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OnMobile Q2-FY14 Concall: Content Fees, TRAI Directives, LiveWire, International Biz

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OnMobile faced a tough quarter, with the India revenues declining 31%, even as the International business continued to grow. We’ve covered their results here.

Notes from the conference call:

Content royalty fee has gone up significantly in this quarter: “We had a different sales mix in the current quarter, and one time reversals in the last quarter, consequent to our closure of certain agreements and reconciliations with our major content providers. The content reversal is consistent with the previous quarter. The one-off cost was Rs 5 crore. Our expectation today is whatever is the trend for Q2 should be the same for the rest of the financial year.”

International business:

– OnMobile has seen robust growth outside India, in Latin America and Europe. Revenues grew 9.9%, of which International grew 24.8% QoQ. International constitutes 76% of overall revenues.
– In LatAm, we’ve seen 8.3% QoQ, riding on RBT in Telefonica.
– Africa has grown 14.3% QoQ, due to growth in RBT and music, and number two is Football services, which is seeing good traction. OnMobile is going live with MTN in four countries, the names of which they cannot disclose at this point in time.
– Onmobile has gone live in “with an operator in Qatar. It’s a small country, but one of the highest ARPU markets in the world.”
-Europe: Substantial growth in Europe at 81% QoQ in Europe, but this is largely due to one time backlog in billing/payments. “If you take out the one time backlog which has been invoiced, the growth in Europe will be 27-28%. This is because of some backlogs that we have invoiced.”…”The driver behind growth is Europe is ‘converged VAS’. We had said that the margin profile for this service is going to be different because the content is passing through us. We’ve also gone live with RBT with another large operator in Spain, and are live with three operators in Spain now. Once we make this successful, it will open up other opportunities in Europe.”

India

“The new directives by TRAI in July 2013 are in the long term interest of the industry.” The new activations have effected the industry by about 60%, and OnMobile revenues have been affected by 21% QoQ. “We’ve seen stability in September, and we expect this to continue, but we’ll have to monitor for 2-3 months to be certain. We’re seeing good traction with operators, around consolidating services.”

“The impact on (customer) acquisitions has been large, but not as much on revenues. Our impact is not as huge, with respect to the acquisitions, as you have seen. The impact is not lop-sided on any particular services, it’s very consistent, rather than impacting any particular services. We don’t see an issue of de-focus from VAS services. They are looking to take these services to different channels, which could be more data driven channels.”

On CRBT rates (reported earlier by MediaNama): The RBT rate increment “has not been uniformally implemented by Airtel yet. Airtel is experimenting in one or two circles and change and see the impact of it. In our circles, it’s just one circle where these rates have changed. So it’s a wait and watch situation.”

On the Data business: what we’re doing is as follows – our existing services are being expanded in the data channel. We have done music now. On WAP, we’ve gone live in a few operators with decent results. On the client download side, we are engaging with many operators around the world. This has been made possible by Livewire. What we expect is that over the next two quarters or so, we should have some good deals on the apps side in a few countries, and as far as WAP is concerned, we should be able to share some results. It’s early days, so there is nothing to share on the results of the music.

OnMobile Live (Livewire)

“We wanted an entry into the North American market, and they’ve got a new product in music. After closing the deal in July 19th, we’ve talked to a lot of customers and content providers. It’s clear that the opportunities in North America are significant, and the operators and existing customers of Livewire (now OnMobile Live) are optimistic, and are putting money on the table for marketing. Content providers know about us from other markets, especially Latin America, where we contribute significantly to their revenues. They are bullish on the fact that we are bringing our products into the North American market, and are willing to support us.”

“We believe they had a much better product than what we had, and we have started pitching the music product to other markets. Both rationales – North America and music – are shaping up according to our expectations. We are integrating teams, and we’ve brought in cost-efficiencies. There have been some migration delays from old to new systems with some operators, which impacted revenues last quarter, but the margins have been in line.”

On Buyback

Q: We’ve been asking for a buyback for six quarters. We were told that it’s being considered, and we need some timeline for when you plan to re-align the capital structure. If we (OnMobile) does that, it gives a signal that we don’t see the value of the company. There is a significant undervaluation.

Answer: First, I’m favorably included to consider this, and am doing so. Second, we have a team exploring the ramifications of doing this. We will come to a conclusion and decide what we’ll do. I have nothing more to say at this stage.

Manpower cost

“The current quarter of manpower cost has its elements of restatement. In the earlier quarters, we’ve said that the manpower run rate was Rs 75-76 crores, and we expect this to be the same. We don’t expect it to increase. Manpower cost as a percentage of revenues is closer to 40%. We expect improving revenues and rationalization to improve this to about 37%.”

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