Hyderabad’s ITeS sector grows despite problems

Peering behind the PR, Srinivasa Rao Dasari finds out that Cyberabad is not without its problems—for instance, the US Do Not Call list has created some damage. But the good news is that corporates and the state government are acting on the problems

The call centre business in Andhra Pradesh is now getting over the initial hype and seeing a more realistic picture of market dynamics. With exports at Rs 1,411 crore, the total contribution of call centres/ITeS services to the state’s IT exports basket was about 39 percent in 2002-03. For the current fiscal, it is expected to touch Rs 2,000 crore.

Communication woes

Since the hi-tech city is a non-gateway city, it makes the cost of communication expensive for BPO operations when compared to states like Maharashtra and Tamil Nadu. “Because Hyderabad doesn’t have an international gateway, call centres have to shell out additional loop charges apart from international calls. In India there are three submarine gateways located at Mumbai, Chennai and Kochi. Calls made from Hyderabad are routed either through Mumbai or Chennai. The cost of communication is around 7-10 percent,” Shakthi Sagar, the president of the Hyderabad Software Exporters Association (HYSEA) told Express Computer.

Adds Vijay Kumar, director, Software Technology Parks of India-Hyderabad (STPI-H), “Hyderabad already has satellite gateways facilities; now we need to establish a fibre gateway from Vizag to Singapore, which two or three agencies—including the state government—are already contemplating. It is a project costing roughly a billion dollars, and involves 3,000 kms of undersea cable and about 18 months of time to build it. But the incremental telecom cost at Hyderabad due to the national long distance (NLD) component is nullified by several other advantages that Hyderabad has got over the other cities.”

With international call charges and bandwidth costs moving south, some industry players don’t see this as a major hurdle for growth. In recent times, the charges for a 512 Kbps line per annum have come down to Rs 52 lakh from Rs 84 lakh, while loop charges remain at Rs 5 lakh. “The cost of communication is higher not just in Hyderabad but in all cities other than Mumbai and Kochi. My guess is that the differential is around 15 percent or so. The latest I heard from vendors is that they are trying to bring down this differential in costing. Any decision to start a call centre depends on multiple factors such as cost of infrastructure and bandwidth, resource availability, connectivity from the travel perspective, etc. Hence, communication cost alone will not have a major impact on the choice of location while setting up a call centre. We use both fibre (undersea cable) and satellite connectivity,” said Bipin Chandradath, vice-president of Knoah Solutions.

Meanwhile, major MNCs and domestic players operating in Hyderabad have been going ahead with their expansion plans in the BPO segment. “As long as we maintain quality and timely delivery, there won’t be any setback. We are investing a lot in infrastructure facilities and HRD activities, and are getting good results,” a source at an MNC BPO firm comments.

Attrition

With the increasing opportunities in this segment, the attrition ratio is about 45-50 percent, which results in high overhead costs for companies. But on the other side supply is also increasing, and this glut may result in steep cuts in salaries for call centre agents and process employees. According to industry expectations, entry-level salaries will come down to Rs 4,500-5,000 from the present level of

Rs 6,500. If this doesn’t take place, pay hikes will not be as frequent as they were in the past, and experienced pros will not be an exception to this. “We are investing a lot in training manpower right from recruitment advertisements and consultancy spending. If the attrition ratio is higher, our training cost will also flare up. Hyderabad is a favoured destination for the IT sector, but quality manpower and the attitude of sticking for a longer period will also be equally important,” says Durgesh Malepati, general manager, technical, Northgate BPO Services.

Do not call

But what’s more alarming is that since October 1 of last year, when the US Do Not Call (DNC) list came into existence, there has been some disruption in the call centre business. It is estimated that about 10 companies logged out of the business owing to non-feasibility of the outbound call centre business model. The outbound business model is typically performance-based.

“Following a failure to maintain optimum levels of performance, many sales-based processing companies in the Hyderabad ITeS sector are downing shutters. Many of the companies shutting down are 50- to 100-seater centres, and includ Venus Cyber Tech, IndusBusiness, etc,” said a source in a major call centre.

Usually, call centres get outbound business on a two to three year contract basis, but with the effect of US DNC list, almost all these contracts have ceased to exist. In the new regime, the client provides the call centre with a list of phone numbers that are not part of the DNC list. However, since the DNC list consists of around 50 million telephone subscribers, and since numbers matter a lot in any marketing-related business, there are not enough numbers available now for the call centres to show results. For instance, only 50 respondents out of 1,000 calls dialled turn out to be prospective business calls. As result of this, the volume of business has come down.

According to sources, currently only three outbound call centres are still continuing their business. In order to sustain their business ventures, some sales-based processing call centres are now exploring the chances of broadening their horizons in this segment. With ready infrastructure in place and skilled manpower available, these centres are trying to get business contracts for claims processing, billing claims, etc.

“Prior to the DNC list, the business model of outbound call centres looked attractive. Sales-based processing call centres would get $8-14 per hour for making calls and when a sale was executed they got an additional amount of $25-75 per successful deal. Call centres that invested on building infrastructure are now exploring new business verticals in this segment, such as insurance and banking, etc,” said Durgesh Malepati, GM (technical) of Northgate BPO.

Finally

The state has about 50 large and medium call centres working in sectors such as banking, insurance, financial services and health. All captive centres are doing well and expanding. Among third-party vendors, other than Knoah, there is only one other player in the health insurance sector with a consistent performance. The BPO business currently employs more than 25,000 people in the state.

Some companies are also considering a revamp of their business plans since processes like GIS-based mapping and credit card support have not worked out as anticipated. These companies are thinking of pulling out of some operations or relocating to other places in Haryana (Gurgaon) or Maharashtra, developments that are not likely to bring much cheer to the state’s call centre employees in 2004. There is already some disquiet among them due to agreements between companies not to poach employees from each other.

But Shakthi Sagar has the last word: “The AP Shops and Establishments Act modification and The Data Protection Act will boost the confidence of foreign customers and at the same time enlarge the scope of business opportunities. We have a good IPR system in the country, which will also strengthen their confidence.”

dsr@expresscomputeronline.com