TRAI’s amendments to the domestic interconnect usage charge (IUC), which reduced mobile termination charge from 14 paisa to 6 paisa per minute, “negatively impacted Idea’s revenue and EBITDA for this quarter by Rs 820 crore and Rs 230 crore respectively, when restating revenue at 14 paisa,” Idea Cellular’s managing director, Himanshu Kapania said during the company’s earnings call for the quarter ended December 31, 2017 (Q3FY18).
From February 1, 2018, the international mobile termination settlement charges were also reduced from 53 paisa to 30 paisa per minute. Kapania mentioned that the company estimates this will “negatively impact Idea’s Q4FY18 revenue by nearly Rs 65 crore and EBITDA by Rs 40 crore in the two months period (February and March), at constant traffic levels.”
This resulted in overall revenue declining by 12.8% to Rs 6510 crore. The company’s CFO, Akshaya Moondra added that out of this 11% was because of the reduction in interconnect rate, while the remaining 1.8% decline was primarily because of reduction in average revenue per user (ARPU), as a result of migration of users to unlimited plans.
In Q3FY18, EBITDA declined by 18.5% to Rs 1220 crore, as compared to Rs 1500 billion in Q2FY18. Of this, about 15.3% decline was due to reduced interconnect rate, and 3.2% decline on account of revenue decline, Moondra mentioned. EBITDA margin for the quarter stood at 18.8%, compared to 20.1% in Q2FY18.
Unlimited voice bundled with data plans
According to Kapania, consumption of ‘unlimited free voice bundled with data’ price plans has increased significantly, and has led to an overall increase in both mobile voice and data usage. Idea’s voice minutes consumption grew 10.8% year-on-year (YoY) in Q3FY18, as compared to a 1.7% YoY growth in the previous quarter. This is the highest registered growth in the last 30 quarters.
However, Kapania added that “such unlimited plans continue to erode mobile voice and data realizations as the ‘voice realization rate‘(including the impact of reduction in IUC rate) sharply declined by 24% to 16.8 paisa per minute.”
On the other hand, mobile data volume consumption increased 30.2% YoY in this quarter, as compared to a 73.5% YoY growth in Q2FY18, and a growth of 99.1% YoY in Q1FY18. Total data volume carried over Idea’s data network in this quarter stood at 571 billion MB, which is 5.3 times the mobile data volume carried on its network in Q3FY17. The ‘mobile data realization rate’ declined as well to 2 paisa per MB, which is down 27% from 2.7 paisa per MB in Q2FY18.
Answering an analyst question, Kapania further explained that:
“From the time unlimited bundled plans have been the order of the day, especially for Idea which has started to match mass market plans, our high ARPU customers have tended to downgrade themselves and their ARPU has declined from the earlier higher levels to the present levels. We however did some calculation at the end of the quarter and found out that most of our high ARPU customers have already downgraded. The current round of customers that we are now getting are customers who are upgrading their usage; either they were casual customers and/or most likely they were multi-SIM users who have now started to consolidate their revenue to one operator. As regards total number of users, we have approximately 20% of our overall base who have chosen unlimited plans.“
“We will continue to focus most of our energy on unlimited voice with limited data plans”
Kapania said that in Q3FY18, Idea added over 16 million customers on unlimited bundles, with the Rs 179 plan, which offers unlimited voice and just 1 GB of limited data, emerging as the most popular.
“If you look at volume growth of voice and volume growth of data, it is very evident that we are focusing on customers who are good voice users and also need data. We are not focusing on customers, who are the younger audiences deeply into heavy data consumption. With this approach, Idea had a reasonable success. We will continue to focus most of our energy on unlimited voice with limited data plans. These are the customers from 2G, 3G as well as 4G who do not spend all the time on internet. They will continue to choose network like us because our pricing will remain competitive. While there will be a second battle for the customers who are very heavy users of data but the incremental volume from them does not get you extra ARPU. Our strong belief is that there is a segment of customers who are heavy users of data who consume as much volume as they can, but there is also a much larger mass of customers who need their data services for half an hour or one hour per day. For these users with mid to low end data requirement, we will be able to satisfy their requirement reasonably well,” Kapania explained.
Some light on the types of customers that opt for Idea and those Idea are targeting
Kapaia mentioned that quite a large portion of Idea’s users are “happy just to use purely incoming,” but most of these customers are dual SIM users. So, they have a plan with another telecom operator, but continue using an Idea SIM, “because that SIM is linked to their bank account number or Aadhaar number or they continue to look for other offers.”
According to Kapania, there is a third category of Idea customers, who can afford only X amount per month. “There is a significant price differential that currently exists for customers who chooses an unlimited plan vs a customer who does not choose an unlimited plan, and we want to bridge the gap between them,” he said.
There are consumers whose usage is only 200 minutes and they do not require unlimited plans, their realization is significantly higher and we want to make it comfortable for them to stay on our network and use 200 to 400 minutes, which gives us ARPU improvement. These are the customers that we are targeting, which is the mid to low end customers. We have seen that whenever we do a specific product or tariff intervention, and all of that does not need to be done with unlimited plans, a significant number of them increase their usage on our network.
Focus on customers who generate an ARPU of at least Rs 25
Over the past year or so, the Indian telecom industry has witnessed steady consolidation. A number of smaller telecom operators, both domestic and international, have either exited the country, shut down operations or consolidated with other players.
RCOM sold its wireless business to Reliance Jio, Aircel is reportedly set to file for bankruptcy and also shutdown service in 6 circles, Tata Teleservices will be merging its consumer mobile business with Bharti Airtel, and then there is the Vodafone and Idea merger.
Kapania said that this consolidation, plus more customers moving to single SIM usage, has resulted in Idea increasing its subscriber base and market share, however, ‘revenue generating’ subscribers are falling. He added that the company has now shifted focus towards “revenue generating subscriber growth.”
Our new internal norm for ‘revenue generating subscribers’ is to drive Idea’s sales, service and marketing teams focus towards at least Rs. 25 ARPU generating customer.
To achieve this, Idea will:
- Focus on selling unlimited voice and bundled data plans.
- Launch attractive postpaid plans to dissuade customers from opting for prepaid unlimited plans, which will include data rollover of up to 500 gigabytes, free Idea phone security, cumulative family member discount, premium services, customized family tunes, etc., besides unlimited voice bundled with mobile data.
- Target new customers, who are currently in the non-unlimited category, with an aim to upgrade to Rs 25-150 ARPU levels through a series of tariff and product interventions.
Kapania also mentioned during the call:
“If you look at the ARPU levels we are getting on unlimited plans vs ARPU level that has been announced by the new entrant (Jio), we find that our ARPU levels are anywhere between Rs. 50 to Rs. 75 higher than the ARPU levels that the new entrant is offering. We have maintained in the past much higher price levels and we will continue to signal the same. We remain hopeful that the volatility over the last few weeks will stabilize and both the leader and the new entrant will settle, and the market will go back to its final growth momentum. Market has to correct itself and we are very confident that it is only a matter of time.”
Idea ‘Voice over LTE’ service to be rolled out in March 2018
The telco mentioned that it is working towards rolling out its Voice over LTE service for its 58 million 4G handset users from March 2018 onwards. This will initially be in the main markets, and the company expects to offer VoLTE services across of of its 4G circles within 2018 itself.
- Idea added 5.2 million mobile broadband subscribers in this quarter, which was the highest net addition in any quarter. Idea now has a broadband data user base of 34.8 million out of total 42.6 million data users.
- Idea’s data usage per month per subscriber has increased from 700 MB to nearly 4.8 GB in one year.
- Mobile broadband data usage by Idea’s ‘broadband subscribers’ has risen to 5.7 GB per month, compared to 971 MB usage in Q3FY17.
- Idea has 58 million 4G devices on its network.