Convergence Plus
Monday, July 22, 2019
Despite Different Commentaries, Infy and TCS Converge on Target

While Infosys raised its revenue forecast to 10%, TCS said growth rates will hinge on Q2 numbers. India’s top two IT services companies, Tata Consultancy Services (TCS) and Infosys, could both post double-digit growth in the ongoing fiscal year, with the former moderating expectations after its first quarter results and the latter raising revenue guidance for the full year.

Infosys raised its revenue forecast to 8.5-10% in constant currency terms, while TCS said double-digit growth rates will hinge on its performance in the ongoing second quarter.

Infosys has cut guidance on margin growth twice in the last two years to make room for investments that would help growth. TCS, on the other hand, has maintained its margin forecast, betting on its ability to win large platform deals to boost growth.

TCS’ platform strategy will likely result in more volatile growth, analysts said. “TCS’ and Infosys’ divergent commentary is a result of a number of issues,” said Peter Bendor-Samuel, CEO of IT consultancy Everest Research.

“TCS’ deceleration is largely attributed to the large platform contracts which it signed last year. These create a lumpy dynamic, as the growth tails off after they have been ingested; it is quite possible that once this lumpy impact subsides, TCS will bounce back. This will clearly be a factor if they are able to add more large platform deals.”

TCS and Infosys are taking different steps to service delivery, Bendor-Samuel pointed out. “Other than the clear advantages Infosys is gaining from its localisation strategy, the other factors in its resurgence into a growth leader is a willingness to sacrifice some margin to drive growth and the stability that Salil (Parekh, its CEO) has brought, where Infosys is able to focus on the market now that they are no longer fighting themselves,” he said.

TCS has worked consistently to drive growth, while Infosys is catching up with its bigger rival, analysts said.

“TCS has been on its own growth path for a longer period of time. Infosys, obviously, had a catch-up to do and Salil Parekh has done a phenomenal job in terms of driving appropriate investments in the business, whether in sales or reskilling,” said Kuldeep Koul, lead IT sector analyst with ICICI Securities.

Analysts also said TCS was a little early in making certain investments, whether it is in digital imperatives or go-to-market strategies. Despite posting slower growth, albeit on a larger revenue base, TCS outdid Infosys in one key aspect — attrition.

TCS’ attrition has stayed under 12%, while Infosys’ has soared to 23% despite a move to reduce exits.

The higher attrition number will make it harder for the company to meet its already low margins target, analysts said. “It could be because of the higher number of people with traditional technology skills compared with TCS. They are also looking at more employees with skills in emerging technology,” said Vishwakumar Nandagopal, head of India Operations at ISG, a global technology research and advisory firm. (Source: Economic Times)

Cos may Buy More from Local Cable Firms

But some feel the customs duty hike on optical fibre will add to the costs, impact 5G rollout. The budget proposal to raise basic customs duty on optical fibre cables (OFC) to 15% from 10% will increase tower fiberisation costs, adding to the telecom sector’s continuing financial stress, and jolt India’s target to be 5G-ready by 2020, industry insiders said.

Indian OFC manufacturers, however, expect finance minister Nirmala Sitharaman’s proposal to encourage telecom companies to source the fibre locally, thereby giving a boost to its domestic production.

A major potential deterrent to India’s 5G ambitions is inadequate fibre connectivity, given that well below 25% of telecom towers are linked by fibre. And, the prospect of higher import duty on OFC sitting on top of chunky right of way (RoW) costs, the industry insiders said, would hinder the efforts to rollout reliable fibre-based tower networks that are critical to support 5G data speeds of 10 Gbps and next-gen applications such as video-on-demand and Internet of things to smart cities. Most 5G use cases also won’t even work without strong pan-India fibre connectivity. The latest Economic Survey estimates the telecom sector’s contribution to GDP to reach 8.2% by 2020 on the back of the industry players leveraging 5G technologies in a big way. The government, in fact, has resolved to make India 5G-ready by 2020 and plans to auction 5G spectrum later this year.

Senior tower industry executives see this to be a tough target to achieve. “The proposed hike in basic customs duty on OFC will result in higher capex, eventually burning a hole in the pockets of the telecom industry, which is already in a financial turmoil, and seriously impede 5G rollouts in India,” said Tilak Raj Dua, the director-general of the Tower & Infrastructure Providers Association (Taipa). The industry is in the process of estimating the overall incremental fiberisation cost per km following the proposed OFC duty hike, he said.

Taipa is an industry grouping representing Indus Towers, Bharti Infratel, ATC, GTL, Reliance Infratel and Tower Vision.

According to Dua, fibre is the most significant component to enhance fast broadband connectivity, and a sharp duty hike would undermine 5G rollouts in India where less than 25% of towers are fiberised, compared with as much as 80% in the US, China, Japan and South Korea. Another senior executive of a Big 3 telecom company backed the view, saying the “fibre capex component in a telco’s total network capex is likely to significantly rise in a 5G scenario from the current 35-40% level in 4G, which is why a higher OFC import duty, along with RoW costs, can sharply increase 5G rollout costs, going forward”.

Dua said India’s plans to become 5G-ready rapidly would face big challenges as a higher input cost structure would further push it behind pioneer 5G-deployed markets such as the US, China, Japan or South Korea.

Rajan Mathews, the director-general of COAI, downplayed the immediate OFC duty hike fallout “as most telcos are already sourcing their optic fibre and cable needs from domestic suppliers who have set up world-class manufacturing facilities”. (Source: Economic Times)

As Buyback Gets Taxing, IT Cos may Switch to Dividends

Govt looks to plug a loophole in buybacks as these are not taxed like dividend payouts. Cash-rich Indian IT services companies may now offer more dividends to return cash to shareholders, against the recent norm of share buybacks that have become less attractive with the budget proposing to introduce a new tax.

“Buyback is the most efficient way to return capital in India because it was not taxed earlier. It also helps companies improve the value when they think the market is not fairly pricing the stock,” said V Balakrishnan, a former finance chief of Infosys. “Suddenly you tax buyback, companies will shift to dividend because buyback comes with its own hassles.”

Share buybacks by listed companies aren’t taxed currently, but there is a 15% tax on dividend payment. To discourage companies from using this loophole, the budget has proposed a 20% tax on the money spent on share buybacks.

Technology services companies have been rewarding shareholders by buying back shares and issuing dividends. Top companies such as Tata Consultancy Services, Infosys, HCL Technologies and Wipro returned more than ₹40,725 crore to stockholders through share buyback in the past one year. Infosys has a stated strategy of returning 70% of free cash flow to shareholders, while TCS returns most of the cash flow to its shareholders. The most aggressive in using the buyback route in recent years has been Wipro, as it repurchased 14% of shares with three buybacks done over the past four years.

Equity analysts said the proposed tax would impact the stock performance of these companies over the next few days. “With the new buyback tax, the government would gain ₹8,145 crore (based on last fiscal year’s total buyback of ₹40,725 crore in the IT sector),” Madhu Babu, an IT analyst at Centrum, wrote in a note to clients. “Select midcaps like Persistent Systems, Cyient (and) Mphasis which could have been companies with potential regular buybacks stand impacted sentimentally.”

The brokerage also expects higher negative sentimental impact on Wipro.

It was understood that such a proposal to tax distribution of capital through buyback would come sooner or later, said Kuldeep Koul, lead analyst (IT services), at ICICI Securities. “Companies may still go for a buyback, the impact will be on effective return. But between a dividend and a buyback, buyback will still be beneficial,” Koul said.

Brokerage firm Prabhudas Lilladher wrote in a note it would retain its “underweight” stand on IT, citing the impact of the proposed tax on buyback of shares. (Source: Economic Times)

Central sector telecom projects may get higher funds support in Budget

The general Budget in July is likely to give a fillip to the government's telecom projects to make the Prime Minister's vision of Digital India a success. Under the roadmap, the Department of Telecom's (DoT) Central sector projects will be allocated more funds.

The general Budget in July is likely to give a fillip to the government's telecom projects to make the Prime Minister's vision of Digital India a success. Under the roadmap, the Department of Telecom's (DoT) Central sector projects will be allocated more funds.

The government has set a target of creating 1 lakh digital villages in the next five years with an aim to foster financial inclusion. Digital villages are an integral scheme linked with the Digital India initiative, which aims to provide a platform for availability of services such as telemedicine, tele-education, LED street lighting, wifi and skill development to the people at the gram panchayat level across the country.

Official sources said the department has sought higher allocations in central sector projects as well own projects. The Central sector schemes could see a minimum 15 per cent rise from the Rs 13,400 crore allocated in the interim Budget.

The Central sector projects are BharatNet to provide affordable broadband services to citizens and institutions in rural areas where the financial outlay was Rs 8,000 crore in last fiscal.

Mobile Connectivity in Left Wing Extremism (LWE) affected areas; augmentation, creation and management of OFC Network in NE I & NE II; provision of 25,000 the block-level telephone exchanges in rural areas; and Comprehensive Telecom Development Plan (CTDP) for Andaman and Nicobar Islands and Lakshadweep Islands form part of the wholly Centrally funded schemes.

In the interim Budget, the total allocation was Rs 13,400 crore towards these Central sector schemes, up from Rs 10,000 crore in 2018 Budget. The major part of this funding at Rs 4,725 crore was for the defence spectrum network under the optical fibre cable-based network for defence services. The DoT projects were allocated Rs 326 crore.

In the Budget 2018, Government allocated Rs 10,000 cr to boost telecom infrastructure. The then finance minister Arun Jaitley had announced Rs 10,000-crore outlay for the 2018-19 fiscal on expansion of telecom infrastructure under various government projects in the country as in for creation and augmentation of this telecom infrastructure. (Source:ETTelecom)

How to determine unique mobile subscriber base?

TRAI looking at ways to arrive at a mechanism. The Telecom Regulatory Authority of India (Trai) is mulling ways to arrive at a mechanism to determine the ‘unique mobile subscriber base’ in the country, according to a senior official.

The latest Trai data pegs India’s total wireless subscriber base at 1,161.8 million as on March 31, 2019, while the wireless teledensity stands at 88.46.

This subscriber number, however, does not give the exact picture of those connected or unconnected as it takes into account multiple SIMs and phone connections.

The official, who did not wish to be named, noted that the whole idea is to identify the number of people who are unconnected, and added that the exercise would culminate in finding ways to determine the ‘unique’ subscribers or those connected.

“Today, the subscriber base is counted based on the number of SIMs issued, but one subscriber may have multiple SIMs. We are mulling ways to determine correctly the number of people who are actually connected or unique subscribers, and it is a complex issue,” the official added. (Source: The Hindu BusinessLine)

Telangana adds 5.43 lakh IT jobs during 2014-19

Last year 67,725 new professionals have joined the workforce. The IT sector in Telangana generated direct employment to 5,43,033 during 2014-19 with 67,725 new professionals joining the workforce in the last year.

Releasing the Annual report of the Telangana IT E&C Department for 2018-19, Jayesh Rajan, Principal Secretary, ITE&C, said “The state is steadily going forward on the target of doubling IT/ITeS exports and has almost achieved the ambitious target set five years back (~190% increase).”

“Like the previous four years, we have continued to outperform the expected nation’s IT/ITeS growth rate (YoY) by close to 170%. The department has smoothly handled engagements with several companies and encouraged them to setup campuses in Telangana with a vision to reach million headcount of IT employees very soon,” he said.

“All the organizations/wings which we had created over the past few years such as T-Hub, TASK, T-SAT, T-Fiber, State Innovation Cell have continued to excel and beat the expectations,” he said.

Telangana IT/ ITES exports achieved a healthy growth of 16.89% during 2018-19 in comparison to expected national average of around 8-10%. In line with the spirit of Digital Telangana, Electronic Services Delivery (ESD) has rolled out Meeseva 2.0 – the new avatar of the citizen services platform.

T-Works – India’s largest prototyping centre for electronics, electromechanical and mechanical startups – is coming up in 78,000 sq ft facility with over 200 machines across 11 sections. Through T Wallet, a total of 1,72,582 new registrations have taken place during 2018-19. T-Hub continues to enable and empower an ecosystem hungry for innovation. It leads India’s pioneering innovation ecosystem that powers next-generation products and new business models. In the past one year, T-Hub partnered with Rural Electrification Corporation (REC), HDFC, Canadian Digital Media Network and Communitech, United Technologies Corporation, (UTC), Stanley Black & Decker and many more for various international programmes related to innovation and startups. (Source: The Hindu Businessline)

Twitter captures 2019 polls in 396 million tweets

Twitter content related to Lok Sabha elections recorded around 583 per cent growth between 2014 and 2019. The BJP swept the just-concluded general elections, winning 303 seats. Micro-blogging site Twitter too emerged victor with a record 396 million tweets related to the Lok Sabha polls between January 1 and May 23.

In comparison, the 2014 Lok Sabha polls saw around 58 million election-related tweets between January 1 and May 16 (the date of poll results in 2014). Twitter content related to Lok Sabha elections recorded around 583 per cent growth between 2014 and 2019.

Top-mentioned leaders
Apart from Narendra Modi, Amit Shah and Rahul Gandhi, regional players such as Chandrababu Naidu, Mayawati and Mamata Banerjee were among the top-mentioned leaders on Twitter during general elections.

Be it Assembly polls or general elections, tweeple have been generating significant poll-related content on this 280-character platform.

Prior to the 2019 polls, Madhya Pradesh, Rajasthan, Telangana, Chhattisgarh and Mizoram went to polls in 2018. Between the poll period of October 1 and December 12, 2018, Twitter witnessed around seven million tweets on #AssemblyElections 2018. In case of BJP State units, the official Twitter account of Rajasthan BJP (@BJP4Rajasthan) had the maximum share. For Congress, the official Twitter account of Madhya Pradesh Congress (@INCMP) had the maximum share on Twitter.

In 2018, when #KarnatakaElections2018 recorded more than three million mentions on Twitter during the poll period between April 25 and May 15, 2018. The Karnataka unit of the BJP (@BJP4Karnataka) garnered 51 per cent of the share of voice on Twitter and the Congress (@INCKarnataka) took 42 per cent of mentions.

In the February 2015 Delh Assembly polls recorded a significant poll-related tweets . In 2015, Twitter India had stated that there were over 10.8 million election-related tweets during the 30-day campaign period.

Twitter has been generating a considerable amount of poll-related content globally also . A Twitter US blog post said that people in the US sent one billion tweets about the elections during the period between the primary debates that began in August, 2015 and the election day in the US on November 2016.

Twitter’s data team, which tracked the campaign conversation after British Prime Minister Theresa May called snap polls in April, 2017, stated that it analysed up to 90 different topics, personalities and trends across more than 48 million election tweets during the election period. (Source: The Hindu BusinessLine)

Vodafone Idea, Jio deploying blockchain tech to keep spammers at bay

May be world’s largest blockchain solution use case in telecom: Analysts. More than a billion mobile phone users can expect a significant respite from pesky calls and messages, as Vodafone IdeaNSE 0.78 % and Reliance Jio Infocomm start to roll out blockchain-based technology through partnerships with Tanla Solutions and Tech MahindraNSE -1.00 %, respectively.

The deployment is in line with the Telecom Regulatory Authority of India’s (Trai) regulations, which will come into effect by the month end, to end unsolicited commercial communication, or spam calls and messages. Subscribers will be able to set their communication preferences and consents on the back of this technology.

Vodafone Idea has some 395 million users, while Jio has about 307 million, as per Trai data. Bharti AirtelNSE 4.25 %, with more than 325 million users, has already made a similar deployment in a tie-up with IBM.

Vodafone Idea signed a multi-year contract with Tanla Solutions to deploy the technology, along with a regulatory sandbox and production platform. “Deployment is underway and will help in arresting spam and fraud-related commercial communications for Vodafone Idea subscribers,” a Tanla spokesperson told ET, adding that Tanla was also helping Airtel for implementation of the network, though IBM remains the bigger vendor for the technology.

A Vodafone Idea spokesperson said the company supported Trai’s initiative and was working with “new-age technologies.” A person aware of the development said Jio and Tech Mahindra had jointly developed the technology and the latter would manage it. Neither company responded to ET’s queries.

Rajan Mathews, director-general, Cellular Operators Association of India, said COAI had been working to bring everyone on board for deploying the distributed ledger technology. “Everybody that is in the ecosystem has to participate, including (state-run) BSNL,” he said, adding: “Telcos have to have a standard operating procedure that has now been put in place.”

Analysts said the ongoing deployment could be the world’s largest use case for a blockchain solution in telecom, with nearly a billion subscribers gaining .

Telecom operators can further leverage blockchain for mobile number portability, interconnect settlements, supply chain streamlining and content partner settlements among others, said analysts. (Source: Economic Times)

Chinese shout 'Boycott Apple' as US goes after Huawei

As the Washington-Beijing trade war intensifies along with fresh restrictions on Chinese telecom giant Huawei in the US, there has been a significant rise in "Boycott Apple" movement in China.

As the Washington-Beijing trade war intensifies along with fresh restrictions on Chinese telecom giant Huawei in the US, there has been a significant rise in "Boycott Apple" movement in China.

According to BuzzFeed News, there has been a flurry of anti-Apple and anti-Trump messages on Weibo, China's version of Twitter.

"I feel guilty watching the trade war. Once I have money I will change my smartphone (iPhone)," one user posted on Weibo.

"I think Huawei's branding is amazing, it chops an apple into eight pieces," read another post.

China has urged the US to stop "harassing overseas companies" and slammed US President Donald Trump's decision to sign a national emergency order that prohibits American firms from using foreign-made equipment, citing espionage fears.

The US move, which effectively takes aim at Chinese telecom giant Huawei, comes as the two economic superpowers are locked in a bitter unending trade war.

Chinese telecom giant Huawei has said that it is still open to addressing US security concerns.

"The functions in Huawei are comparable to Apple iPhones or even better. We have such a good smartphone alternative, why are we still using Apple?" said one user on Weibo.

This isn't the first time that the "Boycott Apple" movement has gained traction in China.

Chinese companies in December last year rallied behind the tech giant, offering hefty discounts to employees to buy Huawei devices and shun iPhones.

According to Nikkei Asian Review, the move came after the detention of Huawei's Chief Financial Officer Meng Wanzhou in Canada at the request of American prosecutors.

Over 20 Chinese companies also took to social media to announce that they will increase purchases of other Huawei products.

A Chinese court in December banned the sale and import of most iPhone models after granting Qualcomm an injunction against Apple.

To avoid the ban, Apple released a small update to iOS, saying that iOS version 12.1.2 contains software changes exclusive to China. (Source:ETTelecom)

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