The telecom sector is going through a churn. The old, plain model of doing business?low-cost and high volume?is undergoing a change. Operators do not anymore get spectrum on the basis of subscribers they have. Spectrum costs have gone up and regulatory hurdles have only increased. The result is that margins have got squeezed and profits are dwindling. For Aditya Birla Group company Idea Cellular, which is the third-largest telecom company by revenue, there was an added woe. The company was the only GSM incumbent operator to have lost seven of its licences as a result of the Supreme Court?s order last year, which cancelled 122 licences granted in 2008. However, the company has won back these licences in the spectrum auction of November 2012. To increase yields, the company recently adjusted tariffs in a manner that freebies were ended. However, going forward, the company maintains that it may not make any changes in headline tariffs. The company?s managing director Himanshu Kapania tells Vaishnavi Bala that he expects further consolidation in the Indian telecom market, with mobile consumers gravitating towards the larger, pan-India players. Excerpts:
The telecom sector witnessed several regulatory hurdles over the past two years. How have these impacted your operations?
In 2012, Idea has managed to stand the test of time with its strong performance in an otherwise stressed sector. Idea further consolidated its position, strongly retaining its No. 3 rank last year, both in terms of revenue and active subscribers. However, just a month into the year, Idea was unfortunately faced with the threat of closure of operations in seven circles as a result of the quashing of licences by the Supreme Court. Idea was forced to participate in the auction, despite the high reserve price, and has ensured continuity of service to its over 8 million subscribers by winning back spectrum for these service areas.
Even though Idea managed to tide through the unforeseen pressures of licence cancellation last year by winning back spectrum in the Supreme Court-mandated auction of 1,800 MHz spectrum, there are still many challenges in our way. We are expected to pay substantial amounts under the guise of one-time spectrum fee, which is not in line with the licence conditions, and for which we have currently gained relief from Mumbai High Court. Additionally, the proposals on spectrum refarming and licence extensions have only been adding to the woes of the industry, which is already facing heavy debt, stagnant revenues, and depleting margins.
There is over-capacity in the telecom sector, so how do you expect pricing to be?
While there is still over-capacity in the sector, there is also an ongoing change in the competitive structure of the industry. Since the November 2012 auction, at least three telecom operators have exited the market, and another three are in the process of shrinking their overall businesses. Hence, the number of operators competing in the market has reduced from 10-12 to about 6-8. If these smaller operators resort to price hikes, larger operators would be happy to take the same course to improve realisation, as we operate in a highly competitive market. We are already witnessing early signs of reductions in promotional offers due to cost pressures. This trend may continue. However, we maintain that we are not inclined to make any changes in headline tariffs.
Like most other companies, Idea has been focusing on 3G. What are your plans on strengthening this?
Throughout the year, Idea remained focused on expanding its 3G coverage and launched a range of products and services to drive usage. Last financial year, Idea forayed into the devices market by introducing affordable 3G smartphones to drive 3G penetration in India. Idea strengthened its devices portfolio and launched a range of five 3G smartphones, all under R7,400, on the latest Android technology, which have already sold over 2.25 lakh pieces during the year. Idea also grew its 3G network and service distribution to bolster data usage. This has resulted in steady growth in data users on Idea?s network, which now stands at over 21.75 million.
What kind of a potential do you see in the Indian telecom market? How much is the penetration level now?
With wireless teledensity at 73%, and of that, rural teledensity at a mere 39% (as per Trai report of November 2012), there is still a lot of scope for growth of voice services. This indicates that about 300 million are still not connected to mobile telephony services. Hence, voice is likely to grow as these new users can be expected to come on board. Additionally, with the offtake of 3G and 2G data services, there is expected to be growth on the data front as well.
However, the policymakers and regulators need to work together to ensure a conducive and economically viable environment for the overall growth of mobile telephony services in India.
ARPM (average realised rate per minute) is a major factor for telecom companies. How are you expecting that to go in the coming year?
ARPM is an important performance indicator as it reflects the operational efficiency of an operator. Despite a slight dip in Idea?s ARPM in Q3FY13, from R41.3 to R41.1 q-o-q, due to the fall in non-voice revenue as a result of Trai?s new VAS regulation, the company is still better placed than most other operators.
Meanwhile, Idea has been focused on growing usage on its network and continues to record growth in minutes of use (MOU). Over the last one year, the minutes have grown by 16%, indicating that the consumer demand for mobile voice telephony remains robust. With 1.5 billion minutes of use per day, Idea is now ranked amongst the top 10 country operators in the world.
The tariff growth in Q3 was substantial. Do you expect that to sustain, going forward?
The 3rd quarter generally witnesses growth in voice minutes with the return of rural customers starting Diwali onwards. Idea has been predominantly strong in small and medium-size towns and we witness growth in voice minutes from October till June. We hope to continue with this trend.
With regulatory uncertainty looming over the telecom sector, how do you see the next two years for the industry. What is likely to change?
I am still optimistic and hopeful that the fortunes of the industry will change for the better with sound policy and regulatory measures being taken by the government to revive the sector. We expect further consolidation in the market with mobile consumers gravitating towards the larger, pan-India players, a trend that is already being witnessed.