At the recent auctions, Idea Cellular spent a whopping R30,100 crore to acquire 79.4 MHz spectrum, which included retaining 900 MHz spectrum in the 9 circles. It also acquired additional spectrum in the 1800 MHz, 2100 MHz and 900 MHz bands in key circles. While analysts say that the earnings of the telco could take a sharp hit in 2016-17, weighed down by higher amortisation and interest costs after buying expensive spectrum, Idea Cellular’s managing director Himanshu Kapania told FE’s Rhik Kundu and Pranav Nambiar that he is confident that the company’s strong cash flow will aid it to continue on its growth track. Excerpts:
Are you satisfied with your performance at the recent auctions?
The recent auctions was unique since for the first time spectrum under use, which came up for renewal, was put on the block. Due to this disruptive situation, Idea Cellular was under a lot of speculations in the streets, especially among investors and analysts. The auctions were extremely critical for us since spectrum in nine key circles, which comprises 108 million subscribers from the company’s 155 million subscriber base, was up for renewal. While we hadn’t originally budgeted for the quantum of money we ended up paying at the auctions, we are heaving a sigh of relief for being able to renew spectrum in nine circles key to our operations.
Are you disappointed that you didn’t’ get much of new spectrum?
Our first priority was to renew our spectrum. However, we had not anticipated the competition from the non-serious players, whose interests were not to acquire spectrum but only to raise prices.
How does your ‘excessive’ spend at the spectrum auctions affect your plans going forward?
India, which currently has 850 million subscribers, will add 350-400 million new telecom users in the next 5-6 years. Idea Cellular and a few other telecom players are in best position to tap these users. We remain focused on balance growth with voice remaining key to our plans. We had also spend R10,000 crore in the March 2014 auctions to strengthened our mobile data services. At present, we have spectrum for 3G services in 13 of 22 circles, and for 4G services in 10 of the 22 circles. These 13 circles, where we have the spectrum for 3G services, represent 80% of our revenues and subscribers. However, the initial pick up of 3G services have been slow though we believe that the explosion of demand for 3G services have just begun. We believe that the company has sufficient spectrum and will over the next 3-4 years complete the roll out of these services.
On the back of the spend at the spectrum auctions, when is Idea Cellular expected to post similar PAT level as it reported during the pre-auction quarters?
While the PAT is an important component from a reporting angle, it doesn’t have any impact on the cash flows. As there has been no impact on our cash flows, there is sufficient cash generation to help the company grow. Given that the telecom industry is consolidating from a market share perspective, we are very hopeful to continue on this path. While voice is hyper competitive with 6-8 operators, mobile data market is less crowded with just three serious operators.
Do you see further consolidation in the telecom market?
The consolidation has already happened in the minds of the consumers which has led to top three telcos controlling 90-95% of the market share on incremental capital investments and revenue front. Only one telco, apart from the top three telcos, participated in the last four auctions. All these four players now have spectrum to continue and expand their services during the next 20 years.
What are your plans on rolling out 4G services?
We believe that there is still quite sometime before the 4G ecosystem fully develops. For this, more users need to switch to LTE-enabled phones.
What is your take on OTT players?
Telecom and tower companies have invested over R10 lakh crore. To support the growth, the industry now has a debt of over R3.5 lakh crore. The industry has to make similar investments in spectrum, tower and equipment to make the prime minister’s Digital India mission a reality.