1.

INDUSTRY OVERVIEW
1.1 Introduction The Indian Telecommunications network is the third largest in the world and the second largest among the emerging economies of Asia. Today, it is the fastest growing market in the world. India had 851.70 million mobile phone subscribers at the end of June 2011. The country has the fourth highest number of Internet users with over 100 million as of December 2010. The telecommunication sector continued to register significant success during the year and has emerged as one of the key sectors responsible for Indias resurgent Indias economic growth. According to analysts, the sector would create direct employment for 2.8 million people and for 7 million indirectly. In 2008-09 the overall telecom equipments revenue in India stood at 136,833 crore during the fiscal, as against 115,382 crore (US$25.73 billion) a year before. 1.1.1 History In 1880, two telephone companies namely The Oriental Telephone Company Ltd. and The Anglo-Indian Telephone Company Ltd. approached the Government of India to establish telephone exchanges in India. The permission was refused on the grounds that the establishment of telephones was a Government monopoly and that the Government itself would undertake the work. In 1881, the Government later reversed its earlier decision and a licence was granted to the Oriental Telephone Company Limited of England for opening telephone exchanges at Calcutta, Bombay, Madras and Ahmadabad and the first formal telephone service was established in the country. On the 28th January 1882, Major E. Baring, Member of the Governor General of India's Council declared open the Telephone Exchanges in Calcutta, Bombay and Madras. The exchange in Calcutta named the "Central Exchange" with a total of 93 subscribers. Later that year, Bombay also witnessed the opening of a telephone exchange. In 1975, the Department of Telecom (DoT) was separated from Indian Post & Telecommunication Accounts and Finance

Service. DoT was responsible for telecom services in entire country until 1985 when Mahanagar Telephone Nigam Limited (MTNL) was carved out of DoT to run the telecom services of Delhi and Mumbai. In 1990s the telecom sector was opened up by the Government for private investment as a part of Liberalisation-Privatization-Globalization policy. Therefore, it became necessary to separate the Government's policy wing from its operations wing. The Government corporatized the operations wing of DoT on 1 October 2000 and named it as Bharat Sanchar Nigam Limited (BSNL). Many private operators, such as Communications, Tata, Vodafone, Loop Mobile, Airtel, Idea etc., successfully entered the high potential Indian telecom market. 1.1.2 Growth A large population, low telephony penetration levels, and a rise in consumer spending power have helped make India the fastest-growing telecom market in the world. The market's first operator was the state-owned Bharat Sanchar Nigam Limited (BSNL), created by corporatization of the Indian Telecommunication Service, a government unit formerly responsible for provision of telephony services. Subsequently, after the telecommunication policies were revised to allow private operators, companies such as Bharti Airtel, Reliance Communications, Tata Teleservices, Idea Cellular , Aircel and Loop Mobile have entered the market . In the fiscal year 2008-09, rural India outpaced urban India in mobile growth rate. The total number of telephones in the country stands at 885.99 million, while the overall teledensity has increased to 73.97% as of June 30, 2011. Mobile telephony experiences growths at rates such as 11.41 million subscribers a month, which were added in June 2011.This rapid growth has been possible due to various proactive and positive decisions of the Government and contribution of both by the public and the private sector. The rapid strides in the telecom sector have been facilitated by liberal policies of the Government that provideeasy market access for telecom equipment and a fair regulatory framework for offering telecom services to the Indian consumers at affordable prices.

1.2 Segment wise Status 1.2.1 Wireline Services With increasing penetration of the wireless services, the wire line services in the country are becoming stagnant. On the other hand, Broadband demand has picked up and promises to stabilise fixed line growth. 1.2.2 GSM Sector In terms of the Global System for Mobile Communication (GSM) subscriber base this now places India third after China and Russia. China had 401.7 million GSM subscribers. 1.2.3 CDMA Services CDMA technology was introduced in India as a limited mobility solution. The introduction of CDMA services has created competition, lowered tariffs and offered many citizens access to communication services for the first time 1.2.4 Internet Services Internet services were launched in India on August 15, 1995. In November 1998 the government opened up the sector to private operators. A liberal licensing regime was put in place to increase Internet penetration across the country. The growth of IP telephony or grey market is also a serious concern. Government loses revenue, while unlicensed operation by certain operators violates the law and depletes licensed operators market share. New services like IP-TV and IP-Telephony are becoming popular with the demand likely to increase in coming years. The scope of services under existing ISP license conditions is unclear.

1.3 Competition overview:

Major Players There are three types of players in telecom services: State owned companies (BSNL and MTNL) Private Indian owned companies (Reliance Infocomm, Tata Teleservices,) Foreign invested companies (Hutchison-Essar, Bharti Tele-Ventures, Escotel, IdeaCellular, BPL Mobile, Spice Communications).

Bharat sanchar nigam ltd (BSNL)

Name
Year of Establishment Company Profile

Bharat Sanchar Nigam Ltd 2000 Bharat Sanchar Nigam Ltd. is World's 7th largest Telecommunications Company providing comprehensive range of telecom services in India: Wireline, CDMA mobile, GSM Mobile, Internet, Broadband, Carrier service, MPLS-VPN, VSAT, VoIP services, IN Services etc. Within a span of five years it has become one of the largest public sector unit in India. It has a network of over 45 million lines Covering 5000 towns with over 35 million telephone connections. BSNL plans to expand its customer base from present 47 millions lines to 125 million lines and infrastructure Investment plan to the tune of Rs. 733 crores (US$ 16.67 million) in the next three years.

Global Presence

Future Prospect

Reliance Communication Name Year of Establishment Company Profile Reliance Communication 1999 Reliance Telecom's cellular services are available in 340 towns within its eight-circle footprint. Reliance Infocomm also offered for the first time in India, mobile data services though its RWorld mobile portal. This portal leverages the data capability of the CDMA 1X network. Reliance Infocomm offers a complete range of telecom services covering mobile and

Global Presence

Strategic Alliance

fixed line telephony including broadband, national and international long distance services, data services and a wide range of value added Services and applications aimed at enhancing productivity of enterprises and individuals. Reliance Communications has IPenabled connectivity infrastructure comprising over 150,000 kilometers of fiber-optic cable systems in India, the US, Europe, Middle East, and the Asia Pacific region. International wholesale telecommunications service provider, FLAG Telecom amalgamates with Reliance Gateway, a wholly owned subsidiary of Reliance Infocomm in 2004.

Bharti Airtel Ltd. Name Year of Establishment Company Profile Bharti Airtel Ltd 1985 Bharti Tele-Ventures Limited was incorporated on July 7, 1995 for promoting investments in Telecommunications services. Its subsidiaries operate telecom services across India. Bhartis operations are broadly handled by two companies: the Mobility group and the Infotel Group. The mobile business provides mobile & fixed wireless services using GSM technology across 23 telecom circles while the Airtel Telemedia Services business offersbroadband & telephone services in 94 cities. Bharti Telecom and British Telecom

Global Presence

Strategic Alliances

Future Prospect

formed a 51%:49% joint venture, Bharti BT Internet for providing Internet services, in 1998 Bharti Tele-Ventures acquired an effective 32.36% equity interest in Bharti Mobile(formerly JT Mobiles), the cellular services provider in Karnataka and Andhra Pradesh circles in 1999 Bharti Telesonic entered into a joint venture, Bharti Aquanet, With SingTel for establishing a submarine cable landing station at Chennai in 2001 A 50:50 joint venture between Bharti and SingTel, to undertake the largest infrastructure project between Singapore and Indian companies in 2001. Bharti Airtel company is planning to set up 3000 more towers as part of enhancing their rural coverage and will now focus on rural and semiurban areas.

1.4 Rank Wise Telecom Operator in India: Rank Operator Technology

1 Airtel

GSM, EDGE, HSPA

2 Reliance Communications

CdmaOne, EVDO GSM, HSPA

3 Vodafone

GSM, EDGE, HSPA

4 Idea

GSM, EDGE, HSDPA

5 BSNL

GSM, EDGE, HSDPA CdmaOne, EVDO WiMAX, WiFi

Tata Indicom (CDMA) Tata DoCoMo (GSM) 6 Virgin Mobile (CDMA) Virgin Mobile (GSM)

CDMA, EVDO GSM, EDGE, HSPA+

7 Aircel

GSM, EDGE, HSDPA

8 Uninor

GSM, EDGE

9 MTS

CDMA, EVDO

10 Videocon

GSM, GPRS, EDGE

1.4 Telecom subscriber in India:

Subscribers(in millions)
180 169.18

160

140

143.26

141.51

120

100 98.21 80 95.1 90.99

60 57.98 40

20

26.33 11.72 7.12

3. Discusion on Training Capital budgeting:

Capital budgeting is the planning process used to determine whether an organization's long term investments such as new machinery, replacement machinery, new plants, new products, and research development projects are worth pursuing. It is budget for major capital, or investment, expenditures. Many formal methods are used in capital budgeting, including the techniques such as:

Capital Budgeting Techniques

Non DCF Technique

DCF Technique

Payback period

Accounting Rate of Return

Net present value

Profitability Index

Internal rate of return

These methods use the incremental cash flows from each potential investment, or project. Techniques based on accounting earnings and accounting rules are sometimes used - though economists consider this to be improper - such as the accounting rate of return, and "return on investment." Simplified and hybrid methods are used as well, such as payback period and discounted payback period.

 Payback period method: refers to the period of time required for the return on an investment to "repay" the sum of the original investment. For example, Rs.1000 investment which returned Rs.500 per year would have a two year payback period. The time value of money is not taken into account. Payback period intuitively measures how long something takes to "pay for itself." All else being equal, shorter payback periods are preferable to longer payback periods. Payback period is widely used because of its ease of use despite the recognized limitations described below.

The decision criteria:

When the payback period is used to make accept and reject decision, the decision criteria is as follows: If the payback period is less than the maximum acceptance payback period, accept the project. If the payback period is greater than the maximum acceptance payback period, reject the project. Accounting rate of return: also known as the Average rate of return. ARR calculates the return, generated from net income of the proposed capital investment. The ARR is a percentage return. Say, if ARR = 7%, then it means that the project is expected to earn seven cents out of each dollar invested. If the ARR is equal to or greater than the required rate of return, the project is acceptable. If it is less than the desired rate, it should be rejected. When comparing investments, the higher the ARR, the more attractive the investment. Over one-half of large firms calculate ARR when appraising projects.

The decision criteria:

When the ARR is used to make accept and reject decision, the criteria is as follows: Net present value: is defined as the sum of the present values (PVs) of the individual cash flows of the same entity. In the case when all

future cash flows are incoming (such as coupons and principal of a bond) and the only outflow of cash is the purchase price, the NPV is simply the PV of future cash flows minus the purchase price (which is its own PV). NPV is a central tool in discounted cash flow (DCF) analysis, and is a standard method for using the time value of money to appraise longterm projects.

The decision criteria:

When NPV is used to make accept and reject decisions, the criteria is as follows: If NPV is greater than 0, then accept the project. If NPV is less than 0, then reject the project.

Profitability Index: Profitability index is the ratio of the present value of cash flows, at the required rate of return, to the initial cash outflow of the investment. The PI is based upon the basic concept of discounting the future cash flows and is ascertained by comparing the present value of the future cash inflows with the present value of the future cash outflows. PI PV of Annual Cash Flow Initial Investment The decision criteria:
When profitability index is used to make accept and reject decisions, the criteria is as follows: If PI is greater than 1, then accept the project. If PI is less than 1, then reject the project.

Internal rate of return: The internal rate of return on an investment or project is the "annualized effective compounded return rate" or "rate of return" that makes the net present value of all cash flows (both positive and negative) from a particular investment equal to zero. the

IRR of an investment is the discount rate at which the net present value of costs (negative cash flows) of the investment equals the net present value of the benefits (positive cash flows) of the investment. It is commonly used to evaluate the desirability of investments or projects.

The decision criteria:

When IRR is used to make accept and reject decisions, the decision criteria are as follows: If IRR is greater than cost of Capital, then accept the project. If IRR is less than cost of capital, then reject the project.

Capital budgeting process:

1. 2. 3. 4. 5. 6.

Evaluation of Capital budgeting project involves six steps: First, the cost of that particular project must be known. Second, estimates the expected cash out flows from the project, including residual value of the asset at the end of its useful life. Third, riskiness of the cash flows must be estimated. This requires information about the probability distribution of the cash outflows. Based on projects riskiness, Management find outs the cost of capital at which the cash out flows should be discounted. Next determine the present value of expected cash flows. Finally, compare the present value of expected cash flows with the required outlay. If the present value of the cash flows is greater than the cost, the project should be taken. Otherwise, it should be rejected.

Roles and responsibility:

My role was to analyze how it works in finance in decision support system in Bharti airtel. In decision support system the task was to calculate capital budgeting and capital expenditure. I worked in the decision support system where I have to see whether we accept the case or project or reject the project or case. It is basically B2B project. In this Initiator is taken by the Marketing people who meet with the customers who require the connection according to his/her requirement. Then the marketing people transfer the requirement to the finance department in decision support system. There are some policies or procedure regarding the case or project. 1. Capex or Capital expenditure should not be more than 42,000. 2. Payback period should be less than 6 months. 3. Net ratio/gross ratio should be more than 60%. 4.

Delegation of authority
PO Pricing commitee HUB CFO HUB PFO

DSS Head

CAPEX or capital expenditure

Standard Capex: EPBAX Capex up to 42K + Modem capex + Max 10 handsets per PRI and Payback period should be less than 6 months. This decision is taken by DSS team. If the customer requires capex more than 42K then the decision is taken by PFO and CMO. Again, if the customer require more than this then the decision is taken by AES Pricing committee (in the case of AES Segment).

Approval Process

Initiator
Implement

Initiate new proposal

PO

Acquisition Head

Pricing Committee

Validation Group

Business Proposal Evaluation

NO

Whether Standard

Yes

BPA Would Evaluate

NO

Capex < 42k, Pay back < 6 months, NR/GR > 60%
Yes

Pricing Committee Approval

Approved

Approved / Reject