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“Idea will embark on a massive cost saving initiative in 2017”: Idea MD Himanshu Kapania

Idea Cellular will “embark on a massive cost saving initiative in calendar year 2017” across its operation in order to “optimize costs, eliminate wastage and duplication, digitize processes, and simplify (operations),” the company’s Managing Director Himanshu Kapania mentioned in a recent analyst call. Kapania did not mention when the cost cuts would be carried out but added the “the impact of some of these cost reduction initiatives should reflect in the financial year 2017-2018 results.”

Cost reduction at Idea comes at a time when the company is losing 4G subscribers to new entrant Reliance Jio, which is just starting to charge users, having launched with an everything-free offer around 5 months ago. Jio largely bets on a 4G-only network and has already added 100 million subscribers since launch. To keep up with the completion, Idea is currently evaluating options to merge the company with rival operator Vodafone, although a definite deal wasn’t signed.

Speaking on the impact of Jio, Kapania claimed that the entire telecom industry “witnessed an unprecedented disruption… For the first time in its history, the flourishing Indian wireless sector is trending towards an annual revenue decline of 3% to 5% in FY17 against FY16.” Kapania adds that the current multi-operator scenario in the telecom industry “will eventually consolidate” and that telcos with an “ability to sustain an integrated offering including voice, high-speed mobile broadband services, digital services including content, and mobile payments services on a nationwide business will thrive.”

On falling voice rates and how Idea plans to combat it

Idea’s voice realization rate fell by 10.6% from INR0.331 per minute to INR0.296 per minute after the launch of Reliance Jio. Voice minute usage per user, however, increased marginally to 385 minutes from 368 minutes, primarily due to growth in incoming calls. “But due to tsunami of calls from users enjoying free voice calls of new entrant, the outgoing ratio in the total per user minutes declined and Company received higher proportion of subsidized incoming minutes recovered at below cost IUC settlement rates,” Kapania added.

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Expanding on the falling voice rates due to Jio’s free offer, Kapania said that the impact has been felt across all kinds of users—2G, 3G and 4G. “So, it is uniform and the percentage of outgoing ratio fall is uniform across all three technology platforms,” he added. However, a significant amount of 4G customers were responsible for falling outgoing call on the Idea network. This was further impacted by unlimited call packs unveiled by rival operators in response to Jio.

To combat falling voice revenues, Idea recently launched an unlimited calling plan at Rs 348, mainly targeted to retain voice customers who have a dual Jio SIM. “At INR348 for 28 days where the customer can make both local and national unlimited, there the rate decline is very sharp so ARPU gets protected…over 2.5 million customers on this unlimited plan has been from the 4G customers, to lesser extent from the 3G customers, and very limited 2G customers have adopted it,” Kapania added.

High ARPU customers were never lost’

Kapania said during the call that after Jio launch in September, the company witnessed a high amount of churn from mid and high-end ARPU customers. But after Idea launched unlimited calling packs, “the churn from this (high and mid ARPU) category of customers reduced significantly… I like to hasten to add that the high ARPU customers were never lost…their usage went down and that is why their ARPU using our network went down because of multi-sim environment.”

“The pressure is more at the lower to mid end of the base where especially for the customers who are looking for deals and those deal seekers are currently buying multiple sims in the marketplace so that they can enjoy the benefit of promotions that is there in the market,” Kapania added.

Impact of demonetization

Idea had minimal impact from the government’s recent demonetization move. “The impact of demonetization has been very minimum. So, most of the revenue decline is primarily on account of new entrant. I want to establish that firmly,” Kapania said during the analyst call. Rival operator RCOM also witnessed minimal impact due to note ban, although the company said that it had affected customer’s recharge behavior. On the other hand, Airtel said that demonetization had an immediate impact that lasted for few weeks. “…we saw (impact) in some of our other businesses, like DTH, that recovery was reasonably quick. There was some postponement of purchases, but it was quite quick,” Airtel’s MD & CEO Gopal Mittal mentioned in a recent analyst call.

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