CHAPTER-1

INTRODUCTION

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CAPITAL BUDGETING:

Capital Budgeting is the process of identifying, analyzing and

selecting investment projects whose cash flows are expected beyond one year. It is also called
as investment appraisal. It is the planning process used to determine wether an organization’s
long term investments, major capital, or expenditures are worth pursuing. Capital Budgeting
projects, i.e., potential long-term investments, are expected to generate cash flows over
several years. The decision to accept or reject a capital budgeting project depends on an
analysis of the cash flows generated by the project and its cost.

Management must al ocate the form’s limited resources between

competing opportunities (projects), which is one of the main focuses of capital budgeting.
Capital budgeting is also concerned with the setting of criteria about which project should
receive investment funding to increase the value of the firm, and whether to finance that
investment with equity or debt capital. Capital budgeting projects may include a wide variety
of different types of investments.

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Choosing between capita budgeting projects may be based upon several inter-related criteria:

 Corporate management seeks to maximize the value of the firm by investing in

projects which yield a positive net present value when valued using appropriate
discount rate in consideration of risk.
 These projects must also be financed appropriately.
 If no positive NPV projects exist and excess cash surplus is not needed to the firm,
then financial theory suggest that management should return some or all of the excess
cash to shareholders (i.e., distribution via dividends).

1.1. NEED OF THE STUDY:

 The project study is undertaken to analyze and understand the capital budgeting
process in financial sector which gives mean exposure to practical implication of
theory knowledge.
 To know about the company’s operation of using various capital budgeting
techniques.
 To know how the company gets fund from various sources.
 To make financial analysis of various proposals regarding capital investments so as to
choose the best out of many proposals.

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1.2. SCOPE OF THE STUDY:
Capital budgeting should take into account all appropriations for expenditures related to:

 Construction or acquisition of capital facilities, including land purchase, preparation

and easements
 Acquisition, construction, demolition or replacement of a capital asset
 The major repair or renovation of a capital asset which materially extends its useful
life or improves or increases its capacity.
 To analyze the effects of capital budgeting techniques in the company.
 The planning or design of any of the above.
 To understand the practical usage of capital budgeting in the evaluating the project.
 To offer conclusion derived from the study and give suitable suggestions for the
efficient utilization of capital expenditure decisions.

1.3. OBJECTIVE OF THE STUDY:

 To understand various kinds of capital budgeting problem faced by the organization.
 To outline the factors in consideration that goes in to making a capital investment
decision.
 To understand the various methods of determining the size of capital investment
decision.
 To understand the various method of determining the size of capital budgeting and
evaluating investment proposals.
 To analyze the strengths and weakness of existing process of capital budgeting.
 To measure the profitability of the project by considering all cash flows.
 To suggest guidelines to the company for improving its financial position.

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1.4. METHODOLOGY:
To achieve the above said objectives the fallowing methodology has been adopted.
The information for the report has been collected from BSNL with the help of primary and
secondary sources.

Primary data: the data is collected through the observation in the organization and
interaction with the financial department. It is also called as first handed information.

Sources of primary data:

 Primary data was collected by a discussion with the company guide.

 Data was collected through interaction with personnel who are working in finance
&accounts departments of the organization.

Secondary data: it has been collected through various books, magazines, journals and
websites.

Sources of secondary data:

 Reports and publications of government department.

 Newspapers
 Magazines
 Company records and other documents

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1.5. LIMITATIONS
 In BSNL, capital budgeting a whole cannot be analyzed based on traditional
methods mentioned as above since projects are decentralized as SAA/circle
levels accordingly. As this is a public sector enterprise, it concentrates more
on service perspective rather than profit maximization .sometimes it is forced
to miss the viable projects keeping in view of corporate social responsibility
aspect such as investing in rural areas etc.
 Taking this as constraint, the fallowing analysis based on capital investment
and physical performance is made.
 Uncertainty is another limitation in evaluation of capital investment decision.
Uncertainty is another limitation in evaluation of capital investment decision.
Uncertainty and risk pose the biggest limitation to the techniques of capital
budgeting requires estimation of future cash flows and outflows. Financial
matters are sensitive in nature: the same could not be acquired easily. It may
be due to restrictions imposed by the management .the study was conducted
with the data available and analysis was made accordingly.sincee the study is
based on the financial data that are obtained from the company’s financial
statements, the limitations of financial statements shall be equally applicable.

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 CHAPTER2

REVIEW OF LITERATURE

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2.1 LITERATURE REVIEW IN CAPITAL BUDGETING

2.1.1. Introduction:

A number of researchers in finance and accounting have examined corporate capital

budgeting practices. Many of these articles survey corporate managers and report the

frequency with which various evaluation methods, such as payback, internal rate of return

(IRR), net present value (NPV), discounted payback, profitability index (PI), or average

Return on book value is used. The best known field studies about the practices of

Corporate finance is Gitman and Forrester’s (1977) study of Capital Budgeting

Techniques Used by Major U.S. Firms, Porwal’s (1976) study on Capital Budgeting

Techniques and Profitability and Graham and Harvey’s (2001) study on capital

Budgeting cost of capital, and capital structure. It is believed that the findings of this

Study in the context of India is useful to academia and practitioners in learning how

Corporate India operates, developing new theories, and identifying areas where finance

Theory is not implemented.

What are the capital budgeting tools and techniques being practiced by the industry and

How popular are they? Do firms use methods that help to maximize the firm value? The

Review of empirical surveys and studies help to find answers to these questions.

The changes in capital budgeting procedures over the decades have been well

Documented in prior studies. The research of Canada and Miller, Fremgen, Gitman and

Forrester, Kim and Farragher, Stanley Block all indicate that increasingly sophisticated

Capital budgeting procedures have been put in practice.

However, a generalization that more sophisticated practices takes place across all

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Industries are subject to investigation and challenge. This consideration is important

Because an analyst within a given industry may be intending on following industry norms

But misled by general observation that relate to the studies cited above. Just as there are

Different valuation procedures or financing norms between industries, there may also be

Different capital budgeting procedures

Rosenblatt and Jucker (1979) and Scott and Petty (1984) summarize several of these

Surveys. They show that from 1955 to 1978 the use of techniques which recognize the

Time value of money (i.e., IRR, NPV, PI and discounted payback) by sample firms rose

From .09 to around .80. However, many survey authors express surprise that a greater

percentage of the respondents did not use techniques which discounted future cash flows.

A number of textbooks have similar concerns.

I have divided my literature review into two parts:

1. Foreign Studies

2. Indian Studies

2.1.2 LITERATURE REVIEW: FOREIGN STUDIES

Klammer, Thomas P. (1972) surveyed a sample of 369 firms from the 1969 Compustat

Listing of manufacturing firms that appeared in significant industry groups and made at

least $1 million of capital expenditures in each of the five years 1963-1967. Respondents

were asked to identify the capital budgeting techniques in use in 1959, 1964, and 1970.

The results indicated an increased use of techniques that incorporated the present value

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Fremgen James (1973) surveyed a random sample of 250 business firms that were in the

1969 edition of Dun and Bradsheet’s Reference Book of Corporate Management.

Questionnaire were sent to companies engaged in manufacturing, retailing, mining,

transportation, land development, entertainment, public utilities and conglomerates to

study the capital budgeting models used, stages of the capital budgeting process, and the

methods used to adjust for risk. He found that firms considered the Internal Rate of

Return model to be the most important model for decision-making. He also found that the

majority of firms increased their profitability requirements to adjust for risk and

Klammer, Thomas P. ”Empirical Evidence of the Adoption of Sophisticated Capital Budgeting

Techniques,” The Journal of Business, July 1972, 387-397.

Klammer, Thomas P. and Michael C. Walker, “The Continuing Increase in the Use of Sophisticated
Capital Budgeting Techniques, “California Management Review, fall 1984, 137-148 considered
defining a project and determining the cash flow projections as the most

important and most difficult stage of the capital budgeting process.

Petty J William, Scott David P., and Bird Monroe M. (1975) examined responses from

109 controllers of 1971 Fortune 500 (by sells dollars) firms concerning the techniques

their companies used to evaluate new and existing product lines. They found that Internal

Rate of Return was the method preferred for evaluating all projects. Moreover, they found

That present value techniques were used more frequently to evaluate new product lines

Than existing product lines.

Gitman Lawrence G. and John R. Forrester Jr. (1977) analyzed the responses from

110 firms who replied to their survey of the 600 companies that Forbes reported as having

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The greatest stock price growth over the 1971-1979 periods. The survey containing

Questions related to capital budgeting techniques, the division of responsibility for capital

Budgeting decisions, the most important and most difficult stages of capital budgeting, the

Cutoff rate and the methods used to assess risk. They found that the DCF techniques were

The most popular methods for evaluating projects, especially the IRR. However, many

firms still used the PBP method as a backup or secondary approach. The majority of the

companies that responded to the survey indicated that the Finance Department was

responsible for analyzing capital budgeting projects. Respondents also indicated that

project definition and cash flow estimation was the most difficult and most critical stage

of the capital budgeting process. The majority of the firms had a cost of capital or cutoff

rate between 10 and 15%, and they most often adjusted for risk by increasing the

minimum acceptable rate of return on capital projects.

Kim Suk H. and Farragher Edward (1981) surveyed the 1979 Fortune 100 CFO about

Their 1975 and 1979 usage of techniques for evaluating capital budgeting projects. They

Fremgen, James, “Capital Budgeting Practices: A Survey,” Management Accounting , May 1973, 19-
25Petty, J. William Petty, David P. Scott, and Monroe M. Bird, “The Capital Expenditure Decision-
Making Process of Large Corporations, ”The Engineering Economist, Spring 1975, 159-171Gitman,
Lawrence G. and Forrester, John R. Jr.,”A Survey of Capital Budgeting Techniques Used by Major
U.S. Firms”, Financial Management, Fall 1977, pg 66-71found that in both years, the majority of the
firms relied on a DCF method (either the IRR

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Marc Ross (1986) In an in-depth study of the capital budgeting projects of 12 large

manufacturing firms, he found that although techniques that incorporated discounted cash

flow were used to some extent, firms relied rather heavily on the simplistic payback

model, especially for smaller projects. In addition, when discounted cash flow techniques

were used, they were often simplified. For example, some firms’ simplifying assumptions

include the use of the same economic life for all projects even though the actual lives

might be different. Further, firms often did not adjust their analysis for risk. Surveys

results also indicate that project approval at many firms (in eight out of twelve firms

studied) follow different criteria depending on the locus of the decision.

Wong, Farragher and Leung (1987) surveyed a sample of large corporations in Hong

Kong, Malaysia and Singapore in 1985. They found that PBP was the most popular

primary technique for evaluating and ranking projects in Malaysia. In Hong Kong, they

found PBP and ARR to be equally the most popular. They concluded that, in contrast to

US companies where DCF techniques are significantly more popular than non-DCF

techniques as primary evaluation measures, companies in Hong Kong, Malaysia and

Singapore prefer to use several methods as primary measures in evaluating and ranking

proposed investment projects. It is also observed that companies in Hong Kong, Malaysia

and Singapore do not undertake much risk analysis, neither attempting to assess risk nor

adjust evaluation criteria to reflect risk. The most popular risk assessment techniques

were sensitivity analysis and scenario analysis (high-medium-low forecasts).

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2.1.3 LITERATURE REVIEW : INDIAN STUDIES:

Prasanna Chandra (1975) conducted a survey of twenty firms to examine the

importance assigned to economic analysis of capital expenditures, methods used and its

rationale for analyzing capital expenditures and ways to improve economic analysis of

capital expenditures. The findings of the study reveals that the nature of economic

analysis of capital expenditures varies from project to project but in most of the firms

surveyed the analysis is done in sketchy terms. The most commonly used method for

evaluating investments of small size is the PBP and for large size investments the ARR is

used as the principal criterion and the PBP is used as a supplementary criterion. DCF

techniques are gaining importance particularly in the evaluation of large investments.

Several other criterias such as profit per rupee invested, cost saving per unit of product,

investment required to replace a worker are used for evaluating investments. Most of the

firms do not have fixed standards for acceptance/rejection of projects. The most common

methods used for incorporating the risk factor into the capital expenditure analysis are

Cooper, Morgan, Redman and Smith; Capital budgeting models: Theory Vs. Practice; Business
Forum,

2001, Vol. 26, Nos. 1,2, pp. 15-19

Porwal L S (1976) had done an empirical study of the organizational, quantitative,

qualitative, and behavioural and control aspects of capital budgeting in large

manufacturing public limited companies in the private sector in India. He had selected

118 companies out of which 52 companies (44%) provided usable responses. The

majority of the companies studied give more importance to earning more profits or

achieving a higher accounting rate of return on investment in assets. The final authority to

13
make a capital expenditure decision rests with the Board of Directors (BOD) in case of

four-fifths of the companies.

Pandey I M (1989) In a study of the capital budgeting practices of fourteen medium to

large size companies in India, it was found that all companies, except one, used payback.

With payback and/or other techniques about two-thirds of companies used IRR and about

two-fifths NPV. IRR was found to be the second most popular method. The reasons for

the popularity of payback in order of significance were stated to be its simplicity to use

and understand, its emphasis on the early recovery of investment and focus on risk. It was

found that one-third of companies always insisted on the computation of payback for all

projects, one-third for majority of projects and remaining for some of the projects. For

about two-thirds of companies’ standard payback ranged between 3 and 5 years.

According to his survey, reasons for the secondary role of DCF techniques in India

included difficulty in understanding and using these techniques, lack of qualified

professionals and unwillingness of top management to use DCF techniques. For capital

rationing it is found that most companies do not reject projects on account of capital

shortage. They face the problem of shortage of funds due to the management’s desire to

limit capital expenditure to internally generated funds or the reluctance to raise capital

from outside. But generally companies do not reject profitable projects under capital

rationing; they postpone them till funds become available. The most commonly used

methods of risk analysis in practice are sensitivity analysis and conservative forecasts.

Except a few companies most companies do not use the statistical and other sophisticated.

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Sahu P K (1989) has done a study on Capital budgeting in corporate sector in the state of

Orissa. He made an attempt to study the trends in fixed investment and its financing

between 1960-61 to 1973-74. He took a sample of 15 companies. It was observed that

routine investments were financed through internal sources of funds while investments

for the growth purpose are financed through the external sources of funds.

U. Rao Cherukuri’s (1996) survey of 74 Indian companies revealed that 51% use IRR as

project appraisal criterion. Firms typically use (92% or more) multiple evaluation

methods. ARR and PBP are widely used as supplementary decision criteria. WACC is the

discount rate used by 35% of the sample firms. The most widely used discount rate is

15%, and over 50% use an after-tax rate. About three-fifths of the respondents explicitly

consider risk in capital project analysis and mostly use sensitivity analysis for purposes of

risk assessment. The most popular method used by respondents to adjust for risk is

shortening the PBP followed by increasing the required rate of return. 35% of the

respondents included leasing in the capital budgeting process. A few Indian firms in his

survey also used none of the methods listed on questionnaire. They were using

profitability and cash flow analysis for assessing capital expenditure. Apart from the

formal budgeting techniques due weightage is given to qualitative aspects like quality

improvement expected from the capital expenditure, capital expenditure for enhanced

safely and capital expenditure to meet statutory requirements and for benefit to the

company’s personnel from health considerations and social benefits like housing.

2.2. CONCEPTUAL FRAME-WORK

CAPITAL BUDGEING

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 An efficient allocation of capital is the most important finance function in modern
times. It involves decisions to commit firm’s funds to long-term assets. Such decisions are
tend to determine the value of company/firm by influencing its growth, profitability & risk.

Investment decisions are generally known as capital budgeting or capital expenditure

decisions. It is clever decisions to invest current in long term assets expecting long-term
benefits firm’s investment decisions would general y include expansion, acquisition,
modernization and replacement of long-term assets.

Such decisions can be investment decisions, financing decisions or operating

decisions. Investment decisions deal with investment of organization’s resources in Long tern
(fixed) Assets and / or Short term (Current) Assets. Decisions pertaining to investment in
Short term Assets fal under “Working Capital Management”. Decisions pertaining to
investment in Long term Assets are classified as “Capital Budgeting” decisions.

Capital budgeting decisions are related to allocation of investible funds to different long-
term assets. They have long-term implications and affect the future growth and profitability of
the firm.

In evaluating such investment proposals, it is important to carefully consider the

expected benefits of investment against the expenses associated with it.Organizations are
frequently faced with Capital Budgeting decisions. Any decision that requires the use of
resources is a capital budgeting decisions. Capital budgeting is more or less a continuous
process in any growing concern.

For Example: Purchase of Land is an example of Capital Budgeting decision. Similarly replacement of
outdated equipment with modern machines, purchase of a brand or business, computerization and

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networking the organization, investment in research and development of a product launch of a
major promotional campaign etc are all example of Capital Budgeting decisions.

However, in all cases, the decisions have a long-term impact on the performance of
the organization. Even a single wrong decision may in danger the existence of the firm as a
profitable entity.

2.2.1.IMPORTANCE OF CAPITAL BUDGETING:

There are several factors that make capital budgeting decisions among the critical decisions
to be taken by the management. The importance of capital budgeting can be understood from
the following aspects of capital budgeting decisions.

1. Long Term Implications: Capital Budgeting decisions have long term effects on the
risk and return composition of the firm. These decisions affect the future position of
the firm to a considerable extent. The finance manger is also committing to the future
needs for funds of that project.
2. Substantial Commitments: The capital budgeting decisions generally involve large
commitment of funds. As a result, substantial portion of capital funds is blocked.

3. Irreversible Decisions: Most of the capital budgeting decisions are irreversible decisions.
Once taken the firm may not be in a position to revert back unless it is ready to absorb heavy
losses which may result due to abandoning a project midway.

4. After the Capacity and Strength to Compete: Capital budgeting decisions affect the capacity
and strength of a firm to face competition. A firm may loose competitiveness if the decision
to modernize is delayed.

2.2.2 PROBLEMS & DIFFICULTIES IN CAPITAL BUDGETING:

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1. Future uncertainty: Capital Budgeting decisions involve long-term commitments. There is lot of

uncertainty in the long term. The uncertainty may be with reference to cost of the project, future
expected returns, future competition, legal provisions, political situation etc.

2. Time Element: The implications of a Capital Budgeting decision are scattered over a long period.

The cost and benefits of a decision may occur at different point of time. The cost of a project is
incurred immediately. However, the investment is recovered over a number of years. The future
benefits have to be adjusted to make them comparable with the cost. Longer the time period
involved, greater would be the uncertainty.

3. Difficulty in Quantification of Impact: The finance manger may face difficulties in measuring the

cost and benefits of projects in quantitative terms.

Example: The new product proposed to be launched by a firm may result in increase or decrease in
sales of other products already being sold by the same firm. It is very difficult to ascertain the extent
of impact as the sales of other products may also be influenced by factors other than the launch of
the new product.

2.2.3.ASSUMPTIONS IN CAPITAL BUDGETING:

The Capital Budgeting decision process is a multi-faceted and analytical process. A number
of assumptions are required to be made.

1. Certainty with respect to cost & Benefits: It is very difficult to estimate the cost and benefits
of a proposal beyond 2-3 years in future.

2. Profit Motive : Another assumption is that the capital budgeting decisions are taken with a
primary motive of increasing the profit of the firm.

The activities can be listed as follows:

 Dis-investments i.e., sale of division or business.

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  Change in methods of sales distribution.
 Undertakings an advertisement campaign.
 Research & Development programs.
 Launching new projects.
 Diversification.
 Cost reduction.
FEATURES OF INVESTMENT DECISIONS:

 The exchange of current funds for future benefits.

 The funds are invested in long-term assets.
 The future benefits will occur to the firm over a series of years.

IMPORTANT OF INVESTMENT DECISIONS:

 They influence the firm’s growth in long run.

 They effect the risk of the firm.
 They involve commitment of large amount of funds.
 They are irreversible, or reversible at substantial loss.
 They are among the most difficult decisions to make.

TYPE OF INVESTMENT DECISIONS:

 Expansion of existing business.

 Expansion of new business.
 Replacement & Modernization.

INVESTMENT EVALUATION CRITERIA:

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  Estimation of cash flows.
 Estimation of the required rate of return.
 Application of a decision rule for making the choice.

Consideration of cash flows is to determine true profitability of the project and it is an

unambiguous way of identifying good projects from the pool. Ranking is possible it should
recognize the fact that bigger cash flows are preferable to smaller ones & early cash flows
are referable to later ones I should help to choose among mutually exclusive projects that
which maximizes the shareholders wealth. It should be a criterion which is applicable to
any considerable investment project independent of other.There are number of techniques
that are in use in practice. The chart of techniques can be outlined as follows:

2.2.4 CAPITAL BUDGETING TECHNIQUES:

Traditional Approach Modern Approach

(or) (or)

Non-Discounted Cash Flows Disconnected Cash Flows

Pay Back Period (PB) Net Present Value (NPV)

Accounting Rate of Return (ARR) Internal Rate of Return

Profitability Index (PI) Discounted Payable Period

NET PRESENT VALUE :

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 The Net Present value method is a classic economic method of evaluating the
investment proposals. It is one of the methods of discounted cash flow. It recognizes the
importance of time value of money”.

It correctly postulates that cash flows arising of different time period, differ in value and are
comparable only when their equivalent i.e., present values are found out.

The following steps are involved in the calculation of NPV:

 Cash flows of the investment project should be forecasted based on realistic assumptions.
 An appropriate rate of interest should be selected to discount the cash flows, generally this
will be the “ Cost of capital rate” of the company.
 The present value of inflows and out flows of an investment proposal, has to be computed
by discounting them with an appropriate cost of capital rate.
 The Net Present value is the difference between the “Present Value of Cash inflows” and the
present value of cash outflows.
 Net present value should be found out by subtracting present value of cash outflows from
present value of cash inflows. The project should be accepted if NPV is positive.

NPV = Present Value of Cash inflow – Present value of the cash outflow

Acceptance Rule:

Accept if NPV > 0

Reject if NPV < 0

May accept if NPV = 0

One with higher NPV is selected.

INTERNAL RATE OF RETURN METHOD:

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The internal rate of return (IRR) method is another discounted cash flow technique .This
method is based on the principle of present value. It takes into account of the magnitude &
timing of cash flows.

IRR nothing but the rate of interest that equates the present value of future periodic net cash
flows, with the present value of the capital investment expenditure required to undertake a
project.

The concept of internal rate of return is quite simple to understand in the case of one-period
project.

Acceptance Rule:

Accept if r > k

Reject if r < k

May accept if r = k

where r = rate return

k = opportunity cost of capital

PROFITABILITY INDEX (OR) BENEFIT COST RATIO:

Yet another time-adjusted method of evaluating the investment proposals is the benefit-cost
(B/C) ratio of profitability index PI). It is benefit cost ratio. It is ratio of present value of
future net cash inflows at the required rate of return, to the initial cash outflow of the
investment.

Present Value of Cash inflows

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PI = -----------------------------------------

Present Value of Cash outflows

Acceptance Rule :

Accept if PI > 1

Reject if PI < 1

May accept if PI = 1

Profitability Index is a relative measure of projects profitability.

PAY BACK PERIODE METHOD:

One of the top concerns of any person or organization investing a large amount
of money would be the time by which the money will come back. The concern making the
investment would want that at least the capital invested is recovered as early as possible.
The pay back period is defined as the period required for the proposal’s cumulative cash
flows to be equal to its cash outflows. In other words, the payback period is the length of
time required to recover the initial cost of the project. The payback period is usually stated
in terms of number of years. It can also be stated as the period required for a proposal to
‘break even’ on its net investment.
The payback period is the number of years it takes the firm to recover its original
investment by net returns before depreciation, but after taxes.
If project generates constant annual cash inflows, the pay back period is completed as
follows:

Initial Investment

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 Pay Back = ------------------------

Annual cash inflow

In case of unequal cash inflows, the payback period can be found out by adding up the cash
inflows until the total is equal to initial cash outlay.

Acceptance Rule:

 Accept if calculated value is less than standard fixed by management otherwise reject it.
 If the payback period calculated for a project is less than the maximum payback period set
up by the company it can be accepted.
 As a ranking method it gives highest rank to a project which has lowest pay back period, and
lowest rank to a project with highest pay back period.

DISCOUNTED PAY BACK PERIOD:

One of the serious objections to pay back method is that it does not discount the cash flows.
Hence discounted pay back period has come into existence. The number of periods taken in
recovering the investment outlay on the present value basis is called the discounted pay back
period.
Discounted Pay Back rule is better as it does discount the cash flows until the outlay is
recovered.
ACCOUNTING RATE OF RETURN (OR)

AVERAGE RATE OF RETURN (ARR) :

It is also known as return on investment (ROI). It is an accounting method, which uses the
accounting information revealed by the financial statements to measure the profitability of an
investment proposal. According to Solomon, ARR on an investment can be calculated as “
the ratio of accounting net income to the initial investment i.e.” .

Average Net Income

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 ARR = ---------------------------

Average Investment

Average Income = Average of after tax profit

Average Investment = Half of Original Investment

Acceptance Rule:

 Accept if calculated rate is higher than minimum rate established by the management.
 It can reject the projects with an ARR lower than the expected rate of return.
 This method can also help, the management to rank the proposals on the basis of ARR.
 A highest rank will be given to a project with highest ARR, whereas a lowest rank to a project
with lowest ARR.

CAPITAL BUDGETING METHODS IN PRACTICE:

 In a study of the capital budgeting practices of fourteen medium to large size

companies in India, it was found tat almost all companies used by back.

 With pay back and/or other techniques, about 2/3rd of companies used IRR and about 2/5th
NPV. IRR s found to be second most popular method.

 Pay back gained significance because of is simplicity to use & understand, its
emphasis on the early recovery of investment & focus on risk.

25
  It was found that 1/3rd of companies always insisted on computation of pay back for all
projects, 1/3rd for majority of projects & remaining for some of the projects.

 Reasons for secondary of DCF techniques in India included difficulty in

understanding & using threes techniques, lack of qualified professionals &
unwillingness of top management to use DCF techniques

 One large manufacturing and marketing organization mentioned that conditions of its
business were such that DCF techniques were not needed.

 Yet another company stated that replacement projects were very frequent in the
company, and it was not considered necessary to use DCF techniques for evaluating
such projects. techniques in India included difficulty in understanding & using threes
techniques, lack of qualified professionals & unwillingness of top management to use
DCF techniques.

2.2.5. CAPITAL BUDGETING PROCESS:

Atleast five phases of capital expenditure planning & control can be identified:

 Identification ( or Organization ) of investment opportunities.

 Development of forecasts of benefits and costs.
 Evaluation of the net benefits.
 Authorization for progressing and spending capital expenditure.
 Control of capital projects.

FORECASTING :

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Cash flow estimates should be development by operating managers with the help of finance
executives. Risk associated should be properly handled. Estimation of cash flows requires
collection and analysis of all qualitative and quantitative data, both financial and non-
financial in nature. MIS provide such data.

Correct treatment should be given to :

 Additional working capital

 Sale proceeds of existing assets.
 Depreciation
 Financial flows (to be distinguished from operation flows)

EVALUATION :

Group of experts who have no ake to grind should be taken in selecting the methods of
evaluation as NPV, IRR, PI, Pay Back, ARR & Discounted Pay Back.

Pay Back period is used as “Primary” method & IRR/NPV as “Secondary” method in India.
The following are to be given due importance.

 For evaluation, minimum rate of return or cut-off is necessary.

 Usually if is computed by means of weighted Average cost of Capital (WACC)
 Opportunity cost of capital should be based on risky ness of cash flow of investment
proposals.
 Assessment of risk is an important aspect. Sensitivity Analysis & Conservative for costs
are two important methods used in India.

AUTHORIZATION:

27
 Screening and selecting may differ from one company to another. When large sums are
involved usually final approval rests with top management. Delegation of approval authority may be
effected subject to the amount of outlay. Budgetary control should be rigidly exercised.

CONTROL AND MONITORY:

A Capital projects reporting system is required to review and monitor the

performance of investment projects after completion and during their life. Follow up
comparison of the actual performance with original estimates to ensure better forecasting
besides sharpening the techniques for improving future forecasts. As a result company may re-
praise its projects and take necessary action.

Indian Companies use regular project reports for controlling capital expenditure reports may
be quarterly, half-yearly, monthly, bi-monthly continuous reporting..

 Expenditure to date
 Stage and physical completion
 Approved total cost
 Revised total cost

DECISION MAKING LEVEL:

For planning and control purpose three levels of Decision making have been identified :

 Operating
 Administrative
 Strategic
OPERATING CAPITAL BUDGETING:

28
Includes routine minor expenditure, as office equipment handled by lower level management.

ADMINISTRATIVE CAPITAL BUDGETING:

Falls in between these two levels involves medium size investments such as business handled
by middle level management.

STRATEGIC CAPITAL BUDGETING:

Involves large investment as acquisition of new business or expansion in a new time of

business, handled by top management unique nature.

29
 CHAPTER-3

INDUSTRY PROFILE

30
TELECOMMUNICATIONS IN INDIA:

3.1. INTRODUCTION: India's telecommunication network is the second largest in the

world based on the total number of telephone users (both fixed and mobile phone). It has one
of the lowest call tariffs in the world enabled by the mega telephone networks and hyper-
competition among them. It has the world's third-largest Internet user-base. According to the
Department of Telecommunication of India (DoT), as on March 2015, India has 302.35
million internet connections. Major sectors of the Indian telecommunication industry are
telephony, internet and television broadcast Industry in the country which is in an on-going
process of transforming into next generation network, employs an extensive system of
modern network elements such as digital telephone exchanges, mobile switching
centers, media gateways and signaling gateways at the core, interconnected by a wide variety
of transmission systems using fibre-optics or microwave radio relay networks.

Telecommunication in India has greatly been supported by the INSAT system of

the country, one of the largest domestic satellite systems in the world. India possesses a
diversified communications system, which links all parts of the country by telephone,
Internet, radio, television and satellite.

Indian telecom industry underwent a high pace of market liberalization and growth
since the 1990s and now has become the world's most competitive and one of the fastest
growing telecom markets. The Industry has grown over twenty times in just ten years, from
under 37 million subscribers in the year 2001 to over 846 million subscribers in the year
2011. India has the world's second-largest mobile phone user base with over 929.37 million
users as of May 2012. It has the world's second-largest Internet user-base with over 300
million as of June 2015.

Telecommunication has supported the socioeconomic development of India and has played a
significant role to narrow down the rural-urban digital divide to some extent. It also has
helped to increase the transparency of governance with the introduction of e-governance in
India. The government has pragmatically used modern telecommunication facilities to deliver
mass education programmes for the rural folk of India

31
3.2. HISTORY:

The history of Indian telecom can be started with the introduction of telegraph. The
Indian postal and telecom sectors are one of the world’s oldest. In 1850, the first
experimental electric telegraph line was started between Calcutta and Diamond Harbour. In
1851, it was opened for the use of the British East India Company. The Posts and Telegraphs
department occupied a small corner of the Public Works Department, at that time.

In 1880, two telephone companies namely The Oriental Telephone Company Ltd.
and The Anglo-Indian Telephone Company Ltd. approached the Government of India to
establish telephone exchange in India. The permission was refused on the grounds that the
establishment of telephones was a Government monopoly and that the Government itself
would undertake the work. In 1881, the Government later reversed its earlier decision and a
license was granted to the Oriental Telephone Company Limited of England for opening
telephone exchanges at Calcutta, Bombay, Madras and Ahmedabad and the first formal
telephone service was established in the country. On 28 January 1882, Major E. Baring,
Member of the Governor General of India's Council declared open the Telephone Exchanges
in Calcutta, Bombay and Madras. The exchange in Calcutta named the "Central Exchange"
had a total of 93 subscribers in its early stage. Later that year, Bombay also witnessed the
opening of a telephone exchange.

32
FURTHER DEVELOPMENTS AND MILESTONES:

TELECOM SECTOR SINCE 1990’S TILL DATE IS BRIEFED BELOW:

1991-92:
 On 24th July 1991, Government announced the New Economic Policy.
 Telecom Manufacturing Equipment license was delicensed in 1991.
 Automatic foreign collaboration was permitted with 51% equity by the collaborator.
1992-93:
 Value added services were opened for private and foreign players on franchise or
license basis.
1994-95:
 The Government announced a National Telecom Policy 1994 in September 1994. It
opened basic telecom services to private participation including foreign investments.
 Foreign equity participation up to 49% was allowed in basic telecom services, radio
paging and cellular mobile.
 Eight cellular licenses for four metros were finalized.
1996-97:
 TRAI was set up as an autonomous body to separate the regulatory functions from
policy formulations and operational functions.
 An agreement between Department of Telecommunication (DOT) and financial
institutions to facilitate funding of cellular and basis telecom projects.
 External Commercial Borrowing (ECB) limits on telecom projects made flexible with
an increased share from 35% to 50% of total project cost.
 Internet Policy was finalized.
1998-99:
 FDI up to 49% of total equality, subject to license, permitted in companies providing
Global Mobile Personal Communication (GMPC) by satellite services.
1999-2000:
 National Telecom Policy 1999 was announced which multiple 27 fixed services
operators and opened long distance services to private operators.
 TRAI reconstituted: clear distinction was made between the recommendatory and
regulatory functions of the Authority.
 DOT/MTNL was permitted to start cellular mobile telephone service.

33
 To separate service providing functions from policy and licensing functions,
Department of Telecom Services was set up.
 A package for migration from fixed license fee to revenue sharing offered to exist
cellular and basic service providers.
 First phase of re-balancing of tariff structure started. STD and ISD charges were
reduced by 23% on an average.
 Voice and data segment was opened to full competition and foreign ownership
increased to 100% from 49% previously.
2000-01:
 TRAI Act was amended. The Amendment clarified and strengthened and
recommendatory power of TRAI, especially with respect to the need and timing of
introduction of new services provider, and in terms of licenses to a services provider.
 Department of Telecom Services and Department of Telecom Operations corporatized
by creating Bharat Sanchar Nigam Limited.
 Domestic long distance services opened up without any restriction on the number of
operators.
 Second phase of tariff rationalization started with further reductions in the long
distance STD rates by an average of 13% for different distance slabs and ISD rates for
17%.
 Internet Service Providers were given approval for setting up of International
Gateways for Internet using satellite as a medium in March 28 2000.
 In August 2000, private players were allowed to set up of international gateways via
the submarine cable route.
 The termination of monopoly of VSNL in International Long Distance Services was
antedated to March 31, 2002 from March 31, 2004.
2001-02:
 Communication Convergence Bill, 2001 was introduced in August 2001.
 Competition was introduced in all services segments. TRAI recommended opening of
market to full competition of new services in the telecom sector. The licensing terms
and conditions for Cellular Mobile were simplified to encourage entry for operators in
areas without effective competition.
 Usage of Voice over Internet Protocol permitted for international telephony service.

34
 The five-year tax holiday and 30% deduction for the next five years available to the
telecommunication sector till 31st March 2000 was reintroduced for the units
commencing their operations on or before 31st March 2003. These concessions were
also extended to internet services providers and broadband networks.
 Thirteen ISP’s were given clearance for commissioning of international gateways for
Internet using satellite medium for 29 gateways.
 License conditions for Global Mobile Personal Communications by satellite finalized
in November 2001.
 National Long Distance Service was opened up for unrestricted entry with the
announcement of guidelines for licensing NLD operators. Four companies were
issued Letter of Intent (LOI) for National Long Distance Service of which three
licenses have been signed.
 Four cellular operators, one each in four metros and thirteen were permitted with 17
fresh licenses issued to private companies in September/October 2001. The cell phone
providers were given freedom to provide, within their area of operation, all types of
mobile services equipment, including circuit and/or package switches that meet the
relevant International Telecommunications Union (ITU)/ Telecom Engineering
Centre (TEC) standards.
 Wireless in Local Loop (WLL) was introduced for providing telephone connection in
urban, semi-urban and rural areas.
 Disinvestment of PSU’s in the telecom sector was also undertaken during the year. In
February 2002, the disinvestment of VSNL was completed by bringing down the
government equity to 26% and the management of the company was transferred to
Tata Group, a strategic partner. During the year, HTL was also disinvested.
 Reliance, MTML and Tata were issued licenses to provide the CDMA based services
in the country.
2002-03:
 International Long Distance business opened for unrestricted entry.
 Telephony on internet permitted in April 2002.
 TRAI finalized the System of Accounting Separation (SAS) providing 30 detailed
accounting and financial system to be maintained by telecom service providers.

35
 2004-05:
 Budget 2004-2005 proposed to lift the ceiling from 49% to 74% as an incentive to the
cellular operators to fall in line with the new unified licensing norm.
 ‘Last Mile’ linkages permitted in April 2004 within the local area for ISP’s 31 for
establishing their own last mile to their customers.
 Indoor use of low power equipments in 2.4 GHz band de-licensed from august 2004.
 Broadband Policy announced on 14th October 2004. In this policy, broadband had
been defined as an “always-on” data connection supporting interactive services
including internet access with minimum download speed of 256 kbps per subscriber.
 The Telecommunications (Broadcasting and Cable Services) Interconnection
Regulation 2004 was introduced on 10th December 2004.
 BSNL and MTNL launched broadband services on 14th January 2005.
 TRAI announced the reduction of Access Deficit Charge (ADC) by 41% on ISD calls
and by 61% on STD calls which were applicable from 1st February 2005.
2005-06:
 Budget 2005-2006 cleared a hike in FDI ceiling to 74% from the earlier limit of 49%.
100% FDI was permitted in the area of telecom equipment manufacturing and
provision of IT enabled services.
 Annual license fee for National Long Distance (NLD) as well as International Long
Distance (ILD) licenses reduced to 6% of Adjusted Gross Revenue (AGR) with effect
from 1st January 2006.
 BSNL and MTNL launched the ‘One-India Plan’ with effect from 1st March 2006
which enable the customers of BSNL and MTNL to call from one end of India to
other at the cost of Rs. 1 per minute, any time of the day to phone.
 TRAI fixed Ceiling Tariff for International Bandwidth, Ceiling Tariff for higher
capacities reduced by about 70% and for lower capacity by 35%.
 Regulation on Quality of Service of Basic and Cellular Mobile Telephone Services
2005 introduced on 21st March 2006.
2009-10:
 The total number of telephone connections reaches 413.85 million with this growth,
the overall tele-density has reached 35.65. The total wireless subscribers (GSM,
CDMA and WLL (F)) base stood at 391.76 million at the end of March 2009. In the

36
 wire line segment, the subscriber base has increased to 37.96 million in the month of
March 2009 Total Broadband subscriber base has increased from 7.83 million.
2010-11:
 3G and BWA spectrum auction.
 MNP launched pan India.
2012-14:
 2013 was “TRANSITION YEAR” for Indian telecom sector’s growth story with
over 900 million telephone connections, India remained the world’s second-largest
telecommunications market in 2013.
 Data traffic powered by third generation (3G) services grew at 146% in India during
2013, higher than the global average that saw use double.
 India’s global system for mobile (GSM) operators added 4.14 million rural
subscribers in January 2014, taking the total to 285.35 million.
 RAVI SHANKAR PRASAD, India’s new Minister for Communications and
Information Technology who is also the Minister for Law and Justice said: “The
Atal Bihari Vajpayee government is remembered for the National Highways project.
We wil be known for the broadband highway”. As part of this, Prasad is looking to
improve mobile connectivity in the North-East, Ladakh and the Andaman & Nicobar
Islands.
 TSSC is mandated to facilitate training of 80,000 people and help infuse 80crore of
government support for imparting skills in telecom sector under the recently launched
National Skill Certification and Monetary Scheme.
 BSNL has launched Face book on USSD in East and South Zones and will be shortly
launched in West and North Zones in coming days. BSNL customers can access this
service without any internet or mobile data services.
 This service is brought together with their partners U20pia Mobile Face book for
USSD enables users to access their Face book accounts, view/post status messages,
respond to friend requests, write on friend walls, view birthday reminders and send
messages, all without any internet or data connection.
 Rural tele-density target has been set at 40% by 2014. Industry estimates suggest that
there is a potential to reach beyond one billion telephones in India by 2015

37
3.3. LIBERALISATION AND PRIVATISATION:

Liberalisation of Indian telecommunication in industry started in 1981 when

Prime Minister Indira Gandhi signed contracts with Alcatel CIT of France to merge with the
state owned Telecom Company (ITI), in an effort to set up 5,000,000 lines per year.
Attempts to liberalise the telecommunication industry were continued by the following
government under the prime-minister-ship of Rajiv Gandhi. He invited Sam Pitroda, a US-
based Non-resident Indian NRI and a former Rockwell International executive to set up
a Centre for Development of Telematics(C-DOT) which manufactured electronic telephone
exchanges in India for the first time.

In 1985, the Department of Telecom (DoT) was separated from Indian Post &
Telecommunication Department. DoT was responsible for telecom services in entire country
until 1986 when Mahanagar Telephone Nigam Limited (MTNL) and Videsh Sanchar Nigam
Limited (VSNL) were carved out of DoT to run the telecom services of metro
cities(Delhi and Mumbai) and international long distance operations respectively.

After March 2000, the government became more liberal in making policies and
issuing licences to private operators. The government further reduced licence fees for cellular
service providers and increased the allowable stake to 74% for foreign companies. Because of
all these factors, the service fees finally reduced and the call costs were cut greatly enabling
every common middle-class family in India to afford a cell phone. Nearly 32 million handsets
were sold in India. The data reveals the real potential for growth of the Indian mobile market.
Many private operators, such as Reliance Communications, Tata Indicom, Vodafone
Airtel, Idea etc., successfully entered the high potential Indian telecom market.

SECTORS IN TELECOMMUNICATION:

Major sectors of telecommunication industry in India are telephony, internet, Data

centers and broadcasting.

 Telephony:

The telephony segment is dominated by private-sector and two state-run

businesses. Most companies were formed by a recent revolution and restructuring
launched within a decade, directed by Ministry of Communications and
IT, Department of Telecommunications and Minister of Finance. Since then, most

38
 companies gained 2G, 3G and 4G licences and engaged fixed-line, mobile and
internet business in India. On landlines, intra-circle calls are considered local calls
while inter-circle are considered long distance calls. For international calls, "00" must
be dialled first followed by the country code, area code and local phone number. The
country code for India is 91. Several international fibre-optic links include those to
Japan, South Korea, Hong Kong, Russia, and Germany. Some major telecom
operators in India include Airtel, Vodafone, Idea, Aircel, BSNL, MTNL, Reliance
Communications, TATA Teleservices, MTS, Uninor, TATA DoCoMo, and
Videocon.

 Fixed Telephony:

Untill the new telecom policy was announced in 1999, only the
government owned BSNL and MTNL were allowed to provide land-line phone
services through copper wire in India with MTNL operating in Delhi and Mumbai and
BSNL servicing all other areas of the country. Due to the rapid growth of the cellular
phone industry in India, landlines are facing stiff competition from cellular operators.
This has forced land-line service providers to become more efficient and improve
their quality of service. Land-line connections are now also available on demand,
even in high density urban areas.

 Internet:

The history of the Internet in India started with launch of services

by VSNL on 15 August 1995. There were 161 Internet Service Providers (ISPs)
offering broadband services in India as of 31 May 2013. The top five ISPs in terms
subscriber base were BSNL (9.96 million), Bharti Airtel (1.40 million), MTNL (1.09
million), Hathway (0.36 million) and You Broadband (0.31 million).

 Network Neutrality:
As of 2015, India had no laws governing net neutrality and there have been
violations of net neutrality principles by some service providers. While the Telecom
Regulatory Authority of India (TRAI) guidelines for the Unified Access Service license
promote net neutrality, they are not enforced. The Information Technology Act, 2000 does not
prohibit companies from throttling their service in accordance with their business interests.

39
3.4. MAJOR TELECOM SERVICE PROVIDERS IN TELECOM INDUSTRY:

1. Bharti Airtel:

Headquartered in New Delhi, India, this leading Indian telecommunications

company has its operations spread across 20 countries in Asia and Africa. Also known as
Bharti Airtel Limited which was started in July 1995.

Its product offerings range from 2G, 3G and 4G wireless services, fixed line
broadband and voice services, DTH, mobile commerce, IPTV and enterprise services. The
company operates in four strategic business units, namely, Mobile, Telemedia, Enterprise and
Digital TV.

2. Vodafone India:

Vodafone India Ltd, formerly known as Vodafone Essar Ltd, is headquartered in

Mumbai, Maharashtra. This is the second largest mobile network operator in India offers both pre-
paid and post-paid GSM cellular phone coverage across the country.

Vodafone India is a 100% subsidiary of the Vodafone Group. The company

commenced its operations in 1994 with the acquisition of cellular licence in Mumbai by its
predecessor Hutchison Telecom. Later, in 2007, Vodafone brand was launched when
Vodafone Plc. acquired a majority stake in Hutchison Essar.

40
3. Idea Cellular:

This Mumbai based pan India mobile network operator offers GSM based 2G and
3G services and has its own national and internationa l long distance operations.

Incorporated as Birla Communications Ltd in 1995, it came to be known as Idea

Cel ular Ltd in 2002 following a shareholders’ agreement between the Aditya Birla Group,
Tata Group and AWS Group. In 2005, AWS exited from the agreement following which it
became a 100% subsidiary of the Aditya Birla Group.

4. Reliance Communications:

Reliance Communications Ltd, commonly known as RCOM, is a frontrunner

company of the Reliance Anil Dhirubhai Ambani Group.

The company’s business comprises a range of telecom services covering mobile and
fixed line telephony including broadband, data services, national and international long
distance services, value added services and applications etc. Its services can be broadly
classified into three categories – wireless, global and broadband.

41
5. Bharat Sanchar Nigam Limited (BSNL):

Incorporated in 2000, Bharat Sanchar Nigam Ltd. (BSNL) took over the business of
providing telecom services and network management from the erstwhile central government
Departments of Telecom Operations (DTO) and Telecom Services.

This state-owned telecom company is headquartered in New Delhi and is the

country’s oldest communication services provider. The company has a pan India presence
except in the metro cities of New Delhi and Mumbai which are managed by Mahanagar
Telephone Ltd (MTNL).

6. Aircel:

Headquartered in Gurgaon, Aircel is a pan India operator with its presence across 23
circles. The company commenced its operations in 1999 predominantly operatinging Tamil
Nadu

Today, Aircel offers voice and data services ranging from 2G and 3G services, pre-
paid and post-paid plans, Broadband Wireless Access (BWA), value added services etc.
primarily in the southern and eastern parts of the country. In 2006, it was acquired by Maxis
Communications Berhard - Malaysia’s biggest integrated communications service provider.
Aircel now functions as a joint venture between Maxis and Sindya Securities & Investments
Pvt. Ltd. with the former holding 74% equity in the company.

7. Tata Docomo:

Based in Mumbai, Tata Teleservices (TTL) represents the Tata Group’s presence in the
Indian telecom sector. It was founded in 1996, with its headquarters in Mumbai.

42
8. Telenor:
Telenor India earlier known as Uninor is an Indian Telecom Operator which provides Mobile
Telephony and Internet services in India. Telenor holds the licence of providing its services
in only six Indian states like Maharashtra & Goa (circle), Uttar Pradesh, Bihar, Uttarakhand,
Gujarat and Andhra Pradesh & Telangana (circle). Telenor largely offers Low Voice Tariff
and is well known for it. (5.16 Million subscribers) Market Share (4.91%)

9. MTS:
(8.13 Million subscribers) Market Share (0.89%)
Ownership (Sistema (56.68%) Shyam Group(23.98%) Government of Russia(17.14%))
Corporate office – New Delhi | Establishment – 2008 |
Business – Telecommunications | Website – www.mtsindia.in |

Founders: Moscow City Telephone Network, T-Mobile, Siemens

Parent organization: Sistema
Subsidiaries: Vodafone Ukraine, Universal Mobile Systems, K-Telecom CJSC, MTS
Turkmenistan

43
10. MTNL:
(3.6 Million subscribers) Market Share (0.36%)
Ownership (State-owned)
Corporate office – New Delhi | Establishment – 1986 |
Business – Telecommunications | Website – www.mtnl.net.in |

Mahanagar Telephone Nigam Limited is an Indian state-owned telecommunications

company. MTNL provides services in New Delhi and Mumbai in India and Mauritius in
Africa.
CEO: Pravin Kumar Purwar
Headquarters: New Delhi
Founded: 1986
Parent organization: Government of India.

44
 3.5.LIST OF TOP MOBILE OPERATORS OF INDIA (AS ON 17 APRIL 2016)

Subs
crib
Marke
Operator's ers
Rank Technology Ownership t
Name in
Share
milli
on

GSM, EDGE, HSPA+, T Bharti Enterprises (68%

1 Bharti Airtel 248.6 32.35%
D-LTE SingTel (32%)

Vodafone GSM, EDGE, HSPA+,LT

2 196.7 Vodafone Group (100%) 25.59%
India E

GSM, EDGE, HSPA+,LT

3 Idea Cellular 174.6 Aditya Birla Group (100%) 22.72%
E

Reliance CDMA2000, EVDO, GS

Reliance ADAG (67%
4 Communicatio M, EDGE, HSPA+,WiM 106.81 11.21%
Public (26%)
ns AX

MaxisCommunications(74%)
GSM, EDGE, HSDPA, T
5 Aircel 86.06 SindyaSecurities and 8.47%
D-LTE
Investments (26%)

GSM, EDGE, HSDPA, H

6 BSNL SPA+,CDMA2000, EVD 85.29 State-owned 8.19%
O, WiMax

45
 CDMA2000, EVDO, GS
TataTeleservices (74%)
7 Tata Docomo M, EDGE,HSDPA, HSP 60.89 6.28%
NTT DoCoMo (26%)
A+, WiMAX

8 Telenor India GSM, EDGE, NB-LTE 5.16 Telenor (100%) 4.91%

MTS
India being
acquired
Sistema (56.68%)
by Reliance
9 CDMA2000, EVDO 8.13 ShyamGroup (23.98%) 0.89%
Communicatio
Government of Russia (17.14%)
ns (subject to
regulatory
approvals) [2]

GSM, HSDPA, CDMA20 0.36%

10 MTNL 3.6 State-owned
00

46
3.6. DOT PROFILE:

The telecom services have been recognized the world-over as an important tool for socio
economic development for a nation and hence telecom infrastructure is treated as a crucial
factor to realize the socio-economic objectives in India. Accordingly, the Department of
Telecom has been formulating developmental policies for the accelerated growth of the
telecommunication services. The Department is also responsible for grant of licenses for
various telecom services like Unified Access Service Internet and VSAT service. The
Department is also responsible for frequency management in the field of radio
communication in close coordination with the international bodies. It also enforces wireless
regulatory measures by monitoring wireless transmission of all users in the country.

Telecom Commission

The Telecom Commission was set up by the Government of India vide Notification dated
11th April, 1989 with administrative and financial powers of the Government of India to deal
with various aspects of Telecommunications. The Commission consists of a Chairman,
four full time members, who are ex-officio Secretary to the Government of India in the
Department of Telecommunications and four part time members who are the Secretaries to
the Government of India of the concerned Departments. The composition of the Commission
is as follows:-

47
Designation Name

Chairman Shri J S Deepak

Member(Finance) Ms. Annie Moraes

Member(Production) Vacant

Member(Services) Shri Narendra K. Yadav

Member(Technology) Vacant

The part time Members of Telecom Commission are

1. Secretary (Department of Information Technology)

2. Secretary (Finance)

3. Secretary (Planning Commission) and

4. Secretary (Industrial Policy Promotion).

The Telecom Commission and the Department of Telecommunications are responsible for
policy formulation, licensing, wireless spectrum management, administrative monitoring of
PSUs, research and development and standardization/validation of equipment etc. The multi-
pronged strategies followed by the Telecom Commission have not only transformed the very
structure of this sector but have motivated all the partners to contribute in accelerating the
growth of the sector.

48
49
3.7. TRAI (TELECOM REGULATORY AUTHORITY OF INDIA)

Abbreviation TRAI

Formation 1997

Legal status Created by Telecom Regulatory Authority of India Act, 1997

Purpose Independent regulator

Headquarters New Delhi, India

Region India
served

Key people R. S. Sharma(IAS Chairman)

A.K. Kaushal (ITS Member)

Dr Vijayalakshmy K. Gupta
(Member)

Website www.trai.gov.in

50
THE TELECOM REGULATORY AUTHORITY OF INDIA ACT, 1997

The main objective of the Telecom Regulatory Authority of India Act, 1997 (TRAI
Act) was to establish the Telecom Regulatory Authority of India (TRAI) and Telecom
Dispute Settlement Appellate Tribunal (TDSAT). The main purpose of these two institutions
established under the TRAI Act is to regulate telecommunication services, adjudicate
disputes, dispose appeals and protect the interest of the service providers as well as the
consumers. The Act also aims at promoting and ensuring orderly growth of the telecom
sector.

AMENDMENT TO THE TRAI ACT

The TRAI Act was amended through the TRAI (Amendment) Act, 2000
(“Amendment Act”). Before the amendment, TRAI exercised both regulatory and dispute
resolution functions. The Amendment Act established the Telecom Dispute Settlement
Appellate Tribunal to solely deal with relevant disputes. There was ambiguity in the Act as to
whether TRAI recommendations are binding upon the Government; this was clarified by the
Amendment Act.

INDEPENDENT TELECOM REGULATORY AUTHORITY

In Delhi Science Forum v. Union of India, the Supreme Court while deciding on the
constitutionality of the National Telecom Policy, 1994 observed that it is necessary that the
telecom regulator should be an independent body. National Telecom Policy, 1994 allowed for
private participation in the telecommunication sector, and in the light of this policy change
the Supreme Court also emphasized on the necessity of an independent statutory authority in
a deregulated and competitive telecom market.

GOVERNMENT CONTROL OVER TRAI

TRAI is not a completely independent telecom regulator. The Government exercises
certain amount of control over TRAI. Under section 25 of the Act it has the power to issue
directions which are binding on TRAI. The TRAI is also funded by the Central Government.
Moreover, under section 35 of the TRAI Act, the Central Government has the power to make
rules on various subjects and such rules are binding upon TRAI. Therefore, TRAI is not a
completely independent telecom regulator as envisioned by the Supreme Court.

51
SCHEME OF THE TRAI ACT
The TRAI Act contains six chapters. Chapter 1 deals with applicability of the Act, key
concepts and definitions. Chapter 2 contains provisions for constitution of the TRAI. Chapter
3 deals with the powers and functions of TRAI. Chapter 4 deals with establishment of
appellate tribunal, TDSAT and the procedure of the appellate tribunal. Chapter V deals with
finance, accounts and audit of the two institutions established under the Act. Chapter 6
consists of miscellaneous provisions for the purpose of smooth functioning of the two
institutions created under the Act.

Telecom Regulatory Authority of India (TRAI) was established as a corporation

under Section 3 of the Act. The head office of TRAI is in New Delhi. TRAI constitutes of a
chairperson and less than two, full time and part-time members. The chairperson and the
members of TRAI are appointed by the Central Government and the duration for which they
can hold their office is three years or until they attain the age of 65 years, whichever is
earlier. The persons who are appointed should have special knowledge and prior experience
in the field of telecommunication, industry, finance, accountancy, law, management or
consumer affairs. If someone, who has been in the service of the Government prior to
appointment then he should have served the Government in the capacity of a Secretary or
Additional Secretary for a period more than three years.

The TRAI may also appoint officers and employees in order to carry out its function
under this Act. Currently the officers and employees of TRAI are divided into nine divisions.
The divisions are:

 Mobile network division;

 Fixed network division;
 Converged network division;
 Quality of service division;
 Broadcast and cable services division;
 Economic division
 financial analysis and internal finance and accounts division;
 Legal division and
 Administration and personnel division.

52
 POWERS AND FUNCTIONS OF TRAI
The functions of the TRAI are enumerated under section 11 of the TRAI Act. The
function mentioned under the provision has an overriding effect on any provision of the
Indian Telegraph Act, 1885.
The 2000 Amendment classified the TRAI’s functions into four broad categories:

1. Making recommendations on various issues;

2. General administrative and regulatory functions;
3. Fixing tariffs and rates for telecom services; and
4. Any other functions entrusted by the Central Government.

FUNCTIONS OF TRAI:

The recommendations made by the TRAI are not binding on the Central Government.
However, the Central Government has to mandatorily ask for recommendations from TRAI
with respect to need and timing of new service provider and terms and conditions of the
licence to be granted to the service provider. TRAI has the obligation to forward the
recommendation to the Central Government within 60 days from the date of the request for
recommendation. TRAI may also request for relevant information or documents from the
Central Government to make such recommendations and the Central Government has to
furnish such information within seven days from the date of the request.

The Central Government can issue licence to the service provider, if TRAI fails to
give any recommendation within the stipulated period. Where the Central Government is of
the opinion that the recommendations made by TRAI cannot be accepted or need
modification, then it can send them back to TRAI for reconsideration. TRAI may reply within
a period of 15 days from the date of reference.

TRAI also has the power to notify in the official gazette the rates at which
telecommunication services are being provided in and outside India. TRAI shall ensure
transparency while exercising its powers and discharging its functions.

TRAI under section 12 has the power to call for information and conduct investigation. It also
has got powers to issue directions under section 13.

53
TELECOM DISPUTES SETTLEMENT APPELLATE TRIBUNAL
The Telecom Dispute Settlement Appellate Tribunal (Tribunal) is established under
section 14 of the Act. It is the sole dispute resolution body in the communication sector. It
can adjudicate upon any dispute between:

1. Licensor (Central Government) and a licensee.

2. Two or more service providers.
3. Between a service provider and a group of consumers.

However, the Tribunal does not have any jurisdiction to try any matter which deals with anti-
competitive trade practices or any consumer complaint.

Present members of TRAI

Name Designation

Ram Sewak Sharma Chairman

A.K. Kaushal Whole time member

DrVijayalakshmy K. Gupta Whole time member

H.S. Jamadagni Part-time member

Pankaj Chandra Part-time member

54
 CHAPTER-4

COMPANY PROFILE

55
Bharat Sanchar Nigam Limited

Type State-owned enterprise

Industry Telecommunications

Founded Incorporated 15th September 2000 with effect from 1st October
2000

Headquarters New Delhi, India

Key people Anupam shrivastava(Chairman & MD)

Products Fixed line and mobile telephony, Internet services, digital

television, IPTV

Total Revenue Rs 28,645.20 (Cr) 2015 (as March 31st 2015)

Total assets Rs. 89,300 crores( as on 31st March 2015)

Owner(s) Government of India

Employees 2,16,325 (as on 19 November 2015)

Website www.bsnl.co.in

56
4.1. INTRODUCTION:

Bharat Sanchar Nigam Limited (abbreviated BSNL) is an Indian state-owned

telecommunications company headquartered in New Delhi, India. It was incorporated on 15
September 2000. It took over the business of providing of telecom services and network
management from the erstwhile Central Government Departments of Telecom Services
(DTS) and Telecom Operations (DTO), with effect from 1 October 2000 on going concern
basis. It is the largest provider of fixed telephony and fourth largest mobile telephony
provider in India, and is also a provider of broadband services. However, in recent years the
company's revenue and market share plunged into heavy losses due to intense competition in
the Indian telecommunications sector.

BSNL is India's oldest and largest communication service provider (CSP). It had a
customer base of 117 million as of Jan 2014. It has footprints throughout India except for the
metropolitan cities of Mumbai and New Delhi, which are managed by Mahanagar Telephone
Nigam Limited (MTNL).

BSNL is divided into a number of administrative units termed as telecom circles,

metro districts, project circles and specialized units. It has 24 telecom circles, 2 metro
districts, 6 project circles, 4 maintenance regions, 5 telecom factories, 3 training institutions
and 4 specialized telecom units.

4.2. HISTORY

The foundation of Telecom network in India was laid by the British some times in
19th century. The history of BSNL is linked with the beginning of Telecom in India. In 19th
century and for almost entire 20th century, the Telecom in India was operated as a
Government of India wing. Earlier it was part of erstwhile Post & Telegraph Department
(P&T).In 1975 the Department of Telecom (DoT) was separated from P&T. DoT was
responsible for running of Telecom services in entire country until 1985 when Mahanagar
Telephone Nigam Limited (MTNL) was carved out of DoT to run the telecom services of
Delhi and Mumbai. It is a well-known fact that BSNL was carved out of Department of
Telecom to provide level playing field to private telecoms. Subsequently in 1990’s the
telecom sector was opened up by the Government of Private investment.

57
 therefore it became necessary to separate the government’s policy wing from
operations wing. The government of India corporatized the operations wing of DoT on
October 1st, 2000 and named it as Bharat Sanchar Nigam Limited (BSNL), BSNL operates as
public sector.

3.3. ISION, MISSION & OBJECTIVES:

VISION:

“To become the leading telecom service provider in India with global presence”. To
create a customer focused organization with excellence in customer care, sales and
marketing”.“Leverage technology to provide affordable and innovative telecom
services/products across customer segments”.

MISSION:

Be the leading telecom service provider in India with global presence.

 Generating value for all stakeholders - employees, shareholders, vendors & business
associates

 Maximizing return on existing assets with sustained focus on profitability

 Becoming the most trusted, preferred and admired telecom brand

 To explore International markets for Global presence

Creating a customer focused organization with excellence in customer care, sales&

marketing.

 Developing a marketing and sales culture that is responsive to customer needs

mercare, sales& marketing

 Excellence in customer service-”friendly, reliable, time bound, convenient and

courteous service”

58
Leveraging technology to provide affordable and innovative products/ services across
customer segments

 Offering differentiated products/services tailored to different service segments

 Providing reliable telecom services that are value for money

Providing a conducive work environment with strong focus on performance

 Attracting talent and keeping them motivated

 Enhancing employees skills and utilizing them effectively

 Encouraging and rewarding individual and team/group performance

Establishing efficient business processes enabled by IT

 Changing policies and processes to enable transparent, quick and efficient decision
making

 Building effective IT systems and tools.

 Objectives:

‘To be the leading telecom service provider by achieving higher rate of growth so as
to become a profitable enterprise”.

“To provide quality and reliable fixed telecom service to our customer and thereby
increase customer’s confidence”.

“To provide customer friendly mobile telephone service of high quality and play a
leading role as GSM operator in its area of operation”.

59
Main Services being provided by BSNL

BSNL provides almost every telecom service in India. Following are the main telecom
services provided by BSNL:

 Optical Infrastructure and DWDM: BSNL owns the biggest OFC network in India.
Also the DWDM network is one of the biggest in the world. The DWDM equipment’s
purchased in open tender at BSNL are mainly of United Telecoms Limited (UTL))
make, which was declared lowest cost in competitive bidding. Rest DWDM
equipment’s are from Huawei. The SDH equipment’s are mainly from Huawei, ZTE,
and ECI, UT STAR etc.
 Market Share: As of 30 November 2013, BSNL had 12.9% market share in India
and stands as 5th Telecom Operator in India and 67% market share
in ADSL Services.
 Managed Network Services: BSNL is providing complete Telecom Services
Solution to the Enterprise Customers i.e. MPLS Connectivity, Point to Point
Leased Lines and Internet Leased Lines.
 Universal Telecom Services: Fixed wire line services and landline in local loop
(WLL) using CDMA Technology called bfone and Tarang respectively. As of 30
June 2010, BSNL had 75% market share of fixed lines.
 Cellular Mobile Telephone Services: BSNL is major provider of Cellular Mobile
Telephone services using GSM platform under the brand name Cell one & Excel
(BSNL Mobile). As of 30 June 2010 BSNL has 13.50% share of mobile telephony in
the country. It has 95.54million customers using BSNL mobile.

 WLL-CDMA Telephone Services: BSNL's WLL (Wireless in Local Loop) service

is a service giving both fixed line telephony & Mobile telephony.
 Internet: BSNL provides Internet access services through dial-up connection (as
Sancharnet through 2009 as Prepaid, Net Oneas Post-paid and ADSL broadband as
BSNL Broadband BSNL held 55.76% of the market share with reported subscriber
base of 9.19 million Internet subscribers with 7.79% of growth at the end of March
2010.Top 12 Dial-up Service providers, based on the subscriber base, It Also Provides
Online Games via its Games on Demand (GOD)
 Intelligent Network (IN): BSNL offers value-added services, such as Free
Phone Service (FPH), India Telephone Card (Prepaid card), Account Card Calling

60
 (ACC), Virtual Private Network (VPN), Tele-voting, Premium Rae Service (PRM),
Universal Access Number (UAN).
 3G:BSNL offers the '3G' or the'3rd Generation' services which includes facilities like
video calling, mobile broadband, live TV, 3G Video portal, streaming services like
online full length movies and video on demand etc.
 IPTV: BSNL also offers the 'Internet Protocol Television' facility which enables
customers to watch television through internet.
 FTTH: Fibre to The Home facility that offers a higher bandwidth for data transfer.
This idea was proposed on post-December 2009.
 Helpdesk: BSNL's Helpdesk (Helpdesk) provide help desk support to their customers
for their services.
 VVoIP: BSNL, along with Sai Info system - an Information and Communication
Technologies (ICTs) provider - has launched Voice and Video over Internet Protocol
(VVoIP). This will allow to make audio as well as video calls to any landline, mobile,
or IP phone anywhere in the world, provided that the requisite video phone equipment
is available at both ends.
 WiMax: BSNL has introduced India's first 4th Generation High-Speed Wireless
Broadband Access Technology with the minimum speed of 256kbit/s. The focus of
this service is mainly rural customer where the wired broadband facility is not
available.
4.4. BOARD OF DIRECTORS:

The Board comprise of 12 Directors, of which 6 [including the CMD] are whole time
Directors; 2 Government Nominee Directors and 4 Non-official Part Time Directors. The
board has the optimum mix of 50% Whole time and 50% Part-time Directors. The present
composition is as under

 Chairman & Managing Director- Anupam Shrivastava

 Director - Consumer Fixed Access(CFA)- Shri N.K.Gupta
 Director - Consumer Mobility(CM) - N.K.Gupta L/A
 Director - Enterprise - A.N.Rai
 Director - HR - A.N.Rai L/A
 Director - Finance - Anupam Shrivastava L/A
 Executive director (CA & IT)- N.K.Mehta
 Executive director(CN)- M.C.Chaube

61
  Executive director(Fin)- Sujata Ray
 Executive director(NB)- M.A.Khan
 CVO- V.K.Singh
 OSD- A.K.Bhargava.

4.5. PRODUCTS AND SERVICES OF BSNL:

1) DATA ONE

Bharat Shanchar Nigam Ltd. is in the process of commissioning of a world class, (multi-
gigabit,) multi-protocol, convergent IP infrastructure through National Internet Backbone-II (NIB-
II), that will provide convergent services through the same backbone and broadband access
network. The Broadband service will be available on DSL technology (on the same copper cable
that is used for connecting telephone), on a countrywide basis spanning 198 cities.

In terms of infrastructure for broadband services NIB-II would put India at par with
more advanced nations. The services that would be supported includes always-on broadband
access to the Internet for residential and business customers, Content based services, Video
multicasting, Video-on-demand and Interactive gaming, Audio and Video conferencing, IP
Telephony, Distance learning, Messaging: plain and feature rich, Multi-site MPLS VPNs
with Quality of Service (QoS) guarantees. The subscriber will be able to access the above
services through Subscriber Service Selection System (SSSS) portal.

62
Key Objectives
 To provide high speed Internet connectivity (upto 8 Mbps)
 To provide Virtual Private Network (VPN) service to the broadband customers
 To provide dial VPN service to MPLS VPN customers.
 To provide multicast video services, video-on-demand,etc. through the
Broadband Remote Access Server (BRAS).
 To provide a means to bill for the aforesaid services by either time-based or volume-
based billing. It shall provide the customer with the option to select the services
through web server
 To provide both pre-paid and post paid broadband services
2) SANCHARNET BSNL:
Sancharnet is a country wide Internet Access Network of Bharat Sanchar Nigam
Limited, India. It offers Dedicated and Dialup (PSTN & ISDN) Internet Access Services
across all the major cities in India

Acceptable user policy for Sancharnet's users

This acceptable user policy (AUP) specifies the actions permitted by Bharat Sanchar
Nigam Limited (BSNL) to its users of Sancharnet Internet Services, including leased line,
dial up and other services which may be introduced in future. BSNL reserve right to modify
the policy at any time. All subscribers of Sancharnet Services, directly or indirectly are
required to engage in acceptable use only as per this policy as modified from time to time.

3) LEASED LINES

To transmit data between computer and electronic information devices, BSNL

provides data communication services to its subscribers. It offers a choice of high, medium
and low speed leased data circuits as well as dial-up lines. Bandwidth is available on demand
in most of the cities. Managed leased Line Network (MLLN) offers flexibility of providing

63
circuits with speeds of n x 64 Kbps up to 2 Mbps. Useful for internet leased lines and
international principle Leased Lines (IPLCs).
For dedicated point to point speech, private wire, tele-printer and data circuits are
given on lease basis. Leased circuits are provided to subscribers for internal communication
between their offices/factories at various sites within a city/town or different cities/town on
point to point basis, or on a network basis interconnecting the various sites

4) ISDN:

ISDN Has emerged as a powerful tool worldwide for provisioning of different

services like voice, data and image transmission over the telephone line through the telephone
network. ISDN is being viewed as the logical extension of the digitalization of
telecommunication network and most developed countries are in different stages of
implementing ISDN.

Variety of supplementary Services supported by ISDN.

 Calling Line Identification Presentation(CLIP)
 Calling Line Identification Restriction(CLIR)
 Multiple Subscriber Number(MSN)
 Terminal Portability(TP)
 Call Hold(CH)
 Call Waiting(CW)
 User to User Signaling (UUSI)

5) WIFI:

BSNL has introduced new Wi-Fi Services for providing high speed internet access at
convenient public locations hereunder called as Hot Spots. Installation of more Hot Spots is
already under process at various cities/ locations.

Hot Spot Type-A is applicable for public utility services like Airports, Railway Stations,
Universities and their campus etc. initially for a period of 90 days from the date of its launch.

64
4.6. SWOT ANALYSIS OF BSNL:

Strengths:

 Service in Rural Areas

 Experienced telecom service provider
 Total telecom service provider
 Huge Resources (financial and technical pool)
 Huge Optical fibre network and associated bandwidth
 Huge customer base
 Transparency in billing

Weaknesses

 Poor marketing strategy

 Bureaucratic organizational set up
 Limited number of value added services
 Legacy of poor service image
 Huge and aged manpower
 Procedural delays
 Lack of strategic alliances
 Problem like out dated technologies, unproductive rural assets and social obligations,
political interference
 Poor IT penetration within organization
 Non optimization of network capabilities
 Poor franchise network
Opportunities

 Tremendous market growing at 20 lakh customers per month

 Under tapped broadband services
 Untouched international market
 Leveraging the brand image to source funds
 Fuller utilization of slack resources
 Can capitalize on public sector image to grab government’s ICT initiatives

65
  Broaden market expected from convergence of broadcasting, telecom and
entertainment industry
Threats
 Competition from private operators
 Keeping pace with fast technological changes
 Market maturity in basic telephone segment
 Policy of government like ”One India” rates
 Decreasing per line revenues due to competitive pricing

4.7. BSNL AT HYDERABAD:

BSNL A.P Hyderabad Circle office is situated in City Centre area. This office is
undertaking of Hyderabad office. This office works on various areas like Marketing,
Planning, Administration, Operations & Management and finance. Each department works
under GM telecom district.GM delegates some duties to DGM. DGM is the head of the
department. These posts are highly responsible because DGM is the main person of the
department and DGM gives various approvals of works. This approval leaves various effect
of the department like financial, working efficiency, functions of departments and field
officer works.

Basically BSNL city centre works in departmental approaches or functions. This

office provides a support to other departments or employees of BSNL. In this office various
functions of employees are done like calculation of salary of employees, departmental
information, various tenders, payment of vendors, departmental expenditure of general
provident funds etc.

And this office runs a collection centre; this collection centre collects various
telephones/mobiles/broadband bills.

3G coverage:
BSNL paid the Indian government Rs. 101.87 billion for 3G spectrum coverage. As of
2011, BSNL offers coverage in over 800 cities across India BSNL launched in 2012 a 3G
wireless pocket router named Winknet Mf50. It was released in collaboration with Shyam

66
Networks. Winknet Mf50 enables the connection of multiple devices to the Internet using a
single sim card.
Recognitions:
The Brand Trust Report published by Trust Research Advisory ranked BSNL in the
65th position of the list of Most Trusted brands.
Competitors:
BSNL competes with 10 other mobile operators throughout India. They are Airtel,
Aircel, Idea, MTNL, MTS, Reliance Communications, Tata DoCoMo, Videocon, Virgin
Mobile and Vodafone.

Quality of Service:
BSNL goes by the motto "Connecting India, faster and displays the same at their
homepage. BSNL offers seamless coverage in almost all urban and rural areas of India.
Censorship:
See also: Internet censorship in India BSNL enforces censorship of online content as
per orders of Indian Department of Telecom.

Customer grievance:

BSNL has a well-structured and multi-layered Customer Grievances Redressal

Mechanism including Customer Dispute Resolution Mechanism. The Customer Redressal
setup in BSNL has been introduced right from the Corporate Office to SSA (Secondary
Switching Area) levels.

BSNL strives to provide uninterrupted telecom services to the valuable customers.

BSNL has an extensive grass root level Fault Restoration System (FRS) to book the
complaints and ensure prompt rectification of any fault. For this customer is required to call
Local Number 198 for booking/ registration of his complaint/grievance.

Customer may use following toll free "consumer care numbers" for booking their
complaints at our Complaint Centers (Call Centers). The details are tabulated below:

67
 S. No. Type of Service Toll Free No.

1 For Basic Services including Broadband Services 1500 or 1800-345-1500

2 For CDMA &WiMax Services 1502 or 1800-180-1502

3 For GSM Mobile Services 1503 or 1800-180-1503

4 For Broadband and Internet Services 1504 or 1800-345-1504

5 For Blackberry Services 1505 or 1800-180-1505

6 For MPLS and other Data Services 1800-425-1957

Customer may dial these "Consumer Care Numbers" to obtain general information on the
respective service. Thus these numbers also act as "General Information Numbers".

BSNL is committed to provide state of the art Telecom services to its customers and
comply with the quality benchmarks as prescribed by TRAI or set forth by itself from time to
time.

a) Quality of service benchmarks set for customers of Wire Line connections/ Services

1 Provision of Telephone Connection 100% within seven days (subject to technical

feasibility)

2 Repair of Fault

(a) 100% within three days for urban areas and

(b) 100% within five days for rural/ hilly areas (subject to technical feasibility)

3 Shifting of Telephone Connection Within three days

4 Closure of Telephone Connection within 7 days

5 Percentage of Billing Complaints resolved within four weeks 100%

6 Time taken for refund of deposit after closure within sixty days of date of closure

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b) Quality of service benchmarks set for customers of mobile services.

MONTHLY BASIS:

1 Resolution of billing/ charging complaint 100% within 4 weeks

2 Period of applying credit/ waiver/ adjustment to customer’s account 100% within 1

week

3 Accessibility of call centre/ customer care >= 95%

4 %age of calls answered by the operator (Voice to Voice) >= 90%

5 %age requests for Termination/ Closure of service complied 100% within 7 days

6 Time taken for refund of Deposit after closure 100% within 60 days

c) The Quality of Service benchmarks set for customers of Broadband connections/

service

1 Provisioning of BB Connection 100% within fifteen days (subject to technical

feasibility).

2 Repair of Fault Within three days

3 Billing Performance

(a) Percentage of Billing Complaints resolved.

(b) Time taken for refund of deposits after closure

(c) All billing complaints to be resolved within four weeks.

(d) All cases of refund of deposits to be made within sixty days of date of closure.

Telecom Consumers Complaint Redressal Regulation, 2012

Pursuant to the TRAI’s new Regulation cal ed the Telecom Consumers Complaint
Redressal Regulations, 2012, BSNL has replaced its three-tier Complaint Redressal
Mechanism by two-tier system by doing away with Nodal Officer. Under these Regulations,
every complaint at Complaint Centre (Call Centre) shall be registered by giving Unique

69
Docket Number, which will remain in the system for at least three months. Every Complaint
Centre (Call Centre) shall.

At the time of registering of complaint

communicate through SMS to the consumer, the docket number, date and time of
registration of the complaint and the time within which the complaint is likely to be resolved;
and update the system with date and time of registration of the complaint, docket number, the
telephone number of the consumer and the time indicated to the consumer for resolution of
the complaint

On completion of action for redressal of complaint

Communicate to the consumer through SMS of Redressal of the complaint along with
action taken on the complaint; and Update the system with details of action taken.

Voice Response System (IVRS), if installed on a "Consumer Care Number" shall

operate in the following manner the first level of the IVRS provides for language selection
the second level of the IVRS provides for options relating to the broad categories of
complaints and service request the third level of the IVRS provides for a sub-menu under
complaints and service requests, separately.

The sub-menu in the third level also contains option enabling the consumer to speak
to a consumer care agent. BSNL has established "Web based Complaint Monitoring System"
to enable the consumers to book and monitor the status of their complaints in their respective
Service Areas.

The details about booking and monitoring the complaints on "Web Based Monitoring
System" is given below.

Step-1: Open BSNL website i.e.www.bsnl.co.in.

Step-2: Click on customer care. The following will appear on the screen:

New Service Request Complaint Booking Status of Appeal Register for New Services
for Booking Dockets for Tracking Service Requests/ Complaint Bookings For Tracking
Appeal Docket Status. Landline/ Broadband Appeal status only GSM/ CDMA Leased Lines

70
Step-3: Choose and click on Landline/ Broadband or GSM/ WLL for New Service Request,
Complaint Booking and for Tracking Status of Service Request/Complaint Booking/Appeals.

Step-4: Select the Circle and use online services without registration or with registration
Details about address for booking and monitoring the complaints on "Web Based Monitoring
System". The details of Web based Complaint Monitoring System shall be published in a
leading newspaper in Hindi/ English and in Local language of service area once in six month
and also through its telephone bills

Any change in the address of the "Web Based Complaint Monitoring System" shall
also be intimated to the consumers in the same manner stated above Appellate Authority

Name and designation of the Appellate Authority of respective Service Area along
with his contact telephone number, FAX number, e-mail id and office addresses is displayed
in his office, Complaint Centre (Call Centre) and Customer Service Centre (CSC) and can
also be seen on BSNL website

71
 CHAPTER 5
DATA ANALYSIS &INTERPRETATION

72
MODEL PROJECT ESTIMATE:
NAME OF THE PROJECT :EXPANSION OF MOBILE SERVICE IN A.P

COVERAGE :FOR 10 DISTRICTS

JUSTIFICATION : there has been tremendous increase in mobile usage after the Andhra state is divided
into two. In order to cater the need and improve the profitability ,this project is taken up.

the necessary equipments and cables will be purchased by open tender.

73
CAPITAL OUTLAY (in ‘000 s)

LAND(FREE HOLD) 10900

LAND(LEASE HOLD) 1600

BUILDING 53050

APPARATUS AND PLANT 218400

MOTOR VECHICLES AND LAUNCHES 150

CABLES 136450

LINES AND WIRES 10300

INSTALATION TEST EQUIPMENT 2100

MASTS AND AERIALS 28100

OFFICE MACHINARY ND EQUIPMENT 600

ELECTRICAL FITTINGS 21000

FURNITURE AND FIXTURES 500

COMPUTERS 2250

DECOMMISSIONED ASSETS 10700

SUBSCRIBER INSTALLATION 3900

Total 500000

74
ANTICIPATED REVENUE IN ‘000 S :

CELLULAR

A)PRE PAID 81600

B)POST PAID 19200

C)VAS AND OTHERS 7200

D)INTER CONNECTION USAGE 12000

CHARGES

TOTAL 12000

ANNUAL RECCURING EXPENDITURE IN ‘000:

REMUNARATION (STAFF) 4200

RENT (BUILDING)-TOWER SITES 3000

LEASE CHARGES 500

RATES AND TAXES 4800

POWER\FUEL\VECHICLE RUNNING EXP. 24000

REPAIRS AND MAINTANACE :

A)BUILDING 1325

B)PLANT AND NACHINARY 3400

C)CABLES 2050

D)OTHERS 2925

TOTAL 84000

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NOTE:

1. capital outlay is taken in proportion to the figures in the bsnl fixed asets schedule 2014-
15 .

2. anticipated revenue and expenditures is in proportion ton the expenditure of 2014-15.

Cash flows= total revenue – total expenses

In 000’s =120000-84000

=36000

PAY BACK PERIOD

Pay back period = capital investment/ annual cash flows

= 500000/36000

=13.88 years

Interpretation:

From the above we observe that the payback period i.e., the time period
required for the recovery of the initial investment in the project is 13 years and 10 months
.the project can be accepted if the payback period is less than the maximum benchmark
perod.if any .the lower the payback period,the better it is ,since the initial investment will be
recouped faster.

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 ACCOUNTING RATE OF RETURN METHOD

Average return during period

ARR = -------------------------------------

Average investment

Where,

Average investment = original investment /2

Avergage investment =500000/2

=250000

Average rate of return = average return during period / average investment

=(18000/250000)*100

=7.2%

Interpretation:

the project can be accepted if the ARR is higher than the hurdle rate established by the
management ,if any and rejected if the project has ARR less than the hurdle rate.in case ,it is
7.2%.

(hurdle rate = cost of capital=risk premium )

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NET PRESENT VALUE:

NPV = PRESENT VALUE OF CASH FLOWS – PRESENT VALUE OF CASH OUT

FLOWS

NPV :

YEAR CASH FLOWS PVF @ 10% PV OF CF’S

0 -500000 1 -500000

1 36000 0.909 32724

2 36000 0.826 29736

3 36000 0.751 27036

4 36000 0.683 24588

5 36000 0.621 22356

6 36000 0.564 20304

7 36000 0.513 18468

8 36000 0.467 16812

9 36000 0.424 15264

10 36000 0.386 13896

11 36000 0.350 12600

12 36000 0.319 11484

13 36000 0.290 10440

14 36000 0.263 9468

NPV 234824

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INTERPRETATION:

From the above table ,we observe that the npv is rs.234824.hence the project can be accepted

as the NPV is positive and greater than zero.

INTERNAL RATE OF RETURN

Present value at lower rate

IRR =lower rate + --------------------------------------------- * difference in rates

Present value at lower rate –present value at higher rate

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 Year Cash flows pvf@10% Pv of cf’s pvf@15% Pv of cf’s

0 -100000 1 -500000 1 -500000

1 36000 0.909 32724 0.870 31320

2 36000 0.826 29736 0.756 27216

3 36000 0.751 27036 0.658 23688

4 36000 0.683 24588 0.572 20592

5 36000 0.621 22356 0.497 17892

6 36000 0.564 20304 0.432 15552

7 36000 0.513 18468 0.376 13536

8 36000 0.467 16812 0.327 11772

9 36000 0.424 15264 0.284 10224

10 36000 0.386 13896 0.247 8892

11 36000 0.350 12600 0.215 7740

12 36000 0.319 11484 0.187 6732

13 36000 0.290 10440 0.163 5868

14 36000 0.263 9460 0.140 5040

234824 293936

234824

IRR = 10%+ ------------------------ * (15-10)%

234824+293936

=12.22%

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Interpretation:

from the above ,we observe that the IRR is the rate of return earned on the
initial investment made in the project. The project can be accepted if the IRR is greater than
the cut off rate .

PROFITABILITY INDEX

NPV

PI = 1+ --------------------------

INITIAL INVESTMENT

234824

=1+-----------------

500000

=1.47

INTERPRETATION:

From the above ,we observe that profitability index is 1.47 which is greater than
one. hence the project is accepted .

In bsnl , capital budgeting as a whole cannot be analyzed based on traditional methods

mentioned above since projects are decentralized at SSA/circle levels accordingly.

Taking this as aconstraint ,the fallowing analysis based on capital investment and physical
performance is made.

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 CHAPTER 6
FINDINGS AND SUGGESTIONS

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Findings:
The fallowing points were observed from the capital budgeting as fallows.

The project i.e., expansion of mobile services in telangana is generating unequal

cash flows for past 14 years.

The initial investment is 50 crores.

The ARR is 7.2% which is greater than the company’s rate of return.
This discounted payback period is 13.88 years.
NPV and IRR are positive for the proposal.
The PI is 1.47>1
Financial position of bharath sanchar nigam limited is not good from the last three
years.
There is good coordination in departments in BSNL.
BSNL is concentrating in increasing revenue from operations.
The remuneration to staff of company cannot be controlled .this is one of the reasons
for net profits decreasing year by year.
Also there is a drastic decline in revenue of BSNL in recent years.
The working capital of the company is not up to the mark.
Financial position is much better in 2010- 11.
Telephone connections are decreased in the year 2013-14.

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SUGGESTIONS:

Few of my suggestions are based on the results observed in four of the projects which were as
fallows.

There are various departments taking place in the company to change so as to develop
as a fully-fledged research ands and developed department for bringing technological
changes and improvements in its design and process.
There should be increase in investment of BSNL.so that it can earn more profit
because if investment will be high then profit will be earned high.
There should be improved in the working process of BSNL because working process
of BSNL is taking more time.
Time to bsnl, BSNL should be provide training to the employees. So that they can
take information about the new technology to improve the working process.
The company should provide network services in rural & urban areas, so that there is
a chance to increase the profits.
The company gained high profits in few years back but company was decreasing their
profits when comparing to the others.
The company failed to attract new customers for its products. It can try to attract
youth by launching youth oriented schemes.
Try to maintain the company in the profitable position by maintaing the net present
value.
There should be proper communication between various departments and
responsibility centres.
BSNL should use proper budgeting control system to evaluate profitable projects.

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 CHAPTER7
CONCLUSION

85
7.1 CONCLUSION
When an organization is setting up a capital budgeting for the business, they are
planning for the outcome of the month. How involved the project budgeting is
individual will be depends on their investment decisions in a business.
When making the capital budgeting decision, the financial manager effectively
analyzed the long term investment programs, so that it will improve the business over
all.
Many business ignore or forget the other half of the budgeting. Capital budgeting are
too often proposed, discussed and accepted. It can be used to influence managerial
action for long time implications and effect the figure growth and profitability of the
firm. Good management looks at what that difference means to the business.
Remember to keep records that have been created. The company should have capital
budgeting records of the projects always on files, so that it gives the future course of
action for the investment proposal for long-period.
Organizations must make sure that ,more attention should be paid upon the
investment proposal or course of action whose benefits are likely to be available in
future over the life time of the project, as the demand on resources is almost always
higher than the availability of resources.

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7.2. BIBLIOGRAPHY

s.no Name of the books\websites\journals Referred for the

study books

1. Financial management theory &&practice –Eugene f. Bingham

-Michael c.ehardt

2. Cost & management accounting -ravi.m.kishore(4th edition)

3. Accounting & finance for managers -nithin balwani

4. Financial management -ravi.m.kishore (7th edition)

5. Financial management - ca p.tulsian

6. Cost accounting and financial management -b.saravana prasanth

7. Financial management -l.m.prasad

8. Financial management –s.n.maheswari

9. Annual report -2012-2013

WEBSITES

1. www.bsnl.co.in
2. www.trai.gov.in
3. http://en.wikipedia.org/wikipidia/capitalbudgeting
4. http://www.investopedia.com/terms/c/capitalbudgeting.asp
5. http://www.caclubindia.com/forum/types-of-capital-budgeting-decisions-
57631.asp

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7.3. ANNEXURES
particulars
Balance sheet& profit and loss account 2014-15
Balance sheet& profit and loss account 2013-14
Balance sheet& profit and loss account 2012-13
Balance sheet& profit and loss account 2011-12

Physical perfomance:

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