Integration

1. Telecom Project Management

The Project Management service covers the entire process from Network Build up to the Network

Assurance phase. Airmech has access to wide range of professional resources

with years of experience in Telecom Project Managementroles that can meet the customers needs

in the various phases of the project. The service is delivered in close cooperation with

our customers, Airmech plans and organizes the project, manages quality, risks and progress of the

different phases throughout the entire project life cycle. The service is divided

into different sub phases of a project of which the pre-study phase will define the requirements and

business needs according to customer requirements.

The planning phase of a project is the most crucial as it forms the basis for a successful project. This

phase will outline the detailed planning of activities, set the goals and objectives and establish the

required organizational structure and define roles and responsibilities by means of working level

agreements with the customer. The next phase is the establishment phase, teams are allocated to

respective project and reporting systems are implemented. The project is then executed according

to the plan with regards to time and cost. Progress reporting is a key role of this phase and constant

follow up with risk analysis and prevention plan implemented.

The last phase of a project is the conclusion phase whereby the project is concluded according to

project goals and objectives. All project deliverables are handed to final customer, acceptance

criteria are agreed between parties and final reports are produced. The Network Audit consists of a

general evaluation of the network performance and GSM/GPRS/EDGE Coverage surveys. The service

aims at providing valuable information regarding the current situation, and pointing out

performance areas where improvement can be achieved. The Network Audit process is the main

input data for the Design and Optimization processes of the Radio, Transmission and Core

Network.

2. Telecom Site Acquisition

The site acquisition service is based on the results of the Network Design phase and is about finding,

investigating and obtaining legal access to sites and readying them for detailed

site design and construction. The Site Acquisition service applies to all network elements for new

and existing sites. The service is country-specific and dependent on various local factors, such as the

real estate market, land and property owners, local building regulations and environmental

regulations. Therefore, the service must rely on the competence and experience of local service

providers and consultants who can provide the service for the specific circumstance.

3. Telecom Civil Works

Civil works is about designing and constructing telecom network sites, new or existing, and readying

them for the installation of telecom equipment. Airmech' Civil Works service provides a generic

solution for the detailed design and construction of the required environment and


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surrounding infrastructure, and for providing utilities for telecom equipment. The Civil Works

service is always adapted to the local market and entails customized implementation of the generic

service process. Successful implementation is achieved through local expertise, presence and

resources and carefully evaluating and selecting service providers, suppliers and consultants.

This service is not provided on it own but as a subset of the Network Design and Installation

process. A project manager is provided as part of the service, to guarantee efficient performance

and coordination of service providers, suppliers and experts. The project manager also maintains

communication between your organization and Airmech.

4. Telecom Installation Services

The Installation Service applies to the installation of various kinds of equipment, from simple nodes

to complete system solutions. It is part of the network deployment service portfolio. In essence,

Airmech installs all hardware and pre configured software, makes the appropriate connections and

verifies that everything is working properly and is ready for integration into the network. The

Installation Service applies to all network elements from all equipment vendors

for new, upgrade and change-out installations. The installation service consists of a preparation,

installation and verification phase. Airmech verifies that all delivered equipment and documents

match the ordered materials.

Customer and Airmech jointly inspect the sites and review site documentation to ensure that the

sites are ready for installation. The hardware is installed in accordance with proven procedures.

Upon completion of each step in the process, the work is inspected and the results are documented.

Installation includes the mounting of equipment and the connection of cables to the power supply.

The installation is complete and the equipment is ready for integration into the network when the

tests have been performed and the customer has accepted the site.

5.Telecom Integration Service

The Integration service integrates network elements and applications, networks, and solutions into

the existing environment. After all equipment has been installed, Airmech verifies the site. Only

minor tests are necessary, since the equipment has already been tested at the factory

before delivery. The test instructions and the work order to be used are defined in the work

procedures according to vendor specifications. During verification, Airmech powers

up the equipment and runs the tests that have been stipulated in the work procedures.

The installation is complete and the equipment is ready for integration into the network when thetests have been performed and customer has accepted the site. The service also includes

verification, to ensure that every connection, networking relationships and traffic management flow

is stable and working according to expectations. The integration test phase encompasses

every activity needed to connect the network elements or application with each other and with

existing networks and systems according to the scope of the project.

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Documents

Unit 4 Telecom