Enigmatic Enchilada

How Much Should You Bid for 3G Spectrum in India?

2007-11-24T23:51:00.000-08:00

Short Answer: Rs. 37.2 Billion (for a pan-Indian presence).

TRAI has dictated that 3G spectrum is open to all and that it will be an auction and not a beauty contest. Mr. A. Raja is trying to reject TRAI recommendations and make 3G spectrum available only to incumbents. This would be disastrous –if you have six pan-Indian players fighting for six licenses, the auction would only meet the reserve price. Additional 2G spectrum won’t be available until subscriber numbers go through the roof and this makes the task of predicting the auction price for 3G spectrum a very complex task. Yours truly has made an humble attempt using complex game theoretic modeling!

For now, it looks like TRAI and TEC are not going to budge on the subscriber number thresholds for additional 2G spectrum - this is despite the slanging match that is happening between the GSM guys and Mr. Anil Ambani (ADA as he is referred to in the top echelons of Reliance). Given this situation, the focus is back on 3G spectrum bidding and all the 12 operators and atleast 100 others are keen on being part of this auction.
In order to simplify the task of modelling the auction, I have made some not so overarching assumptions. Here they are:

1. The auction will be conducted as a typical Vickrey auction - second price sealed bid auction. This is to avoid the winner's curse and the subsequent bid shading.
2. Although it would have made my task infinitely easier, I have not made the over-arching assumption of making it a common value auction. Clearly, the incumbent players have much more to gain than a new entrant. Even aong the new entrants, the foreign players have much more to gain given their lower cost of funds than the new domestic players.
3. The auction can be transformed from an incomplete information one to an imperfect information situation with nature as one of the players.
4. There will be absolutely no collusion between the players (not sure about this one considering the polarization of the players into the GSM group and the CDMA group).
5. None of the players will adopt a "heroic failure" strategy - someone might attempt to do it for branding purposes, but it looks unlikely given that TRAI may not be keen on publicizing all the bids.
6. Based on current posturing, I have assumed that only 6 players will be awarded 3G spectrum. This translates to roughly 30Mhz of bandwidth in the 2.1Ghz band as 5Mhz should suffice for the next 4-5 years assuming the WCDMA access mechanism.

I wont be able to give you the entire mechanics of the calculation, but what I did was start from the reserve price that TRAI has set in each of the circles and then tried to arrive at a Nash Equilibrium given all the payoffs for each of the respective players. Ofcourse, I cant give you the entire list of players that I have considered, but I can tell you factors that affected my payoff calculation from 3G for each of the players and consequently the Nash Equilibrium price for each circle:

1. Percentage of SEC A and SEC B customers for each player in each circle – the higher it is, the larger is the potential revenue opportunity from 3G
2. The HHI index in each circle – the presence of a dominant player means higher synergies
3. The percentage of population in the 25-44 age group and the percentage of males in the mobile user population
4. The percentage of English speaking mobile users in the population
5. The amount of unused spectrum in the particular circle
6. ARPU levels in each circle and the
7. The CDMA footprint in the particular circle – GSM guys are still tinkering around with the WiMAX technology option

So what exactly are my predictions? I guess by now, I have given such a detailed introduction that you would be justified in thinking that I am going to adopt the classic consultant’s strategy: sit on the fence and not get into any kind of number prediction game. But I will do exactly the opposite: here are my calculated numbers for the final auction price in each circle: (Do remember that you read it here first and if the final outcome of the auction matches my numbers then I should be given the status of honorary astrologer)

Circles and the corresponding predicted Auction Price in Rs. Million
Mumbai 5600
Delhi 8100
Chennai 2100
Kolkata 2300
Andhra Pradesh 3200
Gujarat 2400
Karnataka 2100
Maharashtra 2200
Tamil Nadu 1950
Haryana 512
Kerala 826
Madhya Pradesh 837
Punjab 922
Rajasthan 910
Uttar Pradesh (E) 1152
Uttar Pradesh (W) 910
West Bengal 610
Bihar 350
Assam 120
Himachal Pradesh 85
Jammu & Kashmir 70
North East 55
Orissa 140

Thus, to have a pan-Indian 3G presence, an operator should cough up a total of Rs. 37.2 Billion. There are six slots of 5Mhz available in each circle and though there is some room for dynamic auction strategizing, I am fairly certain that as is the case in most multi-winner Vickrey auctions, the six slots will go at the same price – which is the 2nd highest bid that is made.

I guess I am betraying my tribe by being prescriptive right down to the decimal points. However, I am out to dispel the general feeling in the industry which is aptly captured by this joke: “One day the fence will rip through the a********s of consultants as they keep sitting on it all the time”.

ICICI Bank is Bending Regulatory Norms!! (Resulting in numerous cases of loan-driven suicides)

2007-11-10T07:04:00.000-08:00

Mr. Prakash Sarvankar from Mumbai (father of 3 girls) committed suicide and left behind a suicide note blaming recovery agents on payroll of ICICI bank (albeit indirectly). The bank's press statement on the incident was chillingly curt: "as on date he (Mr. Prakash) is 145 days past due on his loan repayment. The agency (loan recoverers) and its executives are bound by a Code of Conduct which is in line with RBI guidelines."

You could view the above scenario as a case of the consumer aiming for a lifestyle that was not within his control. But wait a minute - such cases have been cropping all over the country and last week ICICI was slapped with an embarassing punitive fine of Rs. 55 lakhs on charges of physically torturing another borrower. The Indian banking regulator RBI has won worldwide respect for being one of the most astute and risk defiant banks in the world: surely there is something in their rules which preempts this kind of irresponsible lending and thereby keeps the occurrence of such gruesome incidents to a minimum.
The RBI has stipulated that 40% of total credit extended by the bank should be targeted at the priority sector which includes agri-lending (direct & indirect), small scale industries and a host of other segments. There are sub-targets under each of these headings as well. As per ICICI's latest annual report, their total credit was 196,000 Cr out of which only 55,000 Cr was to the priority sector. This amounts to a paltry 28% and on top of that ICICI doesnt meet the subtargets either. The penalty that RBI imposes for such non-compliance is that the bank should invest in 7 year instruments with NABARD and SIDBI at lower than prevailing market rates. However both these institutions are awash with deposits and cannot handle any more liabilities at their current scale. This forces them to reject a major portion of the stipulated fine amount. ICICI is fully aware of these shortcomings and exploits them to the hilt knowing that net-net they stand to gain - after all priority sector lending (PSL norms) yields lower returns and their NPLs are also higher. Since ICICI is left with a larger pie to lend to the retail segment (home, auto loans, personal loans etc.), they have to go overboard trying to source customers in this space. The "direct marketing agents" who are conveniently kept off its direct payroll is then forced to lend to all and sundry. No proper credit checks, no risk assessments and the incentive structure doesnt factor the NPL ratios that hit the accounts much later. This results in retail loans spiralling out of control and when they have gone bad (as in the case of Mr. Prakash's), the goons are called in to do the threatening.
Apart from posing a threat to society at large, let’s examine how ICICI's shenanigans are affecting the country at large. The shortfall in its PSL lending amounts to almost 33,000 Cr and if all it was directed towards the agri-sector, then that would amount to a 22% jump in overall agri-lending in India and over a 5 year period if we look at yields of 10-11%, then it translates to a doubling of our agri sector growth rate from ~2.5% to around ~5%. And if you are going to argue that the profits that ICICI is generating is being feedback into the economy somehow, think again – 74% of ICICI is under foreign ownership, Govt. of Singapore being prominent among them. This entire mess is a direct result of the high growth strategy that ICICI has pursued over the last 6-8 years. Their cost of funds is the highest in the industry and to match this high cost base they have had to lend aggressively to stay on top of the yield curve. Their credit deposit ratio is a good 15% higher than industry average and this puts them under additional pressure to realize all the cash-flow from their present loans.
So why is ICICI bank getting away with all these flagrant violations of norms? The answer lies in the attitude of the regulatory body – RBI. I have the utmost respect to Messrs. Reddy & Co., but I do feel then can be a bit more stringent with ICICI. In 2002, when the govt. introduced the SARFAESI act giving banks an extra lever to reduce the NPAs, the focus was primarily on rehabilitating the ailing PSU banks. There is no provision whatsoever in the act to resort to the extra-constitutional means that ICICI is adopting. Recovery of loans is always to be pursued through the civil courts or transferred to the asset reconstruction companies like ARCIL. The problem is ICICI owns 25% of ARCIL (the largest of the lot) and influences their decision making as well. Thus, ICICI capitalizes on the general philosophy prevailing within the RBI that NPAs have to be tackled as strictly as humanely possible. This is despite the fact that India has one of the lowest NPA rate in the world.
The general observation within banking circles is that RBI has been very lenient with ICICI. In a recent banking conference, I personally saw Mr. Vaidyanathan (Retail & SME head at ICICI) in a huddled discussion with Mr. Leeladhar (RBI Deputy Governor). Rumor has it that Mr. Kamath shares a very good rapport with Ms. Usha Thorat of the RBI. The noises emanating out of ICICI are also quite tell-tale: Ms. Chanda Kochhar being favored over the guru of Agri-lending Mr. Nachiket Mor for the big seat, Mr. Vaidyanathan himself being fast-tracked through the ranks etc. Even the long drawn out explanation of how PSL should be calculated based only on the residual credit after the reverse merger doesn’t hold water. The RBI better act soon as its hard earned credibility is at stake.

Observers of the Indian banking industry say that if ever there was a banking crisis in India like the Asian financial crisis, then the first bank to go under would be ICICI. I totally agree

In India, GDP stands for "Generally Doubted Parameter"

2007-03-18T21:59:00.000-07:00

Predicting India's GDP growth rate has never been an activity known for the unanimity of its outcomes. But of late, the numbers have gone from ballpark estimation to desperate shots in the dark. Goldman Sachs predicts 8.4% to continue till 2020!!! Lehman Bros. is taking it to 10% by 2008 and everybody from the CII to the RBI have come out with their own predictions. But the trillion dollar question - "Is this growth sustainable?" doesnt have an easy and straightforward answer.

India's GDP at the end of year 2006 was close to $900 Billion. 2007 promises to be a watershed year in the history of India's economic growth not because of the posssibility of hitting the trillion dollar mark, but because ofthe fact that after 5 consecutive years of over 8% growth, we are finally seeing the first signs of an overheating economy. The recent RBI report on monetary policies focussed almost entirely on inflation and how it can be controlled without affecting the GDP growth. In an ideal situation, a country's fiscal policy should be totally independant of its monetary policy and the very fact that the RBI is worried makes the prediction of the GDP growth all the more dicey. The point I am trying to underline is that the path the GDP charts is dependant on too many policy related decisions to actually be deterministic.
The recent Forbes report says that India's 36 Billionaires have a total networth of around $191 Billion. This means that roughly 20% of the GDP is controlled by the whims and fancies of these guys, albiet regulated by the respective shareholders. This means that these guys could actually push up the rate by atleast 2-3%. The next set of destiny controllers are the quasi government institutions like RBI, FIPB, TRAI etc. - however, my hypotheses is that the vagaries of their decisions can be controlled by assuming that they are totally rational. Next up are our ministries and the political environment that influences their decisions - attributing "unbounded" rationality to them will be fallacious especially in these days of coalition politics.
How then do we simplify the question of predicting the GDP growth rate? Before that, I will dwell on why this is a crucial question for India inc. and the populace at large. Capacity utlization has reached alarming levels across all sectors in India (ideal is ~75%) and traditionally Indian firms have been very miserly in allocating capital for capital expenditure. This has been the reason for the extremely high ROEs of Indian firms - Eg: Indian public sector banks, despite their very low efficiency have the highest ROE across the whole of Asia. But firms have now reached a point of no return - they have to bring more capacity online to cater to the huge demand. It has been a painful decision for the corporate strategists and a lot of heated debates have been played out in boardrooms. The final word however has been taken based on the due diligence exercises and the huge spreadsheet NPV models prepared by the overpaid consultants jetting all over the country. The demand projections in these models almost invariably have some component of the GDP growth rate factored into it. So we end up with some really big ticket investments and expansion plans (due to the backlog over the years) being drawn up based on these GDP projections. The ironic fact is that none of these GDP predictions are actually coming from the big stakeholders in the Indian economy. Why then is India inc. placing their faith in them?
I now address the question of the GDP growth rate itself. To control for the various possibilities I am resorting to the classic 2*2 matrix with the following quadrants:

Quadrant I - Short term + Status Quo
Quadrant II - Long term + Status Quo
Quadrant III - Short term + with reforms
Quadrant IV - Long term + with reforms

Quad I will have the typical growth rate projections that the Goldmans and the Lehmans are predicting - roughly 8.5% over the next 3 years. This is based on consumption and savings growth. Quad II is a bit trickier - the supply shortfall, particularly the shortfall in money supply which is commonly manifested as inflation will eventually slow down the growth rate. Based on datapoints from other countries including China, Mexico and the south east asian countries, my guess is a 6-7% from 2010 to 2015 (which is my timeframe for the long term horizon).
Quads III and IV have a subtle caveat embedded within them. The reforms I am talking about are fundamentally different here - in the short term it refers to FDI regulations, privatization and disinvestment, CRR, SLR and repo rate changes. In quad III, I expect the RBI to exploit all its levers to the maximum and clampdown on inflation severely, primarily due to the political ramifications of that inflation has. This will bring down the GDP growth to a more realistic 7-7.5% over the next 3 years.
Quad IV will probably be the most important as this is where India's destiny will play out. The reforms to be considered here are the really far-reaching ones - infrastructure, education, labour reforms, poverty eradication, environment etc. If all these areas are taken care of, long term GDP growth rate can be upped to the level of China at 9-9.5%.

After decades of disillusionment with the hindu rate of growth, the Indian worker will have to make some serious sacrifices to attain the level of productivity that will give him better living standards. A reality check on labour skill sets and infrastructure should go hand in hand with rising aspirations.

Air Deccan’s Operating Model: Deceit and Daylight Thievery!

2007-01-29T22:18:00.000-08:00

When you opt to fly Air Deccan, there are some things that you have to live with – low service quality, no food, inordinate delays and an abysmal flight experience. But to be totally conned into losing your ticket and valuable time (not to mention the hassle and costs of buying a last minute ticket) for no fault of yours is not part of the bargain.
I am struggling to maintain my calm as I write this piece of investigative journalism that I am compiling. The devilish manner in which some flaws in the Indian aviation system are being exploited by a private airline operator – Air Deccan is appalling to say the least. Kindly read the “My Investigations” section of this report if you feel the gory details are unnecessary.

My Contention
I hereby accuse Air Deccan of consistently overbooking flight seats on their inter-metro flights. I know that for a low cost carrier this is illegal as per IATA rules and hence I have painstakingly collected my proofs and evidences, which I have elaborated below. I intend to take the matter up with the highest levels possible in the Indian aviation industry – the DGCA (Directorate General of Civil Aviation) which is answerable to the Ministry of Aviation.

First-hand Report
I am now going to give a blow by blow account of what happened at the Bangalore Airport on the 29th of January starting at 5:15 am when the check-in counter queues start opening up at India’s most congested airport.

5:00 am – Check in for DN 763 flight from BLR to MUM for 6am departure opens
5:15 am – I join one of 4 queues and am 5th in my particular queue
5:26 am – One of the roving Deccan agents checks my photo ID and writes “ID Checked” on my printed ticket
5:27 am – The person behind me in the queue (Mr. V.K.Dalal from Delhi) is worried he will miss the 25 minute prior deadline (slated for 5:35 am) for check in and asks the Air Deccan employees to speed up. He is calmed down by another Deccan employee (Ms. Thara) and assured that he will surely be checked in.
5:30 am – The Deccan counter operator for my queue (Mr. Taha) is particularly slow and has checked in only four passengers so far. He asks for my ticket and starts my check-in. I move my baggage onto the weighing machine.
5:31 am – The Air Deccan duty manager – Mr. Arindam Das comes out from inside his glass office and shouts out, “Mumbai (flight)180 ho gaya – ab bas karo” to all the counter operators. Mr. Taha who is midway into my check-in immediately writes “5:36 am” on my ticket even though the time is only 5:31 am as per airport clock. My pleadings and protests fall on deaf ears.
5:35 am – 15 passengers spread across the 4 queues for the Mumbai flight are deemed to be “late arrivals” and are told that their tickets will have to be cancelled. There will be no reimbursement or new ticket issued. All the protests and display of anger go in vain as the Airport security move in on the order of Mr. Arindam Das (Duty Manager – Air Deccan)

Further Observations
All the stranded passengers were convinced that this was a deliberate case of over-booking by the unscrupulous operator. There were three clear deviations from the standard operating procedures for check-in counters in this incident above:
When there are passengers who have already joined the queue and the time for takeoff is approaching, it is mandatory for airline employee to shout out aloud and pull out the passengers on the immediately departing flight from the rest of the queue so as to expedite their process. This was definitely not done by Air Deccan.
When a particular queue was moving really slow, there was no attempt to redress the inefficiency of the counter operator (Mr. Taha) immediately despite the large number of people who were waiting in the queue.
There was no attempt by Air Deccan to open another check-in counter for the Mumbai flight.
When Mr. V.K.Dalal specifically asked to be shifted to a faster moving queue, he was given the false assurance that his check-in will definitely be taken care of.

The above observations suggest that Air Deccan has deliberately tried to con the passengers by lulling them into a false sense of security regarding their check in process. Over and above that, there was gross misrepresentation of the time of arrival of passengers to enable the airline to invalidate their tickets.

My Hypothesis
Yield Management is a concept practiced by all leading airline operators in order to even out the demand side fluctuations in the aviation industry. One of the levers used is Overbooking, which is allowed only to regular service operators as they compensate late arrivals with seats on subsequent flights or give the money back. In Air Deccan’s case, the strategy of overbooking seems to take precedence. The assumption is that for all flights there will be an average of x% of no-shows.
Suppose the capacity of a flight is 100, then Air Deccan books 120 tickets on that flight through their central reservation mechanism. In some cases, less than 100 passengers turn-up in which case the airline is safe. But in other cases (say on a Monday morning) when more than 100 turn up, then this is what Air Deccan does:
They first delay the flight by another half hour to 1 hour, by when some of the high-urgency passengers would board some other flight to reach their destination on time.
If the above step does not bear results, then Air Deccan simply stops checking in passengers once the capacity limit is reached and then accuse the remaining passengers of late arrival.
Air Deccan thus earns a 20% extra revenue on all such flights at no extra costs and this means a direct 20% increase in bottom line profit.

My Investigations

Out of a desperate need to vent my frustrations, I went to the Bangalore Airport Manager’s office to lodge an official complaint. Mr. Jayavardhan, the Manager on duty was sympathetic to my complaint and did try to help me out. I wrote a long complaint detailing the series of events. As I turned the pages of the complaint book, I saw that Air Deccan has been doing this on a regular basis. The previous day, 25 passengers had been overbooked on the BLR to Kolkata flight. On the same day, the subsequent Kolkata flight was overbooked by 10. There were atleast 5-6 other incidents that I read pertaining to overbooking on Deccan flights. All this was only for flights out of Bangalore. Imagine the scale of the deceitful operations if it is repeated for all the 12-13 odd major cities that Air Deccan operates out of.
My suspicions were immediately aroused and I realized that these weren’t one-off incidents. The order to overbook flights is coming from somewhere higher up in Deccan’s hierarchy. It is common knowledge that Deccan is bleeding money and combined with an IPO that went drastically wrong, I guess the top management has literally decided to play it dirty.

With the help of the Bangalore Airport managers – Mr. Jayavardhan and Mr. Shiva Murthy (both of whom have agreed to testify), I enquired at the ATC (Air Traffic Control) in Bangalore as to what the POB on flight DB 763 was. For any flight, the captain has to relay the POB number (Persons On Board which includes passengers and crew) to the ATC in his briefing. This is used in case of search and rescue operations and in case of hijack situations. The captain’s voice is then recorded on a VHF spool at the ATC. This spool was replayed and the number quoted was 161 POB for DN 763 flight. The total capacity of the Boeing aircraft at that capacity and configuration was 192. Deccan keeps a crew of six and that leaves a maximum passenger limit of 186. Quite obviously, the POB number reported to ATC was incorrect so as to evade suspicions of overbooking. This could have been easily proved if say the plane was running at 186 POB and there were additional 15 stranded passengers on the ground, putting the total booked seats at 201. So the cover-up operation had started at Deccan’s end.

I called up the DGCA office at Delhi and after some convincing managed to get through to the terminal manager at terminal 1B of Mumbai airport where the flight was scheduled to land. By then it was 7:25am and the flight was about to land in Mumbai. I managed to convince the Airport managers in Mumbai (Mr. Kumar Swami and Ms. Jayanthi Sivaraj) about the gross violation that was happening and requested them to personally carry out a manual headcount as the passengers were de-boarding. I was pleasantly surprised by their sincerity and Mr. Kumar Swami himself go onto a car and went to the landing tarmac to take a headcount. He counted 186 passengers and 6 crew members – adding to the exact capacity limit of 192 passengers. Considering the 15 passengers who were stranded in BLR, it was tantamount to a clear case of overbooking by Air Deccan. More importantly, Air Deccan was deliberately reporting wrong POB numbers to the ATC. This would result in grave blunders in case a search and rescue operation is required. Additionally, in case of plane crashes, the reinsurance agencies will not compensate the passengers beyond the POB limit. These are very serious aviation malpractices that Air Deccan continues to employ on a daily basis. Other unscrupulous tactics include not reporting the total weight of aircraft to ATC (required in the case of hard landings), taking excess baggage beyond permissible limits, converting flight delays causes from technical flaws (which mandate a reimbursement of 20,000 Rs. to passengers) to natural causes by giving frivolous reasons like “Tyre burst due to animal roaming on runway” and “inclement weather in the hangar” etc.

Further Course of Action
I intend to follow up the complaints that I have already filed at the Bombay and Bangalore airports by sending this report to the DGCA, The Ministry of Civil Aviation and Capt. Gopinath – the CEO of Air Deccan. My supporting evidences will be:
1. The testimonies of the Airport managers in BLR and MUM
2. The VHF spool recordings of ATC briefings at BLR
3. The passenger manifest of flight DN 763
4. The witnesses to the manual head count done by Mr. Kumar Swami at MUM

Conclusion
As India’s aviation industry is growing by more than 35% year on year, it is imperative that the regulatory authorities maintain a vice like grip on the players so as to keep the best interests of the customers as the top priority. TRAI is doing a tremendous job in the telecom sector and the aviation sector can get some valuable tips from them. Most importantly, it is important to have a framework for verification of important flight related statistics like POB, load factor etc.

The Murky Waters of Telecom Acquisitions

2006-12-30T19:20:00.000-08:00

The new year is likely to usher in the biggest acquisition that Indian industry has ever seen - Hutchison Essar is on the blocks and the Ruias are at their dirtiest best in playing the valuations game. With atleast 7-8 serious contenders in the fray and money flowing aplenty, how will the grain be seperated from the chaff? Surprisingly, the answer lies in the very same concept pioneered by the enigmatic John Forbes Nash and later made palatable to ordinary folks like us by the authors of "Co-opetition" - Brandenburger and Nalebuff.

Valuation of a telecom operator is just about as complex as they come, Especially if the concerned player is not yet listed on the bourses and has an ownership pattern that has been complicated to circumvent the stringent FDI regulations governing this sector. Having been involved in one such exercise for a foreign investor, I know that the complexities multiply as we get into the data points required for a compltete proforma income statement and cash flow analysis. How do you amortize the fixed costs of licenses, spectrum charges and network equipment? How would you arrive at a fairly accurate measure for the operating expenses without making more than a reasonable number of assumptions? What is the approporaite amount of market risk that has to be factored into the Beta calculation? It is amazing how even the basic principles of corporate finance can be overlooked when it comes to adjusting the valuation. To top it all, most of these valuation exercises are done by investment bankers who have no clue about what are the actual components in a telecom network, how much it costs to maintain them, what are the marketing and distribution costs etc. They just chose the easy way out by looking at the book value of the assets and then making qualitative adjustments for the intangible assets. This figure is then "crunched around" to arrive at a facetious discounted cash flow analysis that would sound convincing enough to the investors.

The shit hits the fan when the returns fail to match up to the cost of capital and by then the investment bankers are totally out of the picture. If at all there is a variable component to the compensation of the investment bankers in a deal, it is only related to the initial share price of acquiring party. Thus all they have to do is get the buzz going in the market about the whole deal, which any self respecting IBank can pull off in these 'exaggerated times' (I am not totally sure about what that phrase means, but you can ask Rahul Dravid. He described Steve Waugh as being "a truly GREAT batsman without belittling the superlativeness of the adjective which is most often the case in these exaggerated times" in the forward he wrote to Steve's autobiography). Coming back to present happenings, Vodafone has valued Hutch at between $16-17 billion and Reliance at between $13-14 Billion. All these are from hearsay only, so dont quote me on this. Various other players are throwing numbers around. UBS and Goldman Sachs are getting into the spoils and god knows how many. The other parties interested in the deal are Maxis from Malaysia, Qtel from Qatar, Isthithma - a PE group from the middle east, the Ruis themselves and a coupla other no-hopers. Reliance is using the "raising the bar incrementally" strategy in its bid, while Vodafone could go for the jugular in its first bid itself. It thus boils down to a Reliance Vs. Vodafone game and thats when it gets interesting.

Both parties realize that the valuations are very inaccurate and hence are relying on the bidding process and the underlying strategic games being played to get more information. Why they cant engage a telecom consultant like me for 1 month and arrive at an accurate figure using a grounds-up approach is beyond me!! Anyways, IMHO there are three things which will decide the winner in this bidding game:
1. The advantage in cost of capital - Vodafone has a cheaper cost here as their funds come from a war chest contributed by recent divestments in Swisscom, Vodafone Japan and may be Bharti as well. Reliance is hoping to minimize this by mobilizing the US markets and PE funds. The bloated interest rates in India will ensure that none of the Indian banks will put money into this deal.
2. The regulatory advantage - both parties measure up equally here, though I just might be tempted to put Reliance lower on this one as well. Vodafone is restricted by the 74% FDI in telecom, which means that they will have to go to bed with the modern day Shylocks - the Ruias. Reliance is restricted by the TRAI rule that the same entity cant own more than 10% of equity in more than one player in a particular circle.
3. The synergies that can be exploited - this is where Reliance comes a cropper. Vodafone has a huge opportunity in entering the world's fastest growing telecom market and positioning itself at the absolute high end - the fact that Hutch has the highest ARPU among all players buttresses this strategy. Reliance has to sort out the whole GSM vs. CDMA war to even think about realizing the synergies better.

Anil Ambani definitely has an enviable task on his hands. His only option is to improve on the synergies and then use that as a bargaining point in keeping the valuations within his grasp and thereby indirectly pressurise Arun Sarin (CEO of Vodafone). The key lies in exploiting the spectral and bandwidth efficiency of CDMA in data services and combining it with the improved stability and maturity of the GSM ecosystem. It probably would require them to arm-twist Qualcomm into coming out with compliant handsets and maybe even playing around with the standards and regulations to better exploit the 35% market share that they will realize out of the combined entity. There is enough of an opportunity in the enterprise segment also and the trick there would be to design innovative vertical applications by certifying ISVs and thereby building a strong value proposition to end customers.

Out of purely patriotic sentiments, i want Reliance to win the bid and at the same time not pay more than $15 Billion for Hutch. From my understanding of the Indian telecom market, the Hutch deal is a huge bonanza and I dont want snooty shareholders sitting in UK to be reaping the benefits of this opportunity. ADAG may not be the best representative of Indian interests, but their shareholders are a fairly large sample.

How Can India Inc. Reduce Transaction Costs of Acquisitions? Ans: BIMBOs

2006-12-06T01:44:00.000-08:00

The number of cross border M&A deals initiated by Indian firms have risen exponentially in the past couple of years. However, if the attempted Tata-Corus deal is a pointer to the future then India Inc. have some teething issues to sort out - exaggerated valuations, higher transaction costs, elongated due diligence phases and excessive use of corporate espionage and intelligence tactics. The answer lies in framing innovative deal structures that keep all the stakeholders honest and motivated.

Millions of children in our country who are painstakingly taught Indian History will always remember the treachery of a character named Mir Jafar. His betrayal of Siraj ud dowlah's army to Rober Clive's Britishers in the infamous Battle of Plassey fought on the fertile plains of Bengal was at that time an insignificant piece of trivia. Little did Jafar know that it would resign India to 400 years of colonial rule. Even after independance, the "short selling mentality" continues to plague the minds of young Indian managers. We continue to be good at making short term profits and in exploiting fleeting opportunities at the expense of a greater benefit to the country. The phenomenon is manifesting its ugly head again - this time in the acquisitions and buyouts that India Inc. has been making for the past 2-3 years.

The primary premise upon which most of these deals are based is the arbitrage opportunity based on a cheaper cost of funds in foreign countries. There is also gains in terms of technology, management expertise, access to order books (made famous by Bharat Forge) and better marketing & branding. Let me explain the concept of arbitrage - the cost of funds, whether it is equity or debt is indirectly related to the GDP growth rate. This growth rate is proxied by the risk free interest rate in each country. India and china naturally have a higher cost of funds and hence our firms have to provide higher returns to the shareholders through either capital gains or dividends. Their counterparts in the western world however cannot be as demanding. Thus, they settle for the high premiums that Indian firms pay. Lawyers and investment banks are also paid a very high fee for their services and thus transaction charges go through the roof. Since the interested parties do not have a sustained incentive structure, it is anyone's guess as to how long they remain committed to the deal.

Apart from the issue of unnecessarily higher premiums and transaction costs of Indian aquisitions, there is also the larger issue of who owns this arbitrage in risk free rates. I feel that a high GDP growth rate is a "public good" as it is the citizens of the country who pay for the heated economy either through inflation or through the social costs of development and lifestyle changes. It is this public good that is being exploited by firms to pursue their ambitions of becoming a global company. Companies are even getting innovative at exploiting this resource to its fullest - notable among them are Tata Tea's acquisition of Tetley - a company almost 3 times its size via the LBO route and the Betapharm deal using Foreign Currency Convertible Bonds (FCCB). India's improved sovereign rating by both Moody's and S&P also contributes to this business tactic. But there is an underlying flaw behind the entire logic - an arbitrage opportunity is always a short term one and is not enough to motivate the upper management to make a long term success of a deal. The solution to this puzzle lies in coming up with innovative deal structures - notably BIMBOs. No... not the blonde buxom ones, I mean Buy In Management Buy Outs - an increasingly popular mechanism to undertake big ticket aquisitions. It ensures the seperation of ownership and management and at the same time leaves enough incentive for all the stakeholders to ensure that synergies are exploited and no flight of talent ensues after the deal is done. And the evidence is there - two leading PE firms Actis and ICICI Ventures have already executed more than three BIMBOs respectively and both of them promise that more are in the pipeline. The biggest gain for these firms are what they save on due diligence costs paid to I-banking firms and lawyers. Something for the old economy behemoths like Tatas and Birlas to think about!

Empirical evidence shows that more than 70% of acquisitions fail to improve shareholder wealth over a horizon of greater than 5 years. Indians have been particularly bad and i think it has something to do with the fact that we are a more docile lot as evidenced by our historians who keep trumpeting the fact that we have never attacked a country in our 5000 year record (may not be entirely true as the Chola dynasty at its prime extended upto Java in Indonesia). Given this fact and the ever shrinking arbitrage in interest rates, my bet is you'll be seeing a lot more of BIMBOs - pun intended:)

Why India Should Go the Triple-play Way?

2006-11-21T03:38:00.000-08:00

More than ten European telecom operators have launched IP Television services, but none of them have any subscribers as yet and the targets are modest at best. Forrester predicts that the net telco IPTV revenue per broadband user wont go above $15 even in the best of circumstances. Since IPTV is the key component in the value chain of triple-play services, does it make sense for India to go down that route? The answer is Yes:

Bandwidth ubiquity in the developed world has led to the emergence of triple-play services which bundles Video, Broadband and Voice over the same pipe. The primary access mechanism for this is the unassuming DSL cable which has almost unlimited bandwidth carrying potential. Voice is transmitted using VoIP and in most cases a flat fee is charged for the month. The convergence of these services has resulted in overlap of interests and not surprisingly other players have jumped into the fray. The telecom operators want a share of this pie too and are pushing for the launch of 3G so as to overcome their bandwidth constraints. TRAI is still holding up the discussions which may atleast in part be due to the fact that their office has been sealed off:) There is also the satellite based bandwagon led by Tata Sky and Worldspace etc. who want a share of the spoils and to top it all, we have the Intel led consortium trying to push for WiMax based connectivity.

All these players with their diametrically different technologies and access mechanisms readily acknowledge one chilling truth - the destiny of all them will be decided by a single killer application - delivering a much more improved television experience and the key to that is IPTV. Janus Friis (of skype fame) is working on "The Venice Project" which is trying to combine the best of TV and internet. His reasoning: "people love the amazing storytelling, the richness, the quality itself. But they hate the linearness, the lack of choice, the lack of basic things like being able to search." It certainly makes a lot of business sense and Tata Sky has big plans for the Indian viewers and that too without even getting into the rigmarole of generating additional content. The IP-based platform offers significant advantages, particularly the ability to integrate television with other services like internet access and VoIP. Since the content provider can actually decide what information to be sent to the viewer, there is considerable conservation of bandwidth. Conventional cable involves sending the signal for all the 100 odd channels to the viewer and he then makes his choice on a dumb terminal. With IPTV you choose what you want, you can search for programs, have interactive channels and even set alarms and store your favourite programs on a central repository. Better compression algorithms and innovative VAS's like on-screen caller ID and videophone can generate huge revenues. The spin-offs from locking-in the viewer to your platform will trigger a whole set of positive network externalities. The possibilities are numerous and bounded only by human innovativeness and government regulations.

However, the question that remains to be answered here is which is the best access mechanism for the unusually peculiar Indian market. The problem that could spell doom for Tata sky is that satellite based access involves huge switching costs. Convincing the Indian consumer to buy a set-top box and a dish antenna will require more than brand equity and marketing muscle. The limited coverage of satellites combined with resistance from the local cable guy who could get disappropriated out of the value chain adds to the woes. The jury is still out on satellite access, but I predict a gloomy future. The telecom operators on the other hand have better coverage (assuming 3G kicks in at the right time), but do they have the expertise to deliver television content? Verizon wireless launched triple play a year back, but revenues have been sluggish even in a well covered country like the US. Additionally, the content manufacturers are more wary of large telecom players controlling the last mile to the customer and are unlikely to submit to them easily. The WiMax mechanism makes for an interesting case study and could prove to be a ground breaking connectivity enabler for developing countries, but the vision is too utopian as of now. That leaves the good old cable operators as the best channel for IPTV. Coaxial cable enabled with DSL can give a large bandwidth pipe into the home and aggregating the usage over IP based TV, internet and voice can improve the overall efficiency of the pipe. The cable operators have to unite and form a nodal agency for digitizing the present content and installing all the infrastructure rquired for VoD and interactive channels. A long term perspective will tell you that this could make or break the fate of cable operators in content distribution as the spectre of tech. obsolescence looms large in the form of satellite, 3G and WiMax.

Imagine waking up in the morning and switching on your TV to read your daily newspaper in digital form, complete with zoom in, tagging, search, store and multimedia capabilities. If you are thinking that this means your entire family will be stuck to reading the same news peice, as opposed to the easy sharing of newspaper supplements, think again - you can split your screen into four!!

Hubs And Spokes in the Sky

2006-10-28T23:52:00.000-07:00

Out of the seven major airline operators in India, 4 follow the hub & spoke model while 3 have the point to point model. From an overall industry perspective this results in gross inefficiencies for the players, public and the government. As evidenced from the Jet-Sahara deal, this could also be a severe obstacle to consolidation in the industry.

I am writing this piece from the M11 gate inside terminal no. 5 of the busiest airport in the world – Chicago’s O’Hare Intl. airport. 3 hours back, I was at the 2nd busiest airport in the world – Atlanta’s Hartsfield-Jackson Intl. airport. The most interesting part of traveling through America’s airports is just navigating through the various concourses and terminals of airports. Each airport is uniquely designed and the planning takes care of optimizing the waiting time in queues, the transit time across terminals, parking availability and the ease of lugging baggage. Before I start singing a eulogy to America’s airport infrastructure, I have to establish the context of how its relevance in the Indian context.

India’s airport infrastructure is hopelessly inadequate when it comes to meeting the challenges of an airline industry that has grown at the rate of more than 35% over the last 3-4 years. But what is amazing is that the country has a large number of airports. My own house in remote Kottayam is within 200km of at least six different airports. The state of Assam has a total of 7 airports, 4 of them which have less than 1 flight a day. Gujarat alone has another 6, 2 of them being with a 100km of each other. I haven’t done much research into how efficient the various airline operators are in India, but the data is really sketchy. In one of his lectures on airline infrastructure in India, Prof. V. Ranganathan of IIM Bangalore related his utter shock at discovering that the air traffic control records have the number of annual takeoffs from Indian airports being different from touchdowns for the last 2 years. The Mumbai airport is symptomatic of the malaise that is affecting the airports of India. The main runway has now been closed and Santa cruz is now operating out of just the support runway, with just 1800 odd acres of land there is no scope for expansion and the renovation drive by private player GVK has only yielded cosmetic changes. There are less than 30 operational aerobridges and the turnaround time is more than 2 hours.

There are some significant opportunities in the global airline industry waiting to be exploited by the fast movers. India has a strategic location on the map of international air routes and cities like Bangalore and Hyderabad are ideally suited to become the stopover destinations between the west and the booming cities of South East Asia and Australia. Despite Southwest Airlines being a shining example of the point to point model as an effective counter to the more cumbersome hub & spoke, the fact remains that the costs remain independent of the operating model. Air-Tran is running a successful hub & spoke LCC (low-cost carrier) model and the combo of US Airways hub at Charlotte and the Delta hub at Atlanta are successfully serving the entire eastern seaboard. American Airlines hub at DFW is also successful; though it is partly due to the Wright amendment that is constraining southwest’s operations out of Dallas’ second airport in Lovefield. The gist of what I am saying is that if India can have the various airlines operating out of different hubs which are synchronized to serve the customers better, then there can be a case for the average cost per seat falling drastically and benefiting everybody in the process. We will have to develop bigger airports that are centrally located since all our big ones are presently at the relative periphery of the country.

At the time of writing this report, the only privately run airport in India is the Cochin international airport. Ironically, it is in a communist stronghold and the swanky airport is actually the only profitable one in India. The new ones being built in Bangalore and Hyderabad have considerable private partnership in them. The infrastructure is coming up – hopefully the regulatory policies will also come of age.

Paramount Airways headquartered in Coimbatore has already announced operating profits in its first year of operation. The fleet of embraer jet that they use allows it to provide business class seats at economy rates. With less than 80 seats in each aircraft, they can exploit a regulation which waives it off the landing charges at airports. Thus, innovative business models can always be worked out even if the government mandates a common operating model (hub & spoke) for all airlines.

Oil and Copper and Sinister Conspiracy Theories

2006-08-22T09:21:00.000-07:00

The Germans have a word in their lexicon called “Weltanschaunng”. It’s an interesting concept and roughly translates into having a world view which enables people to correlate different events. It’s a skill that everybody in diplomatic circles understands but rarely masters. Some recent world events can be better comprehended by using this approach.

The last major supply shock that rocked the world was way back in 1974 when the price per barrel of oil increased by 200% overnight. It was orchestrated by the OPEC’s decisions to strictly put into place a quota based framework for oil production. Since then, oil prices have increased drastically in 2005. However, this was fuelled by demand side pull rather than any supply constraints. An overheated Chinese economy was guzzling fuel like there was no tomorrow and oil crossed the $50 per barrel mark. But it didn’t peak out after that – its presently occupying the rather lofty height of $76 to the barrel. But hang on a minute: China isn’t Japan yet! They don’t have the consumption muscle to power this unprecedented hike in fuel prices. There surely must be some darker forces at play. Any conspiracy theory will have to start at possible beneficiaries. It’s easy to point a finger at the middle-east sheikhs, but that would be naïve. Most of the oil in the Middle East is controlled by American companies like Exxon, Mobil and Halliburton who in turn pay royalty to the sheikhs on a long-term contract basis. Momentary spurts are not particularly beneficial to the sheikhs.

The obvious next-in-line suspects are the large American oil companies. Before analyzing their motives further, lets take a look at what has been happening on the oil-diplomacy front in the last six months or so:
Russia starts flexing its muscles and decided to close the oil-tap on Ukraine, thereby rendering the prosperous Kiev region gas-starved.
An oil pipeline goes bust in the remote Alaskan region and results in a further hike in oil price. The concerned company officials come out with sound bytes on how the pipes cannot be repaired in the near term.
A group of five westerners working on oil rigs off the Nigerian coast were kidnapped which was followed by a shoddy attempt at attributing the blame on Islamic groups.
Israel is supposed to have targeted Lebanon’s meager oil reserves in the recent attacks, but strangely the bombs land in south Lebanon while the reserves are towards the east of the country.
Strong selling witnessed on the crude oil market (Put Options) in London and also a deliberate attempt at influencing the market by various oil behemoths.
George W. Bush sports a rather mystifying chaotic expression on his face – only slightly different from his usual “dumbass” countenance.
All the above points seem to suggest that there are ulterior schemes being planned to create an illusion of supply constraints in the global oil pool. Since the oil price has become particularly susceptible to market sentiments, the variance of the underlying stock price increases resulting in the derivative instruments like futures and options trading at a significant premium (blame this phenomenon on Black-Scholes Model for option pricing). Just to complicate matter further – most oil importing countries like India and Japan negotiate their contracts on a futures basis and hence this serves as a natural hedge against price volatility. The end result – even the global oil giants don’t gain much on the sudden spurt in prices. Who then is orchestrating this mad oil price conspiracy? – Believe it or not, it’s the Canadians!! Yes that’s right – the very same country which escapes from your mind even before you could pronounce Saskatchewan.

Canada’s oil reserves in the Yukon Territory region are almost exhausted. What they have now is vast expanses of oil sands in the state of Alberta (more famous for the stunning scenery in the movie Brokeback Mountain). But the problem with oil sands is that they cannot be commercially exploited unless the oil price goes beyond $75 or thereabouts – a classic example used to explain the concept of “Real Options”. Thus, Canada had to somehow get the price there in order to motivate the oil companies to setup their drilling units there and thereby save itself from a huge oil import bill. You could argue that they just had to wait a year or two before the price naturally went upto that level. Well, there are doubts about the long term demand for oil:
The Japanese have all but perfected the technology of fuel cells and combining that with the sunrise area of nanotechnology what you get is a potent combination which could spell doom for conventional engines.
Other alternative energy sources are being developed, notably wind energy by Australia, sugarcane by Brazil and our very own nuclear program.
It really was a case of now or never for the Canadians. They didn’t quite stop at oil and that was probably what gave their nice little game-plan away. Copper – another mineral they are quite rich in – was facing a global slump in demand. I would like to hypothesize that it is partly due to the spread of wireless technologies – rendering the copper wires redundant. So what did the Canadians do? –they simply went and instigated a labor union crisis in the world’s largest copper mine in Chile. Copper prices went through the roof and Canada was all gung-ho again. These guys are devious to say the least.

There is a moral in this story – especially for all those estate owners in my home state of Kerala who grow exotic crops like rubber, spices, cardamom etc. Most of these crops are not grown anywhere else in the country. So if you want good value for your crops, all you have to do is create an illusion of a supply shock and wait for prices to skyrocket. You then negotiate your contracts at the best possible price in the derivatives market and rake in the moolah. Bingo!

Mid-air Bombs on Transatlantic Routes - A Rehash of Oplan Bojinka?

2006-08-11T07:19:00.000-07:00

Scotland Yard and MI5 deserve some credit for their resourceful intelligence gathering to prevent the disaster and the pilot showed a keen sense of judgement in turning the plane around rather than heading out to Boston. However, this particular effort from Al Qaeda looks like a rehash of an earlier plan - certainly not well executed and a modus operandi that was discarded even in the run-up to 9/11. What does this signify?

Liquid bombs are NOT the latest in "terror technology". They have been tried, tested and proven to be an ineffective weapon for mass murder. Why was it tried out now? Without taking credit away from the British police (the Mumbai commissioner should eat humble pie and resign to the fact that his police force is woefully short of international standards), I would like to say that this particular mission of Al Qaeda was doomed right at the outset. The reason - "Oplan Bojinka"
Oplan Bojinka was the codename given to an undercover operation attempted in 1995 by Al Qaeda terrorists (then based out of Sudan) to bomb flights connecting the US with Asia. The plan covered five of the largest airports in US and 7 airports in the East of Asia including Changi and Narita. The codename istelf is quite telltale as it translates to "Operation bombs" in Arabic and was planned by Ramzi Yousef and Khalid Shaikh in the relative secrecy of Manila in Philippines. The Abu Sayyaf gang is purported to have lent them operational support, though the entire operation was funded by a certain civil engineer cum economist named Osama Bin Laden (i stole my own thunder earlier in the post). The plan was quite ingenious for its times (1995), so much so that Ramzi coudnt stop boasting about it to a CIA agent when he was later caught.
The plan itself consisted of 5 jehadis who would be dressed up flamboyantly with a deliberate attempt to convey that they are travelling to meet women (condoms in pocket) hopping onto planes bound for USA from middle east destinations. They would conceal nitroglycerine (R.D of 1.3) in contact lens solutions and have detonator components hidden as part of their metal accesories. They would then get into the non-US leg of their flights and then assemble the bomb inside the toilet of the plane. After setting the timer to go off while the plane was in the US leg of its flight, the jehadis themselves would disembark at the transit point and since they are not flying to the US, they dont require Visas either. These liquid bombs however had to be tested out and a sample diagnostic was done on a Japanese flight which resulted in one casulaty. However, Ramzi goofed up with the inventory of chemicals he had in his Manila hotel room and a minor fire tipped off the local police. The two were rounded up and subjected to extensive torture. ramzi lasted a full 67 days of torture, but finally relented when he was sent to a torturor dressed in Mossad clothes. Anyways, to cut a long story short Al Qaeda decided that liquid bombs are too cumbersome as they have to be tested and hence gave up on the idea way back in 1995. And that was the end of that - well, not quite!!

Bin Laden was particularly fascinated by phase II of Oplan Bojinka - this involved Ramzi himself renting a Cessna, filling it with liquid bombs and then ramming it into CIA headquarters in Langley. He modified the plan and then implemented it with brutal precision on 9/11. Bin Laden however is a smart cookie - he knows that the 9/11 model cant be reused. he has to move up the knowledge curve and find something new. Its precisely for this reason that I find last week's attempted bomb blasts a bit too anachronistic - a pale shadow of what that fiendish brain could have come up with. It probably points to newer and younger silos of leadership emerging within the Al Qaeda ranks - triggered by the recent Israeli aggression and the US dithering. These splinter groups were just too eager for action and hence cold logic deserted them. They rehashed the Phase I of Oplan Bojinka and tried to exact immediate and gruesome revenge. What frightens me is that it probably would have been succesful in India.

The continued marginalization of Muslim voices from global fora is a cause of serious concern for India and its huge muslim population (second only to Indonesia in numbers). While Israel may have a good military system and an increasingly competitive services industry, their foreign policy is the last thing India wants to emulate - lest we wanna sing: "Its raining bombs...Hallelujah!!"

Indian Railways (Part II): The Mother Of All Privatizations

2006-07-25T08:55:00.000-07:00

The rigors of the consulting profession are taking its toll - I rarely reach home before 11pm, had a bad bout of cough and cold, spent the weekend cooped up in my aptmt. and interestingly, my flatmate (skthewimp) who was working with AT Kearney has filed his papers fearing for his health. Its tough times in Mumbai, but I have put in some back-breaking work to come up with this piece.

Over the past one month, I have realized the mammoth complexities and the enormity of scale that the Indian railways has to deal with on a daily basis. The parliament has been going ga ga over how a turnaround has been effected in Indian railways over the past 3 years, but a detailed analysis into the figures show that the profits have been artificially boosted by exploiting accounting loopholes. On the liabilities side of railways balance sheet are three fund reserves viz. the Depreciation Reserve Fund (DRF), Development fund (DF) and the Special Railway Safety fund (SRSF) all of which have to be accrued on an annual basis from the Gross Traffic Revenue (GTR). Over the last 3-4 years, this contribution has drastically reduced and hence the bottomline has been lifted, but the problem is not that simple. These funds were created with the specific purposes that their names suggest and in order to bridge the shortfall in these buckets the exchequer has to cough up 12,000 Crores to fund the railways' acquisition of new machinery, development of tracks and maintenance of safety. In the meantime, new passenger trains along loss making routes are being added dime-a-dozen. Nepotism within the railways' which had already reached tropospheric heights under Mamta Banerjee has now scaled the stratosphere under Mr. Laloo - 15 new trains to the Patna headquartered Eastcentral zone, a super specialty cardiology and nephrology hospital for railway employees in Patna.... apparently the plan to bring a TGV to Patna had to be shelved because the passengers couldnt sit on the rooftops and spit paan at such high speeds!
In conducting my reserach, I have diligently gone through the 150-year history of the railways, analyzed our unique consumer requirements, pored through the financials, studied the infrastructure/technology (juxtaposed with global benchmarks) and most crucially - undertaken a detailed literature survey of the various modes of privatization that have been successful the world over. The documents that I have to show for all the invested effort are:
1. A detailed roadmap for org strucure
2. Revenue models for passenger and freight traffic
3. Labor restructuring plan
4. Regulatory mechanisms
Since I have kept this as a pro-bono effort (consultingese for freeby), I will send a soft copy of it to anyobody who requests for it via mail subject to two conditions: 1. post a comment on this blog piece and 2. send me a box of assorted chocolates!
For the really cynical readers who are just not convinced about the value of my effort, I will give a sneak preview into my suggestions.

Phase I of implemetations:
1. Amalgamation of 15 zonal divisions into the national railway board and elimination of duplicated posts and processes.
2. Increased demarcation into passenger, freight and urban transport services
3. Constitution of a Railway regulatory body along the lines of TRAI with jurisdiction over financing and safety issues. Their powers will be expanded in the second phase.
4. Continued outsourcing of railway catering and hospitality services but regulated by an RPI-X mechanism centrally.

In the first phase, I have desisted from any drastic changes in the operations. My intention was only to lay the ground for private players and improve the profitability by scoring a few easy hits. The major drive towards privatization will come in the 2nd phase. The primary models that I considered were the Swedish model and the Swiss model. In Sweden, the track infrastructure ownership was completely unbundled from the activity of train operations. The former continued to be under a majority govt. owned entity, while the latter was thrown open to competition with open access. The Swiss who are widely respected for having the most efficient railway network have a different philosophy. They argue that the railways can't be modelled along the airline industry where the airlines and airports are fundamentally segregated by the nature of operations. Instead, the wheel-track interface is too initimate and crucial to be seperated and that the problem with the swedish model is the unbundling happens exactly at that juncture. Hence, the train opertors have to be given the mandate for the track ownership and maintenance as well. Its a compelling argument from the Swiss, but the interconnection complexities increase exponentially with track length in such a model making it ideal for Switzerland but a logistical nightmare for India.

Phase II
1. Creation of RailCo - vested with the responsibility of complete ownership of tracks, stations, signalling infrastructure etc. The company will nominally be in the private sector but with 'members' instead of shareholders and its borrowing guaranteed by the government. The private player will be chosen on a reverse-auction mechanism similar to the GMR/GVK deal for the Delhi/Mumbai airports.
2. Creation of two PrafCos (Passenger Rail Franchising Companies) - vested with the responsibility of carving routes out of the network, frachising each route to multiple private players, establishing the criteria for refranchising and providing regulatory support. The two prafcos will compete parallely and will operate on margins from train and freight operators.
3. Creation of 15 TrainCos - these 15 players will eventually be handed over to the private sector and regulatory measures will be taken to ensure a pan-India prescense for the majority of them. The Trainco's will not own the assets and will initially be forced to lease the stock from the Roscos. They will buy licenses to routes through a competitive bidding proceedure.
4. Creation of 15 FreightCos - these 15 players will have the license to carry freight on different routes with adequate competition on each route. To account for the higher profitability in freight operations, these players will contribute higher to the PrafCos and will have more stringent pricing regimes
5. Creation of 3 RosCos (Rolling Stock Companies) - The entire machinery and assets of the railways will gradually be auctioned off to the private industries organized into 3 large consortia. They will then lease the stock on competitive basis to the trainCos and freightCos.

6. Infrastructure Maintenance and Renewal: This will be done by 7 Infrastructure Maintenance Units (IMUs), which maintain the railway, and 6 Track Renewal Units (TRUs), which replace rail lines, both organised geographically.

The third and fourth phases will include expanding the regulatory powers of the RRB (railway regulatory board) into pricing, interconnection, commercial loss reduction, labor retrenchment and safety monitoring issues etc.

Privatization may not be a panacea for all the evils within Indian railways - there has to be a concerted effort from all stakeholders including the general public to treat it as a "public good" and resist the temptation to exploit it. Perfect market economics with a high degree of competition and effectively restrained by regulation can go a long way in improving the condition of the Indian passenger.

The overall recommendations that I have made above are not applicable to special railway bodies like urban transport (metros in Delhi, Calcutta, Mumbai, Chennai, Pune and Hyderabad), the NE Railway zone and tourist trains (Palace on wheels).

Indian Railways – How do we stop this “Maut Ka Safar”?

2006-07-09T11:17:00.000-07:00

It’s a lazy Sunday afternoon in Mumbai, and I am well ensconced on my couch in front of the TV, a large glass of juice in one hand, a book by Noam Chomsky in the other and the remote-control, some junk food and laptop in close proximity. Bipasha Basu struts her stuff on the screen and Mr. Shashi Tharoor (always a pleasure to see high-flying “Mallus”) vows the NDTV viewers with his suavity.
As if by divine intervention, I am rudely awakened from my comfort zone by this image of a person being burnt to death on one of Mumbai’s metro trains. A channel named India TV was showing this capsule on the lack of safety in Indian railways; despite the presenter issuing a warning that it contained disturbing images, I was not prepared for the gruesome sequence that was shown. A commuter had climbed onto the roof of the metro train because the compartments were cramped beyond belief. When his alighting point arrived, he tried to disembark by climbing down the stairs and shimmying his way down the narrow space between two bogies. Apparently, there was a live high voltage wire that was hanging loose and he was charred to death. There was a brief pointless struggle to free him, and hundreds of people were looking on helplessly from the over-bridge. Eventually, the body fell onto the track and the camera panned in to get a close-up.
It is a sad state of affairs that India’s railway infrastructure is woefully short of meeting the requirements of a rapidly growing consumer economy. The scale of operations that railways has to cater to is tremendous and since the entire passenger traffic is cross-subsidized by the huge profits from freight, any effort to improve the plight of ordinary passengers is a financial and logistical nightmare. Laloo Prasad Yadav might have implemented some footage gaining initiatives, but losses to the exchequer continue to mount and a huge question mark hangs over the safety issue.
Its easy to suggest privatization as a panacea and then go all out calling for tenders and auctioning off the trains and other assets. But the complexities to be considered are huge - If its sold off to one large consortium, then the monopoly continues, will it be sold off piece meal based on zones? How will the interconnection be managed? Who will control the scheduling and signalling aspects? Railways is presently the world's largest employer. How will this workforce be managed? Since freight is the more lucrative sector, how will prices be regulated when cross-subsidization is removed? Who will be responsible for laying new tracks and upgrading to better and faster trains? All these questions dont have a single right answer. The best possible solution lies in reconciling all the tradeoffs and ensuring a solution that is not sub-optimal from a long term perspective.
The railway top brass boasts of some brilliant people who have the vision, practical knowledge and enthusiasm to effect a turnaround. But they are stymied by the narrow ambit of their authority and the very fact that strategic thinking is fraught with danger in any GoI concern.

I MUST INTERRUPT THIS BLOG HERE. MUMBAI HAS BEEN ROCKED BY 7 DIFFERENT BOMB BLASTS ALL ALONG THE WESTERN RAILWAY LINE. THE BLASTS HAPPENED WITHIN A SPACE OF TEN MINUTES. THE LATEST REPORTS PUT THE DEATH TOLL AT 170 AND INJURED AT 300.

What an eerie coincidence.... I started writing this blog on railway safety last sunday and yesterday my words seemed prophetically true. It was a sickening piece of dastardly, cowardly terrorism. Despite the media's attempts to play up the resilient image of Mumbai, these blasts should be seen as a blatant vindication of the glaring shortcomings in security for our public transport systems. What is sinister is that the modus operandi of these terrorists are different each time they strike and the police are always a step behind in the learning curve. The very same Indian Railways which in colonial times boasted of Asia's largest and most modern railway network is being reduced to a pile of mangled unwieldy mess. I just cant wait and watch helplessly... but then again, who am I?

To be continued....I will soon be compiling a detailed roadmap on "How to Privatize Indian Railways" - complete with commercially viable revenue models, phased unbundling mechanisms and a regulatory structure that will be impartial and at the same time cognizant of the Indian traveller's needs. A brief summary of the same will be included in the 2nd part of this blog.

Economic Patriotism - Is it the EU's Death-knell?

2006-07-04T08:48:00.000-07:00

Any self respecting consultant has to have some view on the Arcelor-Mittal deal. The sheer importance of the deal can be gauged from the fact that the "Slimes of India" actually gave it more coverage than a red-hot and flaming Rakhi Sawant. Aditya Mittal has been very politically correct, schmoozed in the right circles, maintained a self-deprecating attitude to his business knowledge and overall has sent out the right signals to all and sundry. But behind the whole razzmatazz, there are some very important issues that deserve some attention - not least from the precious few who read this blog.
As a self-respecting Indian, I find it staggering that the PM of India (Economics degree and all) actually lobbied for Messrs. Mittal And co. True, Mittal is of Indian origin, but all his operations have been in other shores. India has not gained a single penny from his entire business. The company itself is headquartered in Rotterdam and their remarkable rise owes as much to the chinese economic boom than to any distinctive strategic master stroke from LNM. LN Mittal had come to recruit in IIMB and in my brief interaction with their leadership, I got a clear feeling that this was one company that was still getting to grips with its new found celeb status. Their c-level managers did not convey an impression of being totally aligned with LNM's agressive moves and the recruitment process which culminates in young managers going to places like Annaba in Algeria and Ostrava in Slovakia looks more like a body-shopping exercise. Coming back to the topic of this discussion, the manner in which the french resisted the takeover of Arcelor is symptomatic of how strongly they identify themselves with their industrial powerhouses. When Mallya tried to buy out a winery in Normandy, he faced similar problems. Eurodisney in Paris is still a loss leader because of its american roots and the french labour unions show no signs of relenting on the luxurious stupidity of having 30-hour working weeks.
The above signs of french economic patriotism run counter to the EU philosophy. The differences are further amplified beacuse England and Germany - for widely differing reasons have actively sought out FDIs. Gieves & Hawkes - the royal tailors was bought out by a french company and Haier - the Chinese manufacturing co. has set its sights on Maytag. The English labor market has come to terms with international standards and a recent legislation has made it easier for continental Europeans to obtain work permits in the "kingdom". England is trying to replicate the US model of open culture and unfettered capitalism. Germany on the other hand cant afford to be protective, because its economy thrives on exports - it being the 2nd largest exporter in the world (I always thought it was Japan). Any signals of economic patriotism from the Germans will adversely impact their export houses and may even remind the world of its Nazi past. Vestiges of economic patriotism can be found in both Italy and Spain, but they are primarily concerning companies which have geographical indicator brands, Eg: Venetian blinds, Parmesan cheese, merino wool etc.
The important question that faces EU and its constituents is the degree of cosmopolitanism that they want to adopt. The present economic situation gives them some bargaining power in global trade over their Asian counterparts. However, they are probably the first to realize that its not a pemanent solution. The robust economies of East Asia are already breathing down their necks and for the EU, the directive is clear - Shape Up or Ship out!

India's commerce minister , Mr. KamalNath walked out of the latest round of WTO discussions and the US and EU's rigid stance on farm subsidies has resulted in this round being an unmitigated failure. If world trade has to achieve its lofty goals of overcoming Coasian transaction costs and saving on deadweight losses, then countries should find a way to overcome the cynical use nationalist feelings.

Muslims in China?!?! Introducing - The Uighurs of Xinjiang

2006-06-21T01:48:00.000-07:00

'...to learn about another great culture is to enrich one's own life, to understand one's own country better, to feel more at home in the world, and indirectly to add to that reservoir of individual goodwill that may, generations from now, temper the cynical use of national power.' - Vikram Seth in his travelogue "From Heaven Lake"

Throughout the history of the world, various countries have witnessed demographic upheavals. Economic, political and even religious compulsions have prompted exoduses and influxes. After centuries of discontinuous changes in demography, the world is finally settling into a steady state situation. But the baggage from the past remains in the form of minority communities. These communities have no say in shaping their country's political destiny. Examples of such democratically handcuffed people litter the landscape. The baluchis of pakistan, kurds of Iraq, tutsis in Rwanda and even the Catalans in Spain.
Our neighbour China has been blessed with a homogenous population which directly results in less communal conflicts and a leadership style that contrasts with our own consensus based approach. The majority Han race is more than 90% of its population and the remaining 10% is constituted by uighurs, tibetans, kazakhs etc. Despite this overwhelming uniformity, China has its share of minority problems. The case of Tibet has received adequate footage thanks to the efforts of the Dalai Lama and India's proactive role in ensuring that there is a buddhist kingdom running, even if its in exile. The Uighurs have been less fortunate.
The Uighurs of Xinjiang province in China's north west are ethnically closer to the turks than to the Hans of mainstream China. They practise Islam in a fervent yet tolerant manner in keeping with their turk ancestry. During the dark ages when the Byzantine empire was at its zenith, the Ottoman turks had occupied parts of mongolia and China. They setlled in the fertile Urumqi basin and initiated the famed silk trade. The frontier town of Kashgar was at that time arguably the richest in the world. Situated at a strategic vantage point - the centroid of important Asian capitals like Kabul, Delhi, Lhasa, Tashkent and Ulan Bator, Kashgar was seen as the connecting point between the orient and the occidental. The period saw the height of prosperity for the Uighurs.
With the ageing byzantine empire getting dismantled, the turks were driven out of china by the mings and then the Hans. The Uighurs were stuck in Xinjiang as the Kazakhs and the Uzbeks emerged from south russia, effectively cutting the Uighurs from their turkish brethren. The silk trade died a sad demise and cattle farming became the only source of wealth. However, the Uighurs stuck to their traditional lifestyle and lived off the land with moderate economic success. Mao's promise of constitutional emancipation was a sucker punch and Xinjiang province with its muslim population was integrated into China. All's well until the discovery of mineral wealth in Xinjiang. Large mining contracts were handed out for oil, tin, zinc and various other minerals discovered in the region. The capital city - Urumqi was overnight turned into a mining centre and the pristine beauty of the place was lost forever.
Though Vikram Seth is busy in the publicity for his latest novel, he would be well advised to pay a trip to Heaven lake - the same lake that he has spoken about in such glowing terms is a pale of its former self. Things have changed around here and not necessarily for the better. All the wealth from the mines is being pumped into the economic boon along the eastern seaboard and the Uighurs get precious little. With very little democratic processes in motion, autonomy for Xinjiang is a not even on the far horizon.
China has a huge demographic anomaly to deal with - the 90% of Han population occupies only 30% of the land. The vast tracts of mountainous and desert lands in western china had been left to the minorities till now. But the discovery of mineral wealth could prove to be a trigger for cataclysmic changes or will it be a case of the ancient silk route returning to its past glory in a new avatar?

India's burgeoning interests in Central Asia is on a road that will some day cross the Chinese path. The battle for petroKazakhstan was a precursor to the same. I hope the two asian superpowers keep the interests of local population in the ambit as this new-age war dawns.

My 3rd Week in Mumbai...and in "Consultingdom"

2006-06-19T05:26:00.000-07:00

Taj mahal would never have been built if Badshah Shahjahan had called for tenders and then given the project to the lowest bidder - Written on the wall of a Malwani restaurant called "Sadiccha" in Bandra (Original credits unverifiable)

If ever you want to start off your career in management consulting in the most intriguing manner possible, then Mumbai is the place to do it. It affords you amazing insights almost every other day. Be it the local hotels or the billboards or even the shopkeepers who are surprisingly pedantic in their talk. However, for a boy who has lived most of his life in Kerala the city is a bit overwhelming. I certainly miss the cleanliness of kottayam and the poverty in "Mahanagar" is apalling.
I get to see the extremes of life in my 10 minute journey from home to office. If i plot a graph of increasing distance from my house to office against the general affluence of people in the 'catchment area', I would get a perfect U curve. The Mithi river which flows through Bandra has been cleaned up a bit, but the Worli-sealink is gonna spell its death-knell. Development as they say, always comes at a cost. Inspite of this, the Bandstand area has managed to retain some of its charm and the hordes of celebrities who have their abodes in the vicinity stand testimony to the beauty of the seaface. My office is on the 15th floor of the Taj Lands End and I have a 180 degree view of the sea on one side and the skyline of Mumbai extending from Bandra to Prabhadevi on the other. It was fascinating for the first 2 weeks, but now it serves as a metaphoric reminder of the huge piles of work in front of me.

My colleagues at the firm - thats a lot of IC (Intellectual capital)

I will reserve my final judgement on Mumbai - The City till after the much-feared rains. We had a brief preview today, but I am fearing the worst. As for consultingdom, I will need the freedom of another stand-alone post to articulate my initial experiences. I will however share some interesting tidbits right away:
All consultants tend to think that the sector in which they are presently working is "going through a series of fundamental changes and severe discontinuities". Its a sure-fire tactic to make it sound grandiose. Both McKinsey and Deloitte have landed some work in the oil & gas sector and their managers have been crying themselves hoarse about the phenomenal changes happening in that domain. Nothing like free footage of the cerebral variety!!
Going back to my original quote of the Taj Mahal, the paradigm is representative of how projects are handled out to consulting companies. Its very much a beauty contest and finally the clients cant choose which is the best. So they split the larger project into various smaller parts and hand them out in a piece-meal fashion. All the firms go to town claiming to have won the most crucial part. As for the client itself, disaster looms on the horizon. I know i have made some critical comments and that I should be suggesting alternative solutions, but I will save that for a later day.
Just as an aside, it might have been that the Taj Mahal was also designed in piece-meal fashion after all. Specific design credit is uncertain, and is given by different sources to Ustad Isa, Ustad Ahmad Lahori, Isa Muhammad Effendi, or Geronimo Veroneo. How about a cliche to end - History repeats itself!

From World Cup 2006' to World War 2

2006-06-16T06:55:00.000-07:00

The rout is completed - Spain has thulped Ukraine and the final scoreline is 4-0. For Spain, its indeed one of the best days in their footballing history. Talking of history, all these soccer matches between tiny European countries set my thoughts rolling to the early 1940s...yes it was WW2 at its peak and Europe was a mess!
Operation Barbarossa by the Germans was a ruthlessly planned mission. With typical german efficiency and driven by the Fuehrer's tactical dare-devilry, the push to Moscow almost came off. The german army ploughed its way through the ranks of the red army and came within striking distance of the bolshevik capital. A forward panzer team even occupied Khimki - a suburb of Moscow from where the spires of the Kremlin are visible. The russians fought valiantly and their body bags mounted.
Eventually the tide began to turn - the terrible russian winter set in and the germans were underprepared. This time, Stalin got it right and so did Kruschev - then a general in the army. The beleagured russian soldiers were given a whiff of fresh air and high quality winter gear to boot. They soon got their act right and the Battle at Stalingrad proved to be a turning point of the great war.
Having read a whole lot of WW2 archives, i feel that WW2 had four turning points which precipitated the final outcome. They are listed in increasing order of importance:

1. The evacuation at Dunkirk was a huge moral victory for the allied forces. The germans just could not finish off the whole mass of unarmed divisions waiting to be slaughtered. Though this was a crucial event, Churchill and the English press hyped it up to keep the general populace happy.

2. General Montgomery's comprehensive victory over the Desert Fox - Erwin Rommel has been denied the credit it deserves in the larger scheme of things. Hitler's oilfields were wrested from him and it was a colossal wastage of german resources.

3. The Russian victory at stalingrad virtually wiped out germany's eastern front altogether. Commanders Zhukov and Timoshenko went on to chase the germans right into Berlin and it was the Russians who beat the allied forces in entering Hitler's den.

4. But above all, probably the most important battle scene happened in the remotest area of the world. Right in the center of the pacific, a small group of inconsequential islands was the scene for some of the fiercest battles ever seen. The imperial Japanese army and their navy (which was then the largest in the world) were engaged by US forces and finally managed to check the progress of the Japs. The islands of Guadalcanal, Midway and IwoJima have reserved their place in history for ever because it was here that Emperor Hirohito realized the possibility of losing a war. Up until then, Japan had never lost a war throughout their documented history. It was indeed a brutal awakening for them.

The context of this article might seem misplaced, but my intention was just to put a new perspective on the culture of the various countries participating in the world cup and seeing it as a direct consequnce of their history!

Game theory at play - A classic case from global telecom Industry

2006-06-13T03:48:00.000-07:00

Global markets all over the world are getting more efficient. Its almost an inevitable outcome of the tremendous advances in technology, the death of information asymmetry and the giant leaps that have been made in back end research. The regulatory bodies have been especially severe on any attempt by companies to withold information and investigative bodies are quick on lifting the "corporate veil".
The tribe of company analysts have been growing rapidly and news trading is a widely followed practice in markets all over the world. Despite all these developments, the pace at which the market wakes up to any scope for arbitrage opportunities is simply mind-boggling! A trader sitting in a NY based investment bank will know the vagaries of the cocoa futures prices on the Cote D'Ivoire market almost as soon as he knows about the NASDAQ index movements and these guys transfer their millions in a matter of seconds! The story about an "Alan Greenspan briefcase size index" may be an urban legend, but it certainly is prophetic about the way future markets will behave. Phew...that was a long intro about what i wanted to say. Now onto the meat of my story:
On the 31st of Jan 2005, SBC - the smallest of all the 'baby bells' announced that it was acquiring AT&T (the Ma bell) in a stock only deal. Till only 10 years ago, such a deal was deemed as unthinkable by the FCC chairman Mr. Reed Hundt. The deal however went through without much hostility and almost everything went as expected. I found coupla things odd though - firstly, the combined entity would have San Antonio as its HQ which is ridiculous. You could as well base the largest american telco out of cancun or acapulco:) Secondly, the AT&T CEO gets to head the new entity...(Yes, thats right! the same bungling guy). Anyways, who am I to comment on such decisions.
A few minutes after the announcement, all the bankers and consultants are hoping for a spurt in the share prices of both companies. They did show a slight northward movement, but hey..guess what?! It wasnt either of these telco's whose share price gained the most. The icing went to UK based Vodafone. Where the hell did they come from???
The postmortem analysis revealed startling insights into how efficient the NASDAQ had become. With SBC and AT&T merging and becoming the single largest telco entity in the world, the onus was on verizon to enlarge itself and improve its footprint. After all, the industry has become a game of scale (Virgin mobile might have something to say on that though). But here comes the punchline: Vodafone of UK had a large stake in verizon and because the market was sure that verizon would now pay higher than market price to concentrate its equity position, Vodafone was unknowingly placed in a very strategic position. It had become kingmaker of the american cellular market and that too sitting all the way across the atlantic in UK. The market realized this soon enough and incorporated this info into the stock price....and lo and behold! Vodafone went through the roof.
Imagine a trader who was awake to the possibility of game theoretic modelling of the share prices. He would have had a field day during the time window in which the market was still building this info into share price.
Wake up to the opportunities in Game Theory.

Wisteria lane..or is it Nostalgia lane?

2006-06-09T08:46:00.000-07:00

A day before i flew out to mumbai to join my consulting firm, I had the opportunity to visit my old school. Its called pallikoodam (erstwhile Corpus Christi), and is a neat little place. The school is built on a hillside and despite a construction style that reeks of a cash-strapped budget, its still surviived the horrendous monsoons that lash this part of central travancore.
My mom teaches there and has been doing that since a year before I left school, which was a long time ago:) After hanging around in schools and getting drenched in the almost inevitable rains, my old school pals and I went over to this place called Wheels. This was followed by dessert at the appropriately named 'dessert mist'.
After that we headed out straight to this place on kumarakom backwaters called sailing club. Its a nice little place which stands right on the edge of the backwater and has a small rivulet leading into it. Its well equipped with proper rooms and facilities and coupla cooks to boot as well. My friends had come prepared for a party with the key attraction for me being the Bar-b-Q that Selwyn had set up. We had lighting cubes and a whole lot of meat, but just as the second round of meat peices were done, the rain came pouring out. And then it was chaos...
Mithun - sloshed to his innards, was loitering around in the heavy rain, Shawn was mouthing expletives which was increasingly sounding like mandarin, Selwyn falls into the murky waters even while he is sober, coupla guys strip away to glory and dive into the marshes and the three doctors in the batch start talkin about Ebola virus with a contagious enthusiasm. In between all this, I go around meeting all my classmates from 10 years ago and reliving some really funny anecdotes.
We spend the night talkin about the good ol' days and then in the morning i catch up with Jenny and James - 2 guys who were pretty pally with me in school. The drive back from Kumarakom was quite memorable, because Jenny and me have had some common friends and it was a sheer miracle that none of them didnt mention each of us to the other.
All in all, a memorable nite for me and lots of renewed friendships as well.

A miracle from Finland

2006-06-09T08:21:00.001-07:00

Before you start thinking of Paavo Nurmi and the legend of the "Flying Finn", let me say that this miracle is much more recent. Isnt it amazing that the largest CPG (consumer products group) firm in India is not HLL, ITC, Col-pal, Marico or any of the usual suspects. Its actually Nokia! yes...the very sam ecompany which started as a timber making group more than 100 years ago in Finland.
With a 60% market share of the booming Indian mobile market and close to 32% in China, you just cant argue with one fact - these guys know how to sell mobiles in emerging markets. This statistic is especially staggering considering that more than 60% of the components were invented by AT&T along with its Bell Labs roots. Even the first live commercial call was made on a Motorola handset way back in 1970!
The trick is actually in two activities that Nokia does remarkably well - high end research and marketing. Imagine pulling off a gimmick like putting a flash lite on a cellphone and calling it the "Mobile for India"!! and the innovation shows no signs of drying out. The latest N-gage series of gaming cum mobile devices is a deft move with long term strategic ramifications. Motorola made up some ground with the phenomenally succesful MotoRAZR, but its still a distant second with 15% market share in terms of numbers and much lower in terms of value.
For all the billions of profits that Nokia has made from India, their commitment of $500 Million to a fab facility in TN is a pittance. After all, if these guys know where to make the buck they sure damn know where to spend it also.

Corporate Strategy based on 3rd law of thermodynamics

2006-06-04T08:32:00.000-07:00

"The total entropy of any isolated thermodynamic system tends to increase over time, approaching a maximum value."

The 3rd law of TD is probably one of the simplest laws in physics. However, when we see the whole world as a single isolated thermodynamic system then the conclusions we can draw are far deeper. Entropy or the disorderliness of the world is increasing over time, but at a decreasing rate of increase - confused?? I hope not, because worse is to follow. The axiom that the world is becoming more disorderly is almost philosophical in its profundity. But where exactly on the curve are we? Are we on the high rate of increase phase or are we in the saturation phase? Just to give an indication of what I am talking about: in 1992 a lot of disruptive changes happened in the world (I still remember Mike Powell and Carl Lewis breaking Bob Beamon's 17 year-old-old long jump record) and the media unanimously called it the most eventful year in the modern era. The media has since then stopped benchmarking the rate at which events unfold becuase every year seem more eventful than the previous.

What are the manifestations of world’s entropy increasing? The most obvious one would be the increasing population itself, resulting in the burgeoning demands on our scarce resources. The intention of my article however, is to explore a slightly tangential direction. The fundamental changes that the corporate world has witnessed can actually be traced to this seminal Entropy theory>
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All ye anti-reservation guys...Get Smart!!!

2006-05-21T10:31:00.000-07:00

Gut-wrenching and ridiculous stupididty!! dats how i describe the treatment being meted out to the agitating medicos all over India. The so called 'health minister' Mr. Max-tam Ramadoss is actually talking of further punitive action against them for gross dereliction of duty. The political mileage counter is running haywire and politicians are tripping over themselves to get a piece of the cake...aaaaahhhh, thats what you call Democracy-with a truly Indian flavor:)
But lets get serious here: the medicos with their blood and bones protests have only succeeded in sensationalizing the whole issue. In fact, so much so that they have played right into the hands of Arjun Singh and co. The stakes have been amplified and the target vote banks are actually taking notice. Guys like Mr. Udit Raj who have no clue of what lies in store in the long term, have suddenly cropped up on the landscape. They dont care about what's good for the country, but hey! the present value of footage for self is too big a booty to let go.
But despite their apparent folly at not being more strategic-minded in their methods, the medicos need to be complimented for taking the initiative and bearing the brunt of the 'law-enforcers'. They did succed in triggering a national debate over the issue and have indeed showed gumption and courage. A rather cynical comment on this would be that because these guys were affected the most (a direct result of the pathetically low number of seats for PG in medicine and ensuing scramble) by the affirmative action and hence they were forced into action to take care of their own future. For a just-passed-out IIM graduate, the stakes are much lower. His own career is not on the line, but at the same time he is outraged by the expected brand dilution of his tag because of the entry of undeserving candidates - a rather small price to pay compared to what the medicos are coughing up!
When the stakes are lower in your mind, cold logic dominates the brain and there is less of emotion. Thats why, the response from the IIM community to the reservations debate will be much more measured and calculated. The student bodies across all the six IIMs have formulated a draft proposal which will be released to the press soon (its been delayed because of unnecessary red-tape and bungling by the student presi of a certain IIM close to the west coast). What is different in the way they are gonna face the issue? the answer lies in giving the perpetrators a taste of their own medicine, be masters of their own destiny, use the power and resources that they have...
Not a single soul on this earth is under any delusion that the whole reservation bill (voted in with a 379-2 majority by parliament!) is motivated by purely altruistic concerns about the downtrodden masses. Its just a game of vote banks and cornering more political mileage. This crucial point which is the sole driving force behind the whole agenda is also the chink in the armour of these new-age Ambedkars. Thus, the most strategically sound and arguably the best way to take on these guys would be dilute the very goal they are after: diffuse the political mileage that is being reaped by playing the politicians against one another! conjure a situation in which the large cake is transformed to just plain crumbs. The big question is how.
The time has indeed come for all the students, professionals from all walks, educationists and academicians from the best institutes who have made it through purely merit based criteria to unite and participate in a silent war of attrition. Its easier said than done, but then why should they be foisted with the burden of social equality after all the assiduous hard-work that has gone into making these institutes world class. The 'final solution' in a purely utopian sense would require the 'merit masses' to discreetly maintain their common identity through a techonlogical equivalent of the star of David. Its almost like new age ghetto-ization through online mechanisms. The 'reserved masses' will have to prove themselves capable of holding their own against the generally accepted parameters applicable to the 'merit masses' before aquiring the right to get out of the ghetto. The differentially permeable membrane will ofcourse work both ways! The discreet boundaries of the ghetto will be observed as sacrosanct by everyone in the hierarchy: from academicians to teachers, high level managers to students and the masses of in between people commited to keeping India on the path of meritorious achivements in various walks of life. Its a really long shot, but i guess worthy enough of a trial.

The author has deliberately attempted to keep the language of the above article as cryptic and surreptitious as possible, so as to deflect the possible enragement of certain sensitive sections of online readers.

Guy from small-town Kerala!

2005-06-13T12:08:00.000-07:00

The photo was just to show off my ray-ban.

Born to conservative syrian christian parents in one of the most idyllic settings in central travancore, Louie Mathew has literally charted a trail blazing path to the El Dorado of footage and limelight! - a blog of his own and an orkut page for himself boasting of as many as 52 friends at last count. Not bad for someone who not so long ago was seen as socially reclusive, geeky to his bootlaces and boasted of a distinctly misanthropist persona.
His formative schooling years were spent in Bala Vihar and Mar Thoma School in a town called Tiruvalla which was slightly more famous for its 90% NRI (read as gelf-malayalis) population. He was then forced into exile from his beloved land (not unlike King mahabali) and had to continue his education in the remote Shevaroy Hills of the eastern ghats in a school called Montfort HSS, Yercaud.
This was a truly glorious chapter in our man's life! He received an average of 4 canings per day (2 on hand and 2 on bum), formulated a diet which required him to intake only 10 calories a day ( a direct result of a complete stoppage of all the non-veg goodies he was used to), came up with 6 different ways of outwitting max-tam junta in street-smartness and to top it all managed an entry into the elite Altar Boys Association of Montfort church.
After completing his 6 years of exile, he made a triumphant return to his native land and settled down to a life of academic and scholastic pursuits in an inconsequential little school called Corpus Christi (now renamed to Pallikoodam). There he attained notoriety for picking a fight with the Principal over getting too much marks in exams, wasting too little time, not flirting with girls and for not being attired in expensive clothes. Ofcourse, he still muscled his way into good grades and then slogged his butt off for IIT and REC entrance exams. The former ditched him outright, while the latter accepted him gleefully even offering him the choice of course! True to his macho self, lui chose Electronics and commn. and the latter has been running in his blood ever since!! Whatta guy!!
Lui found the folks at REC downright simple and exteremely intelligent...a far cry from the flighty people he were used to in the land of latex and 'so called' letters. The campus situated in idyllic settings, nestling between the hills of western ghats and the malabar coast had numersous spots and hideouts for the misanthropist intellectuals of this world. The eateries around the peripheral road hav an ambience of their own...ok ok..i wont get into verbal diarrhoea rite now:)
Come campus placements in the final year of college and lui had all the shorlists of blue-chip companies. Surprisingly, despite being a continuous flop show in interviews he even converted a job at Infosys. He landed there in the fall of 2000' only to see that half of kerala and its brother had been offered jobs at that outwardly-capitalist,-but-secretly and-maniacally-socialist-right-down-to-its bootlaces-place called Infy! Little did he know that worse was in store for him...
Right throughout his life, he was extremely resentful of the dominant role that tams (some even max!) had played in shaping his destiny. No prizes for guessing who becomes his boss at India's most respected blah blah....from the remostest corner of Tamil Nadu, with hair oiled to the point of no return, an accent that reeks of dravidianism and looks that match goundamani - the man emerged out of his PM cubicle - the Nemesis Da Louie!!

(To be contd.)