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Idea Cellular Q1FY12 Call: Spectrum Stretched, Tariff Hike, 3G, VAS

On Idea Cellular’s earnings conference call for the quarter ended June 30th 2011, Idea MD Himanshu Kapania said that the spectrum was completely stretched and the company is looking forward to a spectrum trading policy, transfer policy, merger and acquisition policy, coming into effect with the New Telecom Policy 2011. He also discussed some other issues, including the need for tariffs to go up citing high interest costs and the market getting matured. Notes from the conference call:

Hinting at a tariff hike: For the six major circles of Kerala, Andhra Pradesh, Maharashtra, Gujarat, Madhya Pradesh and UP West, Idea has closed or modified the promotional offer of 1 paisa per second and now the new subscribers in these circles can sign on for a six-month or a one-year special tariff promotion of 1.2 paisa per second, for calls to other Idea subscribers or any other mobile subscribers, local and STD.  The company will monitor the effect on minutes of usage and elasticity of demand from existing customers before considering other service areas for revision in the promotional offer.

Responding to an investor’s question on tariff hike, Kapania said that the company was currently testing the water in circles where it has a good marketshare, and it’s too premature to comment. Although, he added that interest costs on 3G and BWA spectrum fee and the rising inflation have increased costs for telcos. ” For sustaining of our operations it is inevitable that we need to be able to increase price. We are also reaching a stage in the urban markets where some degree of maturity coming in.”

On 3G: Idea’s 3G network currently covers over 825 towns in 15 service areas including bilateral roaming arrangements, for service areas of Mumbai, Bihar, Karnataka, Delhi, Kolkata and Tamil Nadu(including Chennai), with leading quality operators. The company has decided to build a future data factory which can handle many times the current daily data volume of 30 Terabytes. In the process of building the future data factory, the company is upgrading its backhaul transmission to high capacities.

The company says that uptill now it has signed on over 2 million 3G subscribers, but on an average only 22%-25% of these customers are on daily VLR. Its assessment is that there is an urgent requirement to engage these customers and upgrade their need hierarchy for high speed data services. Kapania mentions that because the 3G services are getting settled, the coverage is in the process of improving and there may be some gaps on the indoor side, the customers are toggling between 2G and 3G that is the reason for the low VLR. He also added that only about  8% of Idea’s subscribers have a 3G  handset and the ecosystem for 3G has to go up.

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On MNP: With a net gain of over 960,000 customers and the lowest port out ratio of customers at 58 against every 100 customers ported in, Idea continues to register gains in terms of new subscriber addition via MNP.

Subscriber base: As per the 31st May 2011 release of TRAI, Idea has 86.5 million subscribers on VLR out of reported end of period (EoP) of 93.75 million, thereby active subscriber percentage of 92.3% against industry average of 70.1%. While the company commands only 11.2% subscriber market share based on industry reported EoP customer count, we have improved our subscriber market share based on VLR to 14.8%, a clear lead of 3.6% over reported EoP numbers.

“If you have to look at TRAI  release of May 2011, the total industry has only close to 600 million subscribers and even if we were to take the dual SIM customers, the actual penetration of India is not more than 55% to 60% of the covered population,” said Kapania.

On VAS being still at around 12% of total revenue: According to the company, as a percentage of revenue VAS has remained flat but it had a 6.7% revenue growth, so in absolute terms value-added services has gone up. Kapania reiterated that Idea is in the process of readjusting its portfolio for value-added services. He said that while  there has been some growth for data services, there has been some adjustment of value-added services on the non-data side, primarily on the voice VAS front.  Since 3G services were just 45 to 50 days old and are being still rolled out,  it is very premature to be able to draw any conclusion on its impact on VAS services or the data revenue.

On Idea-Spice Case: After the last earning call, wherein the company had shared that on the application made by the DoT for recall of the sanction order, the single judge bench of the Delhi High Court had announced its judgment on 4th July 2011, reaffirming the amalgamation of Spice into Idea but with certain conditions. As the conditions imposed were unacceptable to the company, it had filed an appeal before the Appellate Division Bench of the Delhi High Court, challenging the above judgment. The appeal is currently sub-judice. Also, consequent to Idea-Spice merger dispute and related alleged violation of certain license conditions and guidelines, the company has challenged and filed appropriate multiple petitions before the TDSAT or has responded to DoT showcause notices.


– Idea Cellular: ARPU At Rs 160; Profit Down 35.42% QoQ

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