RCOM Q1-FY14 Concall: GSM + Data Is 67% Of Wireless Revenue; Increasing 3G Adoption


(By Apurva Chaudhary & Vikas SN)

Telecom operator Reliance Communications (RCOM) had reported a total 31.1 million data customers for the quarter ending June 30, 2013 (Q1-FY14), up 5.8% quarter-on-quarter (QoQ), of which 7.7 million are 3G customers, which saw 7% growth QoQ. Here are some notes from the investor conference call:

- Current status of Indian telecom sector: Gurdeep Singh said that the Indian telecom sector is witnessing consolidation as many operators have either exited the business or reduced their footprints. The company expects the sector to have only 4-5 pan India telcos in the coming years. The competitive intensity is also apparently lowering and there are indications that pricing power is coming back to operators, evident from recent tariff hikes and reduction of free and promotional minutes by operators.

- GSM and Data revenue is up by 6.3% quarter on quarter and now contributes to 67% of its wireless revenues.

- During the quarter, RCOM completed the migration of most of its customer base to the headline tariffs of 1.5 paisa per second from the previous 1.2 paisa per second. It also increased its prepaid tariffs by 20% on both GSM and CDMA platforms and reduced its promotional & concessional offers by up to 65%. Due to this, the revenue per minute (RPM) increased by 4% during the quarter, and is now at 45.7 Paisa per minute, which the company says is the highest in the industry.

- Responding to an analyst question, Singh mentioned that they are halfway through migrating all its customers to the new commitment plans and the process is expected to be completed by end of August. He added that the complete impact of the combination of headline tariff change and the reduction of free and promotional minutes from the commitment pack will be seen only in Q3 FY14.

- On 3G adoption - RCOM reduced its 3G tariff by 50%, making its 3G data plans cheaper than its 2G data plans. Through this, RCOM hopes to have a 40% share of smartphones market, which the company is pegging at 66 Mn handset market. Singh said that they believe the future is not about the ARPU (Average Revenue Per User) by subscribers, it is ARPU by the quality of handsets and ARPU directly related to the size of the screen. It’s not clear whether this means that the company has the technology infrastructure to categorize ARPU based on these parameters.

Singh said – “Now, if we are at the cusp of smartphone penetration in this country and we are seeing adoption of 3G, but not at a pace that we would love to see, the important aspect is to grow affordability, thereby leading to adoption and the growth of usage”. He believes any changes they make towards growing that ecosystem, will help grow the entire 3G ecosystem.

“When you look at a 3G customer, a 3G owner using 2G, their usage is limited because of the speed of the 2G. We believe when you upgrade customers to 3G at the 2G price, their current off‐take, which may be limited to 100/200/400 MB will see a significant uptake”.

- RCOM claimed to have 12 million 3G compatible smartphone handset users on its network. This is out of the 30 million possible 3G compatible smartphone handsets in the 13 circles they operate in.

-  Partnerships: RCOM has inked several partnerships during the quarter, to expand its network and better utilize its assets (possibly to reduce debt). These include:

- A Rs 1,200 crore deal with Reliance Jio Infocomm to share its nationwide inter-city fibre optic network infrastructure and also get access to the optic fiber infrastructure being built by RIL. Following this, RCOM also inked a Rs 12,000 crore deal with Reliance Jio Infocomm in June 2013 to share its 45,000 ground and rooftop based towers for RIL’s 4G service. Singh had also indicated that it was in talks for a third deal with Reliance Jio Infocomm to share optic fibre in cities and the deal is expected to be announced by December 2013.

- A 2G intra circle deal with Aircel, allowing both companies to share their mobile towers to offer a pan-India 2G Intra-circle roaming (ICR) coverage to subscribers of both the networks. Following this, the company has also inked similar deals with Loop and Tata and plan to ink similar agreements with other existing operators. (More on that here).

- A tie-up with Apple to launch iPhone 5 GSM version on its network along with special tariff plans for new and old RCOM iPhone subscribers. With this tie-up, RCOM claims to have inked tie-ups with almost all leading handset manufacturers and offer bundled services across Android, BlackBerry and iOS.

- Demerger of its real estate business into a separate company called Reliance Properties Ltd in July 2013. The company had informed that this demerger is part of the company’s strategic plan to divest non-core assets, and focus on its core wireless and enterprise business.

- On RCOM- Sun Direct Deal: Responding to an analyst question on the rumored Sun DTH deal, Singh said they are certainly exploring various options but they are currently not in definitive discussions with any company.

- Reliance Global Call Enterprise Segment now has more than 300 customers. Reliance Global Call Enterprise service is currently available in 11 countries ‐ USA, UK, Canada, Australia, New Zealand, Singapore, Spain, Belgium, France, Netherlands and India. It also introduced SIP Trunking calling option for its customers for International calling needs.

ReadRCOM Q1-FY14 concall transcript