Our coverage of Idea Cellular Q3-FY13 results is here. Our live coverage of the concall is below.
1435 hrs: Call begins
1438 hrs: The number of operators in 2013 has fallen from 16 to 6 in most markets, and 8 in some markets.
The demand is much lower than supply. The government managed to sell a small amount of the spectrum in the recent auction. DoT sent us a demand of Rs 2113 crore. The demand is in two parts – retrospective demand for spectrum held after 2008, and then till the end. One time free has no basis. The license conditions stipulate that it is as per incremental usage (as AGR), and Idea has already paid the government for spectrum. Idea is challenging the governments decision of 26 December, and our petition has been admitted in the Bombay High Court. The government has to respond to the demand by 20th February.
In another development, DoT issued a demand notice after an audit, for the fiscal 2007-08, a shortfall in revenue share of Rs 135 crore, and Idea has protested the same.
1442 hrs: Idea has reported a sequential growth in revenue by 5%. This is led by an expansion in voice connections, with rural customers returning. Average realized rate fell in the quarter. Voice ARPM has been flat, but there was a fall in non-voice, because of non performance of the non data VAS business. Non-data VAS has been driven down post the implementation of the TRAI VAS regulation effective September 2012. Cost of acquiring customers has increased following new subscriber verification norms.
1445 hrs: Significant drop in multiple SIM users. The actual number of mobile users is expected to be in the range of 575-600 million. Our incremental VLR marketshare was 27.2% in the quarter. Due to tougher verification norms, churn has declined.
1452 hrs: 4.36 million data subscribers added this quarter. There is a surge in EDGE usage in small towns.
rural customers are adopting search, social network and online commerce. Data revenue growth was 10.8%. Data ARPU was Rs 52 for 21.8m customers.
1454 hrs: 3G ARPU was Rs 97, up from Rs 87. 3G customer usage is improving. 3G smartphone penetration on Idea’s network increased by 7%. 3G phone penetration has improved by 2.5%, and has moved into double digits. While data has grown, non-data VAS is declining. Only 40% of Idea users use non-data VAS services. (ED: we’ll crosscheck this)
1455 hrs: The full impact of non-voice data regulatory changes will be in this quarter.
1508 hrs: mostly network or finance related discussions
1508 hrs: on 3G Inter Circle Roaming, notices have been sent to companies which have entered into the arrangement. The court has asked DoT not to do any coercive action, and it’s been asked to set up a committee to study our responses. On an overall basis, we entered into such an arrangement as per the contract and the terms of the auction, and we believe it will be available to customers.
1510 hrs: question on network costs
1511 hrs: subscriber gross adds have come down due to the verification norms, and the acqusition cost has gone down, which is dependent on a fixed cost, which hasn’t changed, and the variable cost has come down because of lower gross adds. 50% is fixed cost, 50% is variable cost.
1515 hrs: The Idea top management’s call DROPPED! This is Epic 😀
1520 hrs: Need to expand and improve networks in rural areas, and we have to increase tariffs to take incremental costs. If today, at an ARPU level of Rs 158, the customer is giving us a certain number of minutes, with an increase, the usage drops by 10-15 minutes. The impact on usage isn’t significant, but the impact on the business is significant.
1523 hrs: Advertising expense in Q2 was significantly lower. If you look at the combined cost between Q1 and Q3. Our spends in Q1, Q2 and Q4 are similar. In terms of customer acquisition costs, this quarter was an aberration because the number of gross adds came down. As it increases, the cost will increase because of variable cost, but per add cost will go down because some costs are fixed.
1530 hrs: On March Auctions:
India is not attracting any international operators to take part in the spectrum auction. It was liberalised spectrum, for 20 years, but there was no bid. Serious telecom operators decided to avoid, or shrink their investments. There is a coercive action which the government is attempting in March. We continue to appeal, and believe that for the long term telecom growth, there has to be certainty of regulatory, and certainty of contract. Extension of license is a requirement which the mobile operator has been committed in the contract, and they should get the extension.
There is no headline tariff change. Our changes have been mostly promotional. The basis of the change is driven by what the most lowest tariff operator changed. It’s difficult to give a figure, because there are multiple plans.
1540 hrs: The control has moved from mobile VAS providers to customers. We have to entertain the customers with apps and applications. The long term growth of data, it is important to make investments in applications and content. While this change has taken place, it will streamline, and it will go up. Hopefully, in the following quarter, it will improve.
Idea Cellular has 2.1 million 3G customers, and we’ve added only 2 million in a year. The signal from the market is positive. The encouraging fact is the number of smartphones. It was 4.5% and by December it is 7%. Even in Europe, the smartphone penetration is 30-40%. We’re seeing it breaking the Rs 5000 barrier. The volumes will improve. In December, our sources say, India added 2.5-3 million smart phones.
1545 hrs: most of our 3G sites are being fibre-ised.
1552 hrs: (Still avoiding commenting on the price rise, talking about differences in circles, so, still going around in circles)
1558 hrs: The smartphone penetration is 4.5% of our EOP base in July, and it’s now 7.5% of our EOP base. In terms of Data ARPU, our total number of data subscribers is 21.75 million, and their ARPU is Rs 52. As far as 3G is concerned, 3G has total users of 4.1 million, up from 3.7 million, and ARPU has improved to Rs 97.
Bulk SMS usage: 10p per SMS will slow down the bulk SMS business across the country, which is good for the country. A lot of work on the non data VAS business. A very significant technological intervention has taken place. All OBDs, USSDs and SMS, which are the means for VAS, double confirmation has been implemented. Further discussion with TRAI are on in terms of taking it from the customer in writing confirming the VAS. Non data VAS has two components, P2P SMS, which isnot impacted and continues to grow. Only 40% of Idea consumers use SMS, and new customers are entering the category. 19% of the Idea base are accessing the Internet.
Are you suggesting that there would not be any incremental impact on the double confirmation?
The only unfinished stuff is regarding taking post double confirmation, a follow up written confirmation, using an SMS. Discussions are on with TRAI about this.
Cost pressure in the next 12 months?
Standard inflationary pressure will impact the industry and Idea Cellular. Our networks have the ability to take a far higher utilization, and there can be margin improvement. While there may be inflationary pressure on network costs, administrative and manpower costs, other cost elements are not prone to inflation. Linkages to tariffs to margin will improve at a faster rate than tariff increases. Our long term view on 3G remains constant. There is a lot of potential of wireless broadband in the country. There are large pockets of dark broadband areas, which will become active through 3G. We remain focused on mid sized towns and towns away from the metros. As far as CAPEX is concerned, we haven’t changed expenditure. However, Fibre is a long term investment.