Himanshu Kapania has recently taken over as managing director of Idea Cellular. In an interview with tele.net, he talks about the company?s key achievements, its 3G and rural rollout plans as well as the key challenges going forward. Excerpts….
What have been the noteworthy achievements of Idea Cellular in the past one year?
In spite of the hypercompetitive phase, Idea has been among the fastest growing telecom operators in the past three years and has emerged as the third largest mobile service provider in terms of revenue. As per the Telecom Regulatory Authority of India (TRAI), Idea?s revenue market share stood at 13.6 per cent as of March 2011, an improvement of 1 per cent over the previous financial year.
This sharp improvement in competitive ability has been on account of its rejection of standard industry review parameters such as subscriber count, ARPUs and revenue per minute. Idea has instead focused on five parameters ? gross revenues, active subscribers, minutes of usage (MoU), cash profits and mobile number portability (MNP).
In terms of gross revenues, Idea recorded sequential growth of 8.2 per cent in the quarter ended December 2010 and 7 per cent in the quarter ended March 2011. For 2010-11, the company?s revenues stood at Rs 156 billion on a stand-alone basis.
The operator had the highest ratio of active subscribers to reported subscribers in the sector at 93.1 per cent as on March 31, 2011, while the industry average was 70.9 per cent. Of its total 89.5 million subscribers, it had 83.3 million VLR (visitor location register) subscribers.
Even in these difficult times of huge price drops and high debt due to investment in the 3G spectrum auctions, Idea focused on improving cash profits in 2010-11. Its cash profits were in excess of Rs 30.9 billion during the last financial year.
Idea has also emerged as the biggest net gainer from MNP in India. We lead the market with net subscriber additions of over 700,000 and the lowest port-out ratio of 58 customers against every 100 customers porting in.
How will the launch of 3G impact the dynamics of the telecom industry in general and Idea Cellular in particular? What revenue contribution do you expect from data services going forward?
There is tremendous potential for mobile broadband in India. Over 30 per cent of the country?s population is still not connected with mobile services, and over 90 per cent doesn?t have access to the internet. 3G is expected to bridge this gap and, therefore, presents a huge opportunity for large service providers such as Idea.
Even though 3G made a delayed entry in India, we have the learnings and experience of developed countries to benefit from. The ecosystem that hampered the growth in developed countries has now transitioned and is well developed. 3G technology has reached a stage where consumers can enjoy the broadband experience it offers. 3G-enabled handsets and smartphones are available at a price of $75 to $200, making them affordable for users.
Post the stabilisation of 3G services in India, the major telecom operators will witness the same growth rate as that registered during the boom time of 2000 to 2007. A key growth driver will be the delivery of relevant content and applications. The Indian IT industry is very strong. Also, Bollywood and cricket have a major role to play. The adoption of these services through wireless will be fast and consumers will move from large screens to small screens, like they moved from voice to text.
In the last financial year, Idea launched its Gold Standard 3G services and has now expanded the coverage to nine service areas ? Madhya Pradesh and Chhattisgarh, Gujarat, Himachal Pradesh, Uttar Pradesh (East), Uttar Pradesh (West), Maharashtra and Goa, Kerala, Haryana and Andhra Pradesh. As of end-May 2011, Idea?s 3G services covered over 700 towns in nine circles including major urban markets, Tier I and Tier II cities as well as rural and remote areas.
What are Idea?s plans on the rural front? How viable have the rural operations been from a financial perspective?
Idea has traditionally focused on growth in rural and semi-urban areas. We have set up a deep network to cover non-urban and rural markets. Idea has the highest share of rural subscribers as a percentage of total subscribers among all players. In fact, two out of every three new subscribers are from non-urban markets.
The voice business still has huge potential, especially in the hinterland. We will continue to drive 2G and 3G services from the industrial, agricultural and educational segments of rural and semi-urban areas.
What are your views on the current availability of spectrum?
Spectrum availability is critical for growth of the Indian wireless industry. There is an urgent need for the allocation of additional spectrum at rates that will balance the need for long-term telecom growth.
There are several policy initiatives that are currently under discussion, including a merger and acquisition policy, which will have a positive effect on sector development. This is imperative to reduce the fragmentation of spectrum that has happened with the introduction of new players.
The second most critical element for a healthy telecom industry is the concept of cost-based interconnection. Interconnection usage charges (IUC) are currently being revised by TRAI, and we believe that a proper IUC regime that accounts for costs will be critical for future telecom investment.
We are confident that the growth of the Indian telecom industry will be facilitated by the implementation of forward-looking policy changes.
Where do you see the telecom industry five years from now, in terms of subscriber growth, market competition and ARPUs?
Going forward, the focus of the industry will remain on wireless broadband, spectrum and infrastructure.
The launch of MNP and 3G will bring about many changes in the types of services being offered. Customers will benefit from the launch of new services and the pace of overall growth in the sector should continue unabated.
The emergence of new devices will boost overall usage of mobile networks. After 15 years of mobile services, India is now ready to capitalise on wireless broadband. We are bullish about the wireless broadband business and expect the emergence of new revenue streams in the areas of health, education, transportation, m-banking and commerce, as well as consumer durables.
Is Idea Cellular planning to expand in other geographies?
The company has no plans to expand its presence as of now.
What is the company?s growth strategy for the future?
There is still a lot of potential in the voice business and our company is well positioned to harness it. There are another 300 to 400 million new customers who are likely to join the wireless network in the next three to four years? time. The growth story of voice will continue for some time to come.
3G and data services will keep the wireless telecom story moving forward, and strengthen incumbent and fundamentally strong telecom operators like Idea. We plan to launch these services in 10 towns each day to cover 3,200 towns, thereby providing high speed data services to 50 per cent of our existing subscriber base within a year of 3G launch.
Having set up an extensive pan-Indian network, the company is now looking at providing services such as m-banking, m-health and m-education to our over 92 million subscribers.
Should spectrum trading be allowed in the country?
Yes, definitely. We are confident that this will be included in the proposed telecom policies expected later this year.
What is your wish-list on the policy and regulatory fronts?
The telecom industry has a very high incidence of taxes and duties. There is a need to rationalise the duty structure to facilitate sector growth.
There is a large corpus under the Universal Service Obligation Fund, which can be effectively utilised in developing a robust rural telecom infrastructure in India through key policy interventions. Also, there is significant potential for the use of alternative energy sources to power remote sites and this corpus could provide the much-needed initial funding for the implementation of alternative energy schemes.
In addition, initiatives to reduce the overall cost either from the policy or regulatory perspective are the need of the hour. Instead, over the past two years, the cost of running networks has constantly increased. The policymakers must recognise that this sector is not a cash cow ripe for milking.
