“You are asking me whether M&A rules will change? I think so. I think they will change pretty quickly because there is no one in the country who seems to be having a different opinion about it, and a consultation paper to this effect is already out.” Sanjeev Aga, MD, Idea Cellular, is quite certain that the prevailing market conditions and the consensus have made inevitable a change in India’s policy on Telecom Mergers & Acquisitions. In late 2008, India’s Department of Telecom controversially handed out a number of telecom licenses, and the price war that has ensued threatens the viability of telecom businesses in the country.
“But even assuming the rules don’t change immediately,” Aga said during the companys investor conference call, “eventually economics will cause them to change so my view is that the M&A rules will indeed change[...]In our company’s view we believe that the consolidation is going to happen much more rapidly than people expect because the issue is not liquidity but viability.
But will Idea be an acquirer or be acquired? Aga said that he can’t answer for the shareholders of Idea, but he thinks that being acquired is unlikely for Idea. Interestingly, given that Idea will be a pan-India operator by the end of this year, he doesn’t see the company acquiring telecom operator for anything, brand or subscribers, except for spectrum.
On Tariff Wars
“I frankly don’t know too much about circle level tariffs and don’t make too much about the per second billing. This is a topical phenomena, and in 6 months no one will even remember it,” was the answer Aga gave on being asked about the pay-per-second plan and the tariff war. He was quick to state that the realized rates are going down, and they will not be adequately compensated by the minute-of-use or by market share because now there are more players.
Will VAS Be Significant?
Responding to MediaNama’s question on whether VAS will be a key differentiator, given that price of voice calls doesn’t look like it will be, Aga said that ” Over a medium term, yes (it will be), but if you are asking me for a forecast on the next 2-3 quarters, I don’t think these will have a game changing effect. But if you are talking about the content side and technology side and the user adoption side over a 4-5 year period, yes I think VAS would play a much bigger role.” He said that VAS is around 11 percent of Idea’s total revenue, and did not disclose the companys SMS revenue.
Idea was not very specific on the 3G auction and whether they will also bid for WiMax. They made it clear though, that their CapEx guidance of Rs. 45 billion could also be utilised for redeployment of inventory, and they planned increase capacity utilization before the 3G auction, when it happens.
On the auctions, he said that “No company in the world will pay any price whatsoever for any auctions, because there is an appropriate price, and what that price is only time will tell. But one of the things of 3G is that, in India the biggest application is 2100 MHz, is to make available applications which are currently in 900 MHz and 1800 MHz, where the spectrum is inadequate, things like Voice and SMS. Of course it will also be used for 3G services, of which the chief known application is faster Internet access. In India, given the fact that most operators will give 3G by default to all 2G subscribers who have a 3G compatible phones I think there will be limits to how much one can price 3G services. That’s the reason I mentioned that its freeing up spectrum shortage in 2G will be one reason for desiring 3G.
MNP Will Not Have A Large Impact
They claim to be Mobile Number Portability (MNP) ready too, and said that it’s a rather large expense for some of the older telecom operators. Idea thinks that the MNP will have a very small impact in India because not more than 10% or 12 % of revenue pertains to subscribers who see MNP as an event, so while these are very high profile and vocal people and urban people but they are not representative of the larger market. MNP’s ability to change the competitive landscape is negligible.
Related:
–Idea Cellular ARPU Declines To Rs. 209; Multiple SIMs
–Spice Comm Records Losses Up 79% QoQ; ABTL To Merge With Idea
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4 Comments until now.
Offtopic comment:
Is medianama going to be on the call tomorrow for Bharti Airtel? I would like to suggest some questions that you may want to ask them:
1. What is the proportion of dual-sim users in India / Airtel's subscriber base? (20% is Idea's estimate)
2. Airtel has launched RCVs such as – all on-net / off-net, local / STD calls at 60p/min for 1 year for Rs. 60 – but is absolutely silent about them in the media. What is the strategy? Are they feeling the heat and using such plans to prevent churn, as well as trying to protect revenues by not pushing them?
3. In the long term, does Bharti see consolidation taking place in the mobile space?
4. Bharti is the first co. to launch triple-play services in the country. Do they plan to leverage triple-play to somehow consolidate in the mobile space?
As the calls are only open to analysts, and I am still an amateur who follows the TMT space, I cannot put forward the questions. Hope you find some of them interesting and put them forward if you are a part of the call.
http://airtel.in/QuarterlyResult/Dial_in_nos_Q2.p...
So why is Sanjeev Aga interested in the M&A policy again?
If he says it is unlikely for Idea to be acquired, it is even more unlikely for Idea to acquire anyone at this stage… so … :D
well, he'd mentioned the M&A policy as an indicator of the fact that viability of some of the things being done is questionable, so the economics will force a change in the M&A policy. yeah, doesn't look like Idea will be acquiring anytime soon.