High interest costs and foreign exchange losses saw Idea Cellular report a 41 per cent drop in net profits for the quarter ended September 2011 over the corresponding quarter in 2010. The operator?s consolidated net profit decreased from Rs 1.8 billion to Rs 1.06 billion during this period. Its consolidated gross revenues increased by 26.2 per cent from Rs 36.89 billion to Rs 46.19 billion. As against this, the industry had estimated an average net profit of Rs 1.58 billion on revenues of Rs 46.34 billion.

Idea, which spent $1.3 billion on 3G spectrum in 2010, funded its 3G expansion through additional debt, but the sharp fall of the rupee against the dollar increased the cost of servicing foreign currency loans. Interest costs on loans for building networks nearly tripled from Rs 1.03 billion to Rs 2.94 billion during the period under consideration. The operator?s net debt stood at Rs 112 billion at end-September 2011.

Operational highlights

In the quarter ended September 2011, Idea?s pan-Indian subscriber base touched 100.2 million. Active subscribers constituted more than 90 per cent of the user base.

The company has operations in all 22 circles of the country, with 3G services in 20 of them, including nine roaming agreements. About 2.5 million of its subscribers are currently on 3G networks.

The strategy to stay focused on its established telecom circles has helped the operator maintain its market position and mobile number portability leadership with a net gain of 1.3 million subscribers (as on October 16, 2011).

In line with the industry trend, Idea?s ARPU declined from Rs 167 in the quarter ended September 2010 to Rs 155 in the quarter ended September 2011. The operator carried 106.2 billion voice minutes of usage (MoU) on its network during the quarter ended September 2011 as compared to 84.8 billion minutes in the corresponding quarter in 2010.

The average realised rate (ARR) increased by 1.7 per cent from Re 0.42 to Re 0.43 during the period under review. Factors like the increasing contribution of value-added services (VAS) in total revenues, growing roaming revenues and a revision in promotional tariffs have contributed to the improved ARR. The contribution of mobile VAS to Idea?s revenues increased to 13.2 per cent in the quarter ended September 2011 as compared to 12.9 per cent for the corresponding period in 2010.

Segment review

During July-September 2011, gross revenues from the established circles stood at Rs 41.58 billion, while the same from new circles stood at Rs 4.98 billion. The corresponding figures for the July-September 2010 quarter were Rs 33.51 billion and Rs 3.38 billion respectively.

Revenues from the mobility and long distance telephony segments stood at Rs 45.55 billion and Rs 615.4 million respectively.

Capex direction

Idea rolled out 2,076 2G and 2,755 3G cell sites during the quarter ended September 2011. The total addition to the gross block including capital work-in-progress was Rs 11 billion as against Rs 8.03 billion for the corresponding quarter in 2010. A part of Idea?s cash profit of Rs 7.9 billion during the quarter was used to match the increase in capex. The operator?s capex guidance is Rs 40 billion for 2011-12.

The outlook for Idea Cellular and its peers has improved following the increase in voice call prices in July 2011 by about a fifth, which was the first such hike in the hyper-competitive sector in at least two years. However, this step alone will not be enough and operators will need to tap new opportunities to improve their top lines. Currently, voice calls account for about 90 per cent of the sector?s revenues.

With the launch of 3G networks, Idea Cellular, like its peers, is betting on  high-margin data services. As the demand for telecom services undergoes a transition from being purely voice led to a mix of voice and data, Idea Cellular is well placed in the wireless market with a pan-Indian presence, strong financials and increasing consumer traction to capitalise on long-term opportunities.