Telecommunication Accounts and Finance -15

 
Chapter-15  Financial Management
 
Investment Analysis
Telecom Industry is highly capital intensive. After the telecom services in India were thrown open to private players, investment in telecom projects has increased multifold. In line with this industry trend, BSNL and the other public sector enterprise, MTNL, have been investing very heavily in capital assets to stay ahead of the competition. The National Telecom Policy’99 and related government legislations have imposed clear direction and targets for the telecom companies. Some of the objectives in NTP’99 are:
• Create a modern & efficient Telecom Infrastructure taking into account convergence of Information Technology, Media, telecom & consumer electronic.
• Strengthen R&D for world class Manufacturing capabilities
• Enable Indian Telecom Players to become truly Global Players These objectives and the related telecom policy, legislative and licensing initiatives of the government have spurred capital investment in telecom Industry, by BSNL and the other telecom sector players. A clear need also has emerged as a consequence, to ensure that the Capital expenditure (Or CAPEX) decisions taken at various levels of BSNL are in tune with the best practices in the industry and the return on investment conforms to, or exceeds, the industry norms.
 
Nature of capital expenditure decisions:
Capital expenditure Decisions in BSNL or any telecom company are very critical for its survival and growth because-
• CAPEX decisions involve huge investment, in rupee terms and in foreign currency terms also in many cases
• The decisions are either irreversible in Nature or reversible at a huge cost
• Their Consequences extend over a long period into the future
• CAPEX decisions are among the most difficult decisions to make, in industry segments like Telecom, due to the fast changing Technologies, fast changing customer preferences, severe competition and supply-demand dynamics.
• Future costs and benefits of a CAPEX decision are very uncertain.
At present, some the important telecom services on which capital investments are being made by telecom companies are as below:
• Access provision – Fixed, Cellular Mobile, Wireless in Local loop, Cable Service Provision
• Radio paging
• Public Mobile Radio Trunk Services
• NLD & ILD services
• Global Mobile Personal communication by satellite
• V-Sat based services
• Other Services (IN, WEB, digital Network etc)
These telecom projects have different components – like switching, transmission, and value added services, apart from usual components of Land, buildings, vehicles etc. Gestation periods and Payback periods differ from segment to segment and technology to technology. While wired line services saw phenomenal investments and growth in earlier decades, the 21st century has started with wireless revolution – with GSM and CDMA technologies competing for the wireless telecom space. BSNL has presence in both GSM and CDMA technologies and is using both for purposes for which they are found suitable in different segments of the network from time to time.
Steps in CAPEX decisions
Every CAPEX decision involves the following fundamental steps:
• Identification of Potential Investment opportunities: Potential investment opportunities are to be identified by carefully screening the following :
 
New/emerging telecom Technologies; New Uses for existing technologies/infrastructure; customer needs perceived through Market surveys and customer feed back; Need to spread to New locations; new opportunities indicated by the growth path of competitors, and the regulatory framework and
policies of government.
• Preliminary screening of Opportunities: This involves assembling a set of investment opportunities as above and narrowing the list to preferred alternatives. At this stage, the criteria typically applied are : compatibility with the company’s existing technology, Existing & potential skill sets, organizational environment; easy availability of technology, equipment and their potential sources; lead time; reasonableness of costs; associated Risks(like obsolescence), competition in the segment etc. After considering these factors, the set of preferred alternatives can be assembled for conducting amore detailed feasibility study of each.
 
• Feasibility study: Feasibility study involves preparation of a detailed Project report (approximating to a Project estimate in BSNL) examining the Marketing, Technical, Financial and Economic feasibility aspects of a project. The report contains fairly specific estimates of Costs & benefits, means of raising funds, schedules of implementation, profitability estimates, social benefits of the project etc. Then, all the projects are listed in the order of priority based on (i) cost-benefit analysis (ii) company policy and (iii) funds availability. The approval of competent authority is to be accorded now, in the order of priority within the available funds. With the disappearance of waiting lists of customers and emergence of on-demand provision of services and fierce competition in most parts of the country and in every business segment, the newer methods described herein can be used for Investment Analysis
• Implementation: After approval of specific projects, implementation needs tobe planned with the Preparation of Blue prints, designs, plant engineering, Equipment selection and procurement, construction, Training, trial run, commissioning and equipment maintenance planning. The project report must take into account these factors for successful implementation of the project.
• Dealing with implementation Delays : This involves locating potential causes for implementation delays and taking care of them through various means like PERT (project evaluation research techniques), CPM(Critical path method) and assigning specific time-bound responsibilities to the nominated
Project managers for different implementation stages in clear terms. PERT is mainly for R&D projects though some techniques can be used in a few others. Critical path method involves splitting of a project into its component operations and ensuring simultaneous completion of various unlinked operations so that the project can be implemented in the minimum possible time. A simple example of a project consisting 4 operations, namely, buying land and machinery, constructing building and installing machinery can be illustrated. Here, buying land and buying machinery can be done simultaneously as independent operations. Constructing building depends only on buying land but not on buying machinery and hence can be planned accordingly. But, installing machinery requires that all the preceding three operations are completed, namely buying land and machinery and constructing building. Standard notations and techniques are used in more formal CPM drawings.