Session 2: The Relevance of Finance to the ICT Industry [1 HR]

Introduction
The financial manager of an ICT firm deals with most of the issues covered in managerial finance. Why should an ICT regulator, operator, and user learn about managerial finance? What are the core issues for each stakeholder?

ICT operator
The ICT operator is the supplier of the ICT services. He fixes the prices which the user will have to comply and pay for the services rendered. To the operator profit maximization is the ultimate goal.

ICT Regulator
While the operator fixes his price for the services rendered the regulator has to ensure that there is fair play. The regulator has a role of creating a fair playing ground for all stakeholders in the industry. For example the telephone regulator has to create a good investment climate for both new and old investors.

Changes in technology have led to the development of new and cheaper facilities, which the incumbent investor cannot compete in terms of existing prices. This means the regulator has the role to protect the incumbent as well as encourage new investments. Such protection has an impact on the financial performance of the firm. The regulator then has to be aware of the impact of such decisions on the firm’s performance.

ICT user
The ICT user is always interested in getting the services as and when needed at a reasonable price. Changes in any decisions may have a direct or indirect impact on the disposable income/income levels which the user is willing to dispose of.

What is the Relevance of Each Field to the ICT Industry?
Accounting and Finance are fields required in the ICT industry. The ICT industry has firms and institutions which need to prepare their financial statements following the accounting principles.

In general the economy and specifically the financial markets usually respond to issued financial statements. Cases of Enron and World Com are good examples when financial statements play a good role of presenting the true picture of the company and have an impact or bearing on the economy as a whole. Bad information reflected in the financial statements leads to lower capital market prices, affecting the economic performance. The market usually reacts to both good and bad information.

The three fields, accounting, finance and economics are therefore important and have a role in shaping the overall economy.

While Module 1 focuses on understanding financial statements and how they relate to the performance of ICT industry and in particular telecommunications, Module 2 tries to offer how the cost of capital for the sources of funds and uses of funds are determined and hence the return to the firm and various investors. Module 3 offers a general understanding on how to select an investment and its social and economic implications to the firm and the economy at large. Both the business finance and investments are taught to the targeted learners.

The only part of finance not covered by this course is the money and capital markets. Because it is very difficult to have a clear demarcation of where capital markets ends and where business finance starts, the course discusses a few issues relating to the money and capital markets specifically when discussing the sources of financing.

Read Enron and World Com cases

Read Pricing Issues in the Service and pricing Course