On its Q1-11 financial results earnings confernece call, Idea Cellular MD Sanjeev Aga fielded quite a few questions around 3G. While declining to share specific rollout plans, he said that the company will not be stingy with its 3G launch, and that their 3G coverage will be much more than 25% in less than a year.
– Idea Cellular is expecting allotted of spectrum in September, expects all large companies to truly launch services in the months of December, January and February. “You could always sneak in and launch something earlier, but by the time you test, integrate and provision, it would be around that period.” Idea expects to launch 3G services within the 2010-11 fiscal.
– Idea expects 3G to release voice capacity and data, with data being a function of how many people have 3G devices and want to use data, “but inter alia the voice capacity will also be transferred from 2G to 3G, particularly where there is congestion and where there are 3G enabled terminals.”
– Of about Rs. 58 billion for the 3G Spectrum fee, only Rs. 19 billion was short-term debt. As of 30th June 2010, Idea had a total debt of about Rs. 98
– Handset Subsidies: Aga doesn’t believe that handset subsidies will play a big role in India, and it never has. “handset subsidies work when there are two or three operators. So one big handset guy might tie up with someone. These things do not work when there are so many operators on a large term basis. Current handset penetration of 3G in India is still in single digits.(Ed: we think he meant single digit millions)
– Operating cost because of 3G will go up, replacing 2G investments. “So yes, it will open up our cost stream but it will also open up revenue stream. It could be that the cost stream kicks in ahead of the revenue stream.”
– Payback on 3G: it cannot be calculated because 2G flows into 3G, so the costs “flow into one another and the revenues co-live. One way of looking at is if you paid a certain amount of money for 20 year spectrum.”
– Data versus voice margins: worldwide, data demand has increased substantially, but margins have been hard “and there are technical problems around actually billing data which makes it hard.”
– Data Approach: ‘In the beginning data or 3G services were not picking up in Western Europe and USA and there were a lot of “eat as much as you can” plans, which are now becoming problematic. So we will do the sensible thing, we will be very careful. But it is very difficult for me to say because it is a competitive market and it is hard to say what will happen. But we will be sensible about it.” Aga said that they will be serving both voice and data, and doesn’t forsee a data capacity crunch, until about two or three years
– 3G Equipment: Equipment procurement issues not fully resolved for 3G
Mobile Number Portability
– Idea Cellular has been ready for MNP for a long time, and has made enormous investments. Just that “this is one of those things where the slowest camel determines the pace of the caravan, and until everyone is ready it would not happen.”
– MNP will help consolidate stronger players, and will not be disruptive. “we do not think it is going to be game changing at all. Given the fact that, a number of people who are looking to retain their number, who have had their number for years, their revenue contribution to the total national sector revenue is not very large. The nature of the Indian market has changed over the years, so we do not think it is going to be a game changing event.
Indian Market Scenario & Tariffs
– Indian market moved from 6.6 operators per circle (on an average) on 1st January 2009 to 10.2 as of 30th June 2010. However, for the last two years, Idea’s revenue market share has gone up from 9.8% to 12.6% between April 2008 and March 2010, whereas it would have been expected to go down.
– In the last one year, “when we saw the bloodbath at its bloodiest, Idea increased its revenue market share by 0.9%.”
– “In the quarter ended June 2009, that is exactly one year ago, Idea had reported a realized rate of 58 paisa per minute and a variable cost per minute of 44 paisa. For the latest quarter, which is the quarter that just ended, the realized rate itself is down to 44 paisa, which was the variable cost per minute one year ago. Now, if we had stayed at the variable cost one year ago, we would have had a nil EBITDA margin. However, in the quarter that just ended, the variable cost per minute is down to 35 paisa…we are not the lowest in India (in terms of realised rate per minute), but there are indeed very few companies in India or in the world who can run a quality operation at 44 paisa per minute, keep investing in the future, support losses from nine gestating circles and still make a cash profit of over Rs. 700 Crores per quarter. In fact, over the last six to eight quarters, while the world around us might have changed, our cash profits have remained largely steady.”
– Tariffs have declined by about 5.5% on a quarter-on quarter basis.
– But if you see last six months, the decline was steeper in the first three of these six months. Since then, the decline, say, from March, April to June, has been slower. It appears that the rate of decline is slowing. That means there is a tendency to flatten, based on pure numbers.
– “(Tariff) Bloodbaths don’t happen because anyone wants it. They happen because you have a situation where no one is in control. You get sucked into it. But looking at the economic analysis, if a large number of companies are burning cash, it places an inherent restriction for long term. In short term you can always get some adventurous or courageous bank to lend money and they are plenty of them in India. But at some point of time, the chickens come home to roost and I think those days are not very far away. So I would be surprised if you have another round of bloodbath”
Download the transcript here.