Edition #116. Tuesday, 8September2020
Good morning,
India finally saw through the slowest corporate rebranding, ever. The US financial sector doesnt seem to care as much about political squabbles with China as it does about tech. Employees saving for their retirement through government-led funds are getting short-changed. Solar panels in the Philippines save money but create a waste problem. Airplanes may soon allow you to travel in your personal seat bubble.
Vi rebranding: Better late than never
Seema
It could well be one of the slowest mergers in Indian corporate history.More than three years after telcos Vodafone and Idea first laid down their merger plans in March 2017, they announced its true completion under a new brand on 7 September 2020. Vodafone Idea Limited or VIL is now Vi. In a webcast on Monday, the company said:
The brand integration not only marks the completion of the largest telecom merger in the world, but also sets us on our future journey to offer world class digital experience to 1 Billion Indians on our strong 4G network. VIL is now leaner and agile, and the deployment of many principles of 5g architecture has helped us transform into a future-fit, digital network for the changing customer needs.
Its a brand reinvention two years too late.
Industry veterans agree that even after the deal in 2017, the two brandsVodafone with a dominant urban appeal, Idea with a dominant rural brand recallstayed distinct. The combined entity did precious little to communicate to their customers what they stood for. The void was pronounced when VIL began losing customers to Reliance Jio, after the latter started a price war with its free voice and 4G services in late 2016. Airtel was battered, too, but it held forth; VIL didnt.
"The new brand launch signifies our desire to not just deliver, but delight our customers, stakeholders, communities and our employees and signals our passion and commitment to be a champion for Digital India.
It was direct messaging, not just to the customers but even to the government. Both are critical constituents in Vis survival.
Since the government reportedly had a role to play in the synchronised price hikes by telcos last December, a view that is commonly held is that it should take similar steps to ensure higher tariffs and, in turn Vodafone Ideas viability. After all, it has the most to lose if the company goes bust, with dues of about Rs 1.5 trillion in terms of present value.
A tariff hike is imminent. But, ironically, it would help Vis competitors more because they are in a better financial position (higher ARPUs, lesser dues) to use the money from the price hike to improve their networks. At the time of the merger, VIL, with more than 40% market sharea higher than critical mass in any part of the world was in a great position to kill it, but it squandered the opportunity. The network and people integration were not just slow, but expensive. Its service/product quality deteriorated, and its cost remained high.
So, its understandable when, on Monday, Vi threw the kitchen-sink of network jargons to, well, whoever it may concern:
With the successful integration of two strong networks and deployment of new age technologies such has Dynamic Spectrum Refarming (DSR), M-MIMO, TDD, Small Cells, Cloud and OpenRAN, Vi customers will now be able to enjoy the combined strength of a high powered, unified network.
If Vi is able to stem the flight of customers in the next few months, itd be fair to assume that the unified brand has managed to get the message across. At least rival Jio made its point on Monday:
Is a new financial superpower in the making?
Nithin
In tech, the rift between China and America is growing. In manufacturing, countries are wooing companies away from China, whose superpower ambitions seem to be on shaky ground.
China was committing to finally open its financial services industry to American banks, mutual funds, and wealth management companies.
Despite rising trade tensions, China has kept its word. Citibank is now the first American bank to get a licence for custody services. This will allow the bank to hold investments for safekeeping on behalf of mutual funds based in China. It can also charge a fairly lucrative fee to customers.
In the past few months, Vanguard, an investment manager, has said that it's shifting its Asian headquarters from Hong Kong to Shanghai. BlackRock, one of the worlds largest mutual fund managers, is setting up a Chinese mutual fund business and a wealth management arm. JPMorgan Asset Management, a fund manager, is buying out the shares of its Chinese partner and going solo in its money-management venture.
Far from short-term greed, Wall Streets taste for China reflects a long-term bet that finances centre of gravity will shift east. And unlike in tech, both sides think they can capture the benefits of interaction without taking too much risk.
Naturally, foreign players are gravitating towards the opportunity to serve this market. For banks, its a new source of fees; for mutual fund managers and wealth managers, the universe of potential customers and investable companies is even larger.
If China plays its cards right, those four pages in the trade deal document could make it Asias financial powerhouse.
Starting from Scratch
Jon
Meanwhile, the US-China tech standoff claimed a new victim: student coders.
Poor choices beget poor outcomes for EPF subscribers
Nithin
Indias version of social security for salaried employees is the employee provident fund (EPF). It serves as forced savings for retirement since most employees have to contribute to the EPF out of their salary.
As a retirement fund, under the central government, the EPF was traditionally managed in a very safe manner by investing in low-risk bonds issued by the government. But that changed in 2015. The body that manages the EPF decided to start investing 5% of its deposits into the stock markets through exchange traded funds (ETFs). An ETF is a solution that allows investors to buy a collection of stocks instead of buying stocks individually. A year later, the EPF increased the limit to 10%, and a year after that to 15%.
In a country like India where financial literacy is low and where people have limited exposure to stock-market investing, the decision to invest a part of the EPFs deposits in the stock market had raised a lot of questions. Trade unions opposed it.
But ask any financial advisor and theyll swear stock markets are the top choice for long-term wealth creation. Since the EPF is a retirement solution, the runway is long.
But there is a bigger issue here. With regard to the choice of investments that the Employee Provident Fund Organisation (EPFO), the body that manages the show, has made. Close to 10% of the EPF stock market investments have gone into two ETFs: the CPSE ETF and the Bharat-22 ETF. They are both a collection of public sector enterprises (PSEs) backed by the government. In fact, the main purpose of these ETFs was for the central government to reduce its stake in the companies.
It was a poor choice for EPF subscribers. With these ETFs delivering -24.4% and -19.7%, it has dragged down the overall returns of the EPFs stock market investment to -8.3% as of March 2020.
Its an investment choice not everyone is happy with.
"Investments to achieve the goals of the government have their shortcomings. The retirement fund body needs to realize there is a difference between educated investors investing by choice, and uninformed workers money getting invested by default through avoidable ETFs."
Charting the history of long-term investments in most government companies will paint a pretty grim picture. Collectively, these companies would have underperformed the overall stock market. For an EPFO that doesnt give a choice to its subscribers, a wiser choice would be to avoid such investments that only pander to the government.
Otherwise, the EPF retirement kitty of employees could be at stake.
Renewing renewables
Jum
As if the problems caused by Covid-19 werent enough, many Filipinos in May were shocked to discover that their power usage during the Manila lockdown spiked up to four times their typical consumption.
Some consumers, however, bucked the trend, thanks to solar power installations in their homes.
The government expects many more consumers to jump on the renewables bandwagon, as working from home becomes the new norm post the Covid-19 pandemic.
But thats also expected to create a huge problem down the linea solid waste management one.
Solar panels and batteries become bulky sheets of electronic waste at the end of their lives. Most of the world doesnt have a plan for dealing with their disposal, reports sustainability advocacy publication Grist.
"By 2050, the International Renewable Energy Agency projects that up to 78 million metric tons of solar panels will have reached the end of their life, and that the world will be generating about 6 million metric tons of new solar e-waste annually. While the latter number is a small fraction of the total e-waste humanity produces each year, standard electronics recycling methods dont cut it for solar panels. Recovering the most valuable materials from one, including silver and silicon, requires bespoke recycling solutions.
Without proper disposal systems, these panels are likely to end up in landfills, which means toxic materials like lead will leach out as they break down.
The shift to renewables such as solar to reduce carbon emissions and limit climate change is a great endeavour. But much-needed disposal policies must be in place to avert creating another environmental hazard.
Make flying safe again
Ben
Correction:In yesterdays edition of BFO, in a piece titled The IPO has competition, we used the terms IPO and direct listings interchangeably in one sentence. They are not the same, as our reader Azeera Aziz rightly pointed out. In fact, the direct listing model, like the SPAC, can be seen as a challenger to the classic IPO. In a direct listing, no new shares are created, and thus the process doesnt need underwriting banks. This limits the way the bankers can earn fees from the transaction. Spotify and Slack are examples of direct listings.
Thats a wrap for today.
Don't forget to write in with your thoughts and observations on how this pandemic is reshaping businesses, societies and economies. We will be back tomorrow.
Stay safe,
Read more:
Vi rebranding: Better late than never - Beyond the First Order by The Ken - The Ken
