Notes from the Idea Cellular Q2FY13 earnings call:
2:34pm: Himanshu Kapania, COO Idea Cellular is addressing the call – 2G auction is on the anvil – it will be revolutionary – we keenly watch where the final number of operators drop after the auction. Will force a number of operators to review the We hope pricing power returns to Indian operators. Even Africa has 4-5 times more voice realisation than India. Indian consumer should be prepared for higher prices. Long term changes in competitive structure expected.
Legal cases – Our 7 operator service area licences which account for 4.5% for revenue stands cancelled. We are participating in the 2G auction. Investors will have to wait for the outcome. We have also filed a curative application in SC in September, on grounds of violation of principle natural justice. we await decision of the call. We have filed damages of Rs 51,911 million on GoI and DoT for delaying Idea’s case. We’ll update more information after the end of the call.
2:42pm: Business performance – Kapania is discussing financials. Already experiencing improvement in customer experience with VAS services; drop in VAS complaint related calls. 18%-20% of our subscribers use VAS products, we hope it will improve with the implementation of the service delivery platform. Company continues to generate free cash flows.
2:50pm: Subscriber growth has been a disappointment. Negative growth due to weak VLR growth. Reducing the number of multiple SIM subscribers and seasonal effect is responsible. 94.1% of our reported subscribers are on VLR. Cellular services will continue to attract 250-350 million new subscribers. 19.7% VLR subscriber share in the quarter. Minutes of usage declined was beyond our estimate – this decline can be contributed to unusually drop in usage in rural markets and checking wasteful distribution of SIMs.
Idea has recently expanded international long distance services. Overall ILD minutes 914 million minutes a 32% QoQ growth. We also launched ISP services in 2011. We are targeting media and large enterprise segment. Want to target MLPS and WiFi segment.
MNP: Number portability has been operational for 18 months. Idea has been pushed to number 2 in October. We have gained 4million operators. 22-23% existing customers choose to migrate to Idea.
3G & Data Services: Over 18.9 million subscribers use 2G and 3G mobile data services. Idea added 600,000 data subscribers in the quarter. In July, Idea registered total data consumption (2G+3G) of 90.6 TB per day vs 75.2 TB per day in the previous quarter, a growth of 20.5%.
It observed that the average realised rate/MB has slowed down to 31.7paise per MB from 32.8p per MB in the previous quarter.
Data ARPU was Rs 50 per month vs Rs 47 in the last quarter. The company launched 1104 new 3G sites. Overall Idea 3G services are available in more than 500 cities and town. Idea registered 3.7 million 3G subscribers at the end of the quarter and 3G data ARPU of Rs 87 vs Rs 88 in last quarter. Mobile data as percentage of service revenue was 5.4% an improvement of 3% in one year.
When do you see tariffs going up – Can’t see ‘when’ but if you compare the period when over capacity came, it was around 2008. Large no. of companies are forced to borrow to run their current operations. Plan of the govt to charge spectrum at a completely different level. At some point in time, this needs to get corrected. India operates at the lowest price point level and voice tariffs continue to decline. For healthy growth, prices need to go up. We intend to increase network coverage and support device ecosystem to boost 3G adoption, improving the customer experience. Total number of users are still lower than what we want to tap. Replacement handset market is very robust. If affordable 3G handsets are made available, 3G adoption will grow.
Changes in telecom business: Irrespective of news, consumer business is driven by consumer demand. New age economies will contribute to economic growth including telecom. Not a battle between operator and govt. We are a democracy and good to have a debate. For 16 years spectrum prices were reasonable, telcos made investment. We made Rs 32,000 crore of investment in the last 6 years. We also gave power to consumer in the form of reasonable tariffs. It’s our fundamental belief that intermediaries can’t bear costs. Who will pay for revised spectrum – whether customers will have to pay or the government, this is debatable. All contracts should be fully honoured by the government. What’s happening in aviation will happen in telecom. Lot of telcos don’t have cash. Will be difficult to leverage cash for these companies.
Data profitability: Lots of questions about revenue vs cost. We’ve made an investment of Rs 5,500 crore in 3G and total Rs 30,000 crore in data. There are underutilised assets in the system.
On 3G ICR: There’s no change from what we’ve said in the past. We didn’t receive a notice. No coercive effect.
Service Delivery Platform: will improve consumer trust. Losses on non-voice non-SMS services has been compensated by data.
On cap-ex: Don’t see the capital expenditure going up.
On drop in minutes: Non availability of power in monsoons in rural areas was also responsible – the drop was 4% vs 2.2% last year. Trade pay-offs continue to be muted at lower levels and we expect the bounce back from rural customers to be high. On TRAI permitting combo vouchers – will help drive minutes but unlikely to have an impact on revenue.
While Idea is an original licensee of 1996, our broad investments started 2006. Rs 32,000 of our gross blocks have happened during the past 3-4 years. We are a new player and not an incumbent, and became a national operator in 2010. Not discussing equipment replacement capex.