Idea focussing on data ARPU, volumes to stay steady

Moneycontrol.com
22 July 2015

Lower interconnect usage charge, increase in service tax from 12.36 percent to 14 percent and a cap on roaming charges were the chief constraints under which Idea Cellular — the country's third-biggest mobile operator — delivered its first quarter results, beating street estimates.

Lower interconnect usage charge, increase in service tax from 12.36 percent to 14 percent and a cap on roaming charges were the chief constraints under which Idea Cellular — the country's third-biggest mobile operator — delivered its first quarter (Q1) results, beating street estimates.

Idea is part of the Aditya Birla conglomerate, fifth of which is owned by Malaysia's Axiata. On Tuesday it reported a better-than-expected 28 percent rise in quarterly profit, helped by higher data revenue.

Speaking to CNBC-TV18 after the company recorded 4.5 percent revenue growth sequentially, Himanshu Kapadia, MD, Idea Cellular said it would have risen 21 percent (YoY) if IUC charges were not cut.

The company is expanding its infrastructure and has raised its annual capital spending guidance as it prepares to roll out a high-speed fourth-generation (4G) network in 10 of the country's 22 service areas next year. Kapadia said the focus is now on ARPU and volumes rather than realisations. During the quarter, Idea's average revenue per user (ARPU) increased to Rs 182, up 1.7 percent versus Rs 179 (QoQ).

Below is the transcript of Himanshu Kapania's interview with Latha Venkatesh and Sonia Shenoy on CNBC-TV18.

Latha: Can you maintain the runrate both in terms of revenues and in terms of margins, it is getting a tougher world, will you be able to maintain it for the rest of the year?

A: You are absolutely right. We have had a sequential quarter growth of 4.5 percent in revenues and 6.5 percent in EBITDA. I will also remind the viewers that this revenue growth is in spite of three major changes in regulatory and tax charges — 1] Interconnect Usage Charge (IUC) rates which was earlier at 20 paisa per minute has declined to 14 paisa per minute from March 1, 2015. 2] The roaming rates has been reduced and number three is there is some service tax which was effective from June 1 has increased from 12.36 percent to 14 percent and some of the fees is not possible to pass through to consumers. In spite of this, we have had a 4.5 percent sequential revenue growth and 16.4 percent growth and if you have to normalise for these changes, we would have a year-on-year (Y-o-Y) growth of around 21 percent.

The point I am trying to make is that if you are happy with the current set of numbers, this impact of IUC will settle going forward and there is a huge amount of potential that remains in the country both in terms of voice primarily in the rural markets as well as large potential of mobile broadband. India has just about 10 percent penetration of a mobile broadband, 3G customers on a nationwide basis for the industry is hardly at a level of 80-85 million and the journey is to go to a billion. So we have just begun the journey, there is so much more potential in this sector.

Sonia: I just wanted some more colour on the data pricing because that has moderated this quarter, it is great for users like us who use data all the time but for a company like yours, do you see more pressure as far as data pricing is concerned purely because of how competitive the environment has become?

A: There is no doubt, there is competitive pressure on data rates as there is competitive pressure on voice rates and over the year, data rates have declined by 6.5 percent. Largely this is on account of market pressures, there is one factor which also needs to be kept into mind is the service tax rate change. Most of data is a fee based model that we follow at a fixed price point and once the service tax changes, it was not possible to pass through this service tax. There was a rate change in the last one month and some of the fall, which is very steep on a sequential quarter basis is on account of that. But having said that, we are in a journey of building mobile broadband and internet users, Idea has only 22.9 percent of its overall EoP base of 165 million which currently access internet from their mobile at a level of 37 million and this journey is going to be much larger. So we have to remain focused on average rate per unit (ARPU) rather than rate. Our volume growth has been very robust. On the year-on-year (Y-o-Y) basis, our volume growth is 93-94 percent. We are fairly confident that this should go up rather than fall down going forward as we are building up a very large infrastructure both expanding our 2G coverage as well as expanding mobile broadband coverage on 3G and yesterday we announced our plans for a launch of 4G in a fresh manner in calendar year 2016.

Latha: That said, if you have to get to that kind of a national reach you also have too much competition and Rel Jio will be coming up any time soon. You have been upping your capex but that is also telling on the P&;L. Your finance charges have risen to about Rs 401 crore this quarter which means on a year-on-year (YoY) basis instead of Rs 1,000 crore interest outgo you would be paying what Rs 1,600 crore? That is a 60 percent rise in finance charge; will not your net start getting impacted?

A: Let me answer this question into two parts. The first part is which is in the interest of stock market and short-term players as well as the larger component, the greater purpose that for the reason why IDEA Cellular exists which is in the interest of the country. So, as basically as far as your interest charge component is concerned, I would like to remind you and we have had number of good discussions that IDEA Cellular has participated in March 2015 and had purchased spectrum for value of Rs 30,000 crore.

Out of that we paid advance payments of Rs 7,700 crore as well as in March 2014 we also participated and bought spectrum worth Rs 10,000 crore and in the end of last quarter we launched a daily network and which was earlier getting capitalized, all of that has started to reflect in our balance sheet.

Going forward we already have had this discussion, some of these will start appearing. Once all the spectrum which has been acquired by us is allocated by Department of Telecommunications (DoT) but this is very much built into the numbers by most analysts.

The more important component is going forward-India which has just about very small infrastructure, it is a very large country and a billion people are waiting to transform themselves from their analogue lifestyle to a digital lifestyle and company IDEA Cellular is very much in the fray to be able to provide this massive infrastructure.

We believe a huge transformation is going to take place in the country and this mobile broadband is going to lead this transformation and the next level of GDP growth of the country will be driven by Information and communications technology (ICT) where communication is going to play a very important role and sectors like ours is going to play a very important role and IDEA Cellular remains committed to be able to make sure that we participate in this growth.