Hughes Tele.com: Benefiting from MTNL’s handicap. - Views on News from Equitymaster

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  • Aug 30, 2000 - Hughes Tele.com: Benefiting from MTNL’s handicap.

Hughes Tele.com: Benefiting from MTNL’s handicap.

Aug 30, 2000

The second issue from the Hughes stable (after Hughes Software) is likely to get an equally thunderous response despite apprehensions about when the company is likely to break even. The merchant bankers have not fixed the upper limit primarily because SEBI has not allowed fixation of the upper limit. However, the sentiment for telecom stocks seems to be favourable in light of Bharti Telecom garnering US$ 400 m from Singapore Telecom or Satyam Infoway getting a market capitalisation of over a billion dollars. And this is what is likely to carry the Hughes Tele.com issue through.

The interesting aspect of Hughes’ client profile is the fact that it doesn’t get any revenues from residential customers. The management at an analysts meet yesterday harped on the fact that setting up access for residential customers is far costlier than setting up access for Mumbai’s business districts such as Nariman Point and Bandra Kurla.

The revenue mix for the incumbent operator MTNL consists of almost 80% revenues accruing from 20% of its customers (mainly business customers). This is the pie that Hughes is targeting and quite successfully at that. (It has already installed 23,000 direct exchange lines.) These are also likely to subscribe to the broadband services that the company plans to offer in the future. Thus the revenue per line for Hughes is likely to be higher than for MTNL going forward.

Another interesting aspect is the fact that Hughes is operating with 500 people at present with almost 35% of these in client servicing. Compare that to MTNL, which has almost 60,000 employees.

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