We’ve covered Airtel’s Q3-FY13 financial results here. Below are notes from the conference call:

1309hrs: Details of the Infratel IPO, which was oversubscribed. The spectrum auction received a lukewarm response, and we looked at it from a commercial basis, and we only picked up one spot in the north east. The government is looking to auction in March, and we will follow a similar process, based on viability. The issue of one time license fee: operators have gone to court, and we have a stay. It is following its own process. We’re very clear that this is for spectrum that we already have.

One other thing which is important from an Indian context, is the cost of input drivers. Spectrum auction, regulation and intervention costs. More recently, diesel cost increasing are impacting us, with higher input costs. The Industry cannot be inflation proof, and this will translate into the increase in pricing to customers. You have seen a little bit of rationality. Subscriber acquisition costs and efficiencies are improving. Where there is an opportunity to reduce freebies, discounting without any impact on prevailing prices.

1313hrs: On a positive note, we have invested $3-4 billion in data, and if you look at the data traffic, you will see that even on a clip basis, India is growing at 25% per quarter on an MB basis. This quarter, we’ve crossed 5 million 3G customers.

1327hrs: The competition post the cancellation hasn’t been subdued. The deadline has been extended to 11th of March. There’s a huge gap between listed and realized prices, and we need to cover up that gap. You see that during this quarter, but for some corrections on processing fee by the regulator, we are flat on realized rate. I am hopeful that with interventions that we are making, there will be positive impact on prices, and we should see corrections. I don’t see headline tariffs to be moved immediately.

(Questions on tax rates, and margins and interest costs in Africa)

The major investments in Africa: 3G launches in 13 countries, Airtel Money launches in 15 and another 2 coming up in the next 2 months, building a tower company in all 17 countries, and then building a brand. There have been network changes, strengthening in 2G and 3G. If you divide the P&L in voice and others, we’ve increased margins in pure 2g voice, but we’re doing 2G voice, 3G data, Airtel Money and the tower company.

(question on costs, and diesel costs)

We have picked up efficiencies in Africa, but as business goes, we’ll spend more. In the last 4-6 quarters, Zain did not spend anything, holding back on CAPEX and OPEX. If we had to gain marketshare we had to spend, and we’re continuing with that.

1343hrs: (On VAS regulation) “We were probably the first operator in the market to have acted upon. We took a huge cuts in the last 3-4 quarters, and this exercise has been on for a year now, and we have taken a lot of cuts there. (ED: we don’t think so). The avatar in which it was conceived by TRAI, no operator has implemented that yet. If government wants to implement a methodology of snailmail to confirm, then nobody has done that. The industry is resisting that. We are happy to confirm with the customer on USSD. Subscription engines and outbound dialers have all come under the controls of the company, and we lost a lot of revenue doing that. Some of them (other operators) started this late, so they might be seeing an impact now.”

Nigeria: Went for a promotion ban to safeguard the leader, whose network was clogged, congested and giving bad service to the customer. Our network had headroom. The leader dropped the tariff by more than 30%, and we had elasticity, and our revenues are back. We have gained revenue marketshare in Nigeria.

License fees in Africa: There are certain penalties in a few countries, but the license fee percentage isn’t going up. It’s a one time cost.

On Africa: We had aspirations of $5Bn and $2Bn (Topline and EBITDA), but we could not achieve it. There were two gaps of judgement. At that time, the Africa market growth was 15%, and we thought we could grow 20%, but that didn’t happen because the market growth came down to 8%, and in some markets, to 6%. The infrastructure of network, IT, Brand, organization design, processes was weaker than we expected. I thought we could restructure that is 12 months, but despite the speed of Bharti, it took us two years. That extended the turnaround period. We did not continue Zain to be a voice company. We’re turning it into a portfolio of services. Revenue looks within reach, but not margins. A majority of our markets are challenger markets, where we have 15% marketshare, versus gorillas with 50-60% marketshare. Thus investments in market, network are essential. The focus on margins will be higher, now that we have proven that we can improve revenue marketshare.

On roadmap to profitability on Africa: Two goals for the coming year. The first is to get the cash right. Our goal is to cover cash cost of even acquisition interest, apart from all investment. That way it is not putting any pressure on the group. The other plan is to grow the topline faster. There are countries where we are earning profits, but there are others where we are not. Each country has an improvement guide path. Each market should be PAT positive. I can’t give a precise guidance.

1356hrs: In any environment like India, for a market leader to keep marketshare above 30% is unprecedented, with 12-14 competitors, and to keep a huge gap on margin versus the next competitor who is 10-15%, is unprecedented. We’ve protected our turf very well. When hypercompetition mellows down, the dependence of challengers on new activations is higher, because they don’t have a high base. As the market begins to peter down, the dependence on new customers for the market leader is lower, so he benefits more, because of the quality of the base.

Data is where voice was in 1994, so our capability building, network, infrastructure, and ecosystem around that, we have been investing in a more robust fashion compared to the marketplace. That is something that will hold us in good stead going forward. This is an investment in the future, and we are not seeing data as divided into technologies, but data as a space that needs to be satiated. Therefore our investment in 2G, 3G, 4G, fiber, MPLS, is to create a differentiation. We are probably headed in the right direction, and in a hypercompetitive space, we have done a reasonable job in keeping our marketshare above 30%, and keeping a big gap on the margins.

1401hrs:  On Africa voice usage trends, the usage has been 50 minutes to 160 minutes, while India has been 460 minutes in India. It’s high in India is because the tariffs are lower in India, and customer usage patterns are different. We’ve seen a pickup in data usage in Africa. Africa can give around 25% revenues from data in the long term. We have reached close to 15%, and will have to invest in content. Out of the top 10 countries for mobile usage of facebook, 7 are in Africa. Airtel revenue will have low revenue but higher retention. It’s a retention game.

Bangladesh has broken even on EBITDA margins for the quarter. The margins are so abysmal, that India will remain flat with or without Bangladesh.

What do we think of refarming in Delhi? It’s a contentious issue, and we’ve highlighted the downfalls, ranging from consumer experience to more towers. There will be all possible options explored on this. It cant be very positive for the industry, draining resources and finances. I wouldn’t jump to conclusions just yet.

Headline tariffs are half of realized tariffs in India, and there is room to bridge. There are some elasticities associated. The endeavor is to bridge this gap. There’s a huge gap to be covered. Headline tariff’s are 1.2-1.3 paise per second, which means 60-90 paise per minute, and the realized tariff is 42-43 paise, and the least operator in the market is 26-27 paise. It’s a huge gap to be covered. There’s a big gap between the lowest and highest circles, almost 60-70% apart, so this one India one rate is being contested.