Idea Cellular MD Sanjeev Aga sought to contain the hype around the 3G rollout in India, telling analysts on the company’s Q2-11 earnings conference call that it looks like hyperbole, even though it will have an impact on market structure. “3G is going to co-exist with 2G and (it is not) as if there are two business models […] there are some companies which have got successful business models and others which don’t.” Idea cellular is rolling out network in 11 service areas, and is expects advertisement and promotion to go up in the next quarter, “with 3G coming up soon.”
3G Impact: GPRS Revenue Could Double Initially
First Launch = Winner? Responding to a question on at least two of Idea Cellular’s competitors (Tata Docomo & Bharti Airtel) launching services before Idea, and whether Idea should hurry up and execute, Aga said that he sees no advantage in being the first or second: “3G has been around in the world for 10 years, so any sensible subscriber will wait one or two months. And as in any network when you over lay 3G network on the 2G network, testing it out, fine-tuning it and testing all the surround systems is very important. Everyone will be there roughly in the same time, so I do not think this is one of those Commonwealth Games type things that you have got to be the first to brace the tape,” he said.
Expected usage pattern of 3G: Aga said that consumers with smartphones, and those already using GPRS will use more, and he expects GPRS usage to double, “So there is going to be a short term revenue kicker.” Mobile commerce, mobile administration, mobile medicine are more long-medium term plays.
On 3G Pricing for Data and Voice: On pricing, really no one knows because one has to have pricing which is related to costs on the one hand, but also related to wire-line fixed broadband pricing, there has to be some relation. You are also competing in the market, so obviously if you have got a higher quality service, you would be able to have some kind of pricing, but it’s too early to say either the pricing be in per bit or in terms of what pattern it will be, there is still sometime. As far as voice is concerned, I guess it will be priced exactly the same because whether you do it on 3G or 2G, voice is voice. I don’t think any operator will try to price it differently.”
Inter-operator 3G deals: “No we have not signed anything on 3G intra-operator yet, although we are pursuing discussions.” Interestingly, the deals in circles where Idea doesn’t have 3G spectrum, will be, according to Aga, “as if we had spectrum. Obviously, it means that you won’t get a free lunch. Some other operator will have the same experience in circles where we have spectrum and they don’t. But yes, it will as if it were our spectrum.”
Network Rollout: The company is looking at “long term arrangements with very select high quality operators for those service areas where Idea was not awarded the 3G spectrum”. Idea sees the impact of 3G on capital expenditure, with investment lumped over the next two or three quarters. Apart from the 3G entry fee, which was a one time cost, and an increase in the operational expenditure. “There would be little discontinuity where your cost kicks up and the revenue will take a little time to build up.”
MNP Is A Bit Of Nuisance, No Significant Impact On Tariffs
Expects Favorable Impact: “As far as MNP is concerned, in our assessment and we are happy now that is eventually happening, we are told beginning in Haryana, sometime next month. For us, I think it’s a bit of nuisance because at the time when 20 other things are happening, we have to put a lot of managerial attention to MNP, but I think it will be favorable to strong companies. We believe that, as a company, at the end of it we will benefit, not just in new areas where we were a little late, but we will also perhaps consolidate ourselves in older areas where we are strong, because now we are even stronger from what we were when the consumers came on to us. So we expect it to be net-net a favorable impact to our company.
Impact On Tariffs: “I don’t think it is going to make a big realignment of tariffs because these realignments keep taking place all the time with a little lag.”
“Frankly, we don’t know what is happening; it’s a maze out there and there has been a lot of inaction. And there has been, as you all know, the problem of credibility all around, so we don’t know what’s happening and let us see. But whatever happens, I think the ability of regulation to change the fundamental rules of the game is diminishing with times, because businesses either have very strong fundamentals or they don’t have strong fundamentals.
On Tariff & New Telcos
Total minutes of use on Idea’s network (despite Q2 seasonally being a lower quarter), but the average realized rate per minute (ARPM) declined by 3% to rs. 0.42 per minute. Aga said that, like Bharti Airtel subsequently did, that there has been an abatement in the rate of price decline over the last two quarters. Airtel has ARPM at Rs. 0.444 and Vodafone has Rs. 0.65. Aga said that Idea’s price point in new circles of operation than Rs. 0.42, and higher in circles where the company is stronger – in some cases, the highest rates than anyone else. But, “for a newer operator, it will be even lower than our price point because they don’t have the advantage of our cost synergies and our brand awareness and so on, and having a conventional launch for a new operator without our cost advantages and without our brand advantages, in my assessment does not give you a business case which will ever give you a return on capital.” Like on previous calls, he reiterated that these prices are hurting some of the challengers much more than they hurt the incumbents. “We are finding the reduction in our realized rate is less on account of headline prices and more on account of some of the acquisition products and some of the retention products that we are compelled to bring from time to time.”