History repeats itself. It’s a cliché. But like most clichés, it might come true sometime soon. The wealth destroying saga of Indian Airlines Industry is starting to get replicated in the Indian Telecom Industry. Billions of dollars of the exchequers money has been lost in the past by delaying an exit to nullify a strategic advantage.
Post independence, the government had to invest and nurture many high investment, long gestation services as a part of national building. Airlines, railways, education, steel, ship building etc etc. These were inevitable and were steps in the right direction. These industries helped India gain both self sufficiency in many ways and global acceptance as a force which can take care of itself and be accepted a geo-politics force.
But then, all policies and strategies have a context. Globally, there are lot of case studies to show that government organizations create both social and economic wealth when they are there to hold Atlas’ responsibilities to build a sector in the absence of private enterprise. Many other times, government sector plays a critical role to break powerful private oligopolies and cartels.
Similarly, there are innumerable stories to show that when the environmental and market context changes, government organizations may not be culturally and ownership wise aligned to play the optimization game required by the market forces. That is why while some government organizations continue to flourish in the open market set-up, many behemoths fall under their own operational weight and a lack of shared organizational ownership [both at the top and the bottom].
The Government of India’s airlines companies have been taking huge losses for many years now. The global airlines industry going through a downturn hasn’t helped. However the bigger reason is the grossly inefficient operational indicators and strategic goof-ups. As a small example – the Air India and Indian Airlines reservation systems, are yet to consolidated into one, because of system integration problems!!!...its already been a while since both the companies are merged. It is well known – the number employees per customer or flights in AI/IA are far higher than global averages. Operational inefficiencies due to design flaws are itself a very difficult situation. But what is also a damaging reality in India is the under the belt punching of the private sector. There is a lot of induced inefficiency amongst the employees of government sector – by private players.
That’s why BSNL/MTNL need to act fast. Due to aggressive pricing and a a wide network the government companies had an enviable customer based riding on top of a nation wide network. That helped when the private players were satisfied with cushy concentrated markets. But now with the private sectors getting really aggressive to grow with the backing of healthy balance sheets and foreign funds, the government companies have already lost their dominant status.
The fact that the government telcos had a loss at EBIDTA level last year, when the rest of the telecom companies are raking in the mullah is just scary. The call drops and the calls not going through for BSNL customers is getting tougher by the day and increasing customer dis-satisfaction. Many customers are probably hanging on because of a sense of patriotism or more importantly for their wanting to retain their old numbers [to avoid the hassles of change – the same reason why people normally don’t change cities to greener pastures unless forced with some inevitable externalities]. However, this strategic position is very likely to be lost with the Mobile Number Portability. Now customers can change telcos, without changing their old number. This is an awesome bit of opportunity for consumers. This is also an awesome bit of opportunity for private players to jam the systems for the government players and engineer the churn.
Large numbers of users will be shaved, especially in the high ARPU segments for operationally inefficient companies [read – government telcos]. Assuming the per customer valuation of about USD 2000, loss of even a lakh customer would mean an erosion of market value of Rs. 1000 crore. As the current guess it, unless MTNL/BSNL stop the rut internally the loss of customers will be far more than a lakh.
The fear is that in 3 years, the telcos will be huge cash guzzlers from the current haloed status. Before they become pariahs we must sell them off. Or maybe reduce their ambit to profitable zones and scale and just retain it to remain a deterrent to potentially oligopoly based unreasonable profit seeking by the private players. Pl note, as the Indian government airline sector has bled so badly, it has also lost the capacity to hold prices as the private players make merry in Merry Christmas.
The lesson is clear, either buck up or sell-off. Best to sell off parts of the company to reduce the operational complexity, while GOI/DOT/TRAI retain the lever to minimize unreasonable profit making.
December 25, 2010
Mumbai
Post independence, the government had to invest and nurture many high investment, long gestation services as a part of national building. Airlines, railways, education, steel, ship building etc etc. These were inevitable and were steps in the right direction. These industries helped India gain both self sufficiency in many ways and global acceptance as a force which can take care of itself and be accepted a geo-politics force.
But then, all policies and strategies have a context. Globally, there are lot of case studies to show that government organizations create both social and economic wealth when they are there to hold Atlas’ responsibilities to build a sector in the absence of private enterprise. Many other times, government sector plays a critical role to break powerful private oligopolies and cartels.
Similarly, there are innumerable stories to show that when the environmental and market context changes, government organizations may not be culturally and ownership wise aligned to play the optimization game required by the market forces. That is why while some government organizations continue to flourish in the open market set-up, many behemoths fall under their own operational weight and a lack of shared organizational ownership [both at the top and the bottom].
The Government of India’s airlines companies have been taking huge losses for many years now. The global airlines industry going through a downturn hasn’t helped. However the bigger reason is the grossly inefficient operational indicators and strategic goof-ups. As a small example – the Air India and Indian Airlines reservation systems, are yet to consolidated into one, because of system integration problems!!!...its already been a while since both the companies are merged. It is well known – the number employees per customer or flights in AI/IA are far higher than global averages. Operational inefficiencies due to design flaws are itself a very difficult situation. But what is also a damaging reality in India is the under the belt punching of the private sector. There is a lot of induced inefficiency amongst the employees of government sector – by private players.
That’s why BSNL/MTNL need to act fast. Due to aggressive pricing and a a wide network the government companies had an enviable customer based riding on top of a nation wide network. That helped when the private players were satisfied with cushy concentrated markets. But now with the private sectors getting really aggressive to grow with the backing of healthy balance sheets and foreign funds, the government companies have already lost their dominant status.
The fact that the government telcos had a loss at EBIDTA level last year, when the rest of the telecom companies are raking in the mullah is just scary. The call drops and the calls not going through for BSNL customers is getting tougher by the day and increasing customer dis-satisfaction. Many customers are probably hanging on because of a sense of patriotism or more importantly for their wanting to retain their old numbers [to avoid the hassles of change – the same reason why people normally don’t change cities to greener pastures unless forced with some inevitable externalities]. However, this strategic position is very likely to be lost with the Mobile Number Portability. Now customers can change telcos, without changing their old number. This is an awesome bit of opportunity for consumers. This is also an awesome bit of opportunity for private players to jam the systems for the government players and engineer the churn.
Large numbers of users will be shaved, especially in the high ARPU segments for operationally inefficient companies [read – government telcos]. Assuming the per customer valuation of about USD 2000, loss of even a lakh customer would mean an erosion of market value of Rs. 1000 crore. As the current guess it, unless MTNL/BSNL stop the rut internally the loss of customers will be far more than a lakh.
The fear is that in 3 years, the telcos will be huge cash guzzlers from the current haloed status. Before they become pariahs we must sell them off. Or maybe reduce their ambit to profitable zones and scale and just retain it to remain a deterrent to potentially oligopoly based unreasonable profit seeking by the private players. Pl note, as the Indian government airline sector has bled so badly, it has also lost the capacity to hold prices as the private players make merry in Merry Christmas.
The lesson is clear, either buck up or sell-off. Best to sell off parts of the company to reduce the operational complexity, while GOI/DOT/TRAI retain the lever to minimize unreasonable profit making.
December 25, 2010
Mumbai
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