Idea will rebid for 2G spectrum based on pricing: MD

Telecom stocks have been languishing under a regulatory hangover as spectrum pricing is still unknown and indication are that they will be too high for comfort for the telecom operators.

Himanshu Kapania, managing director, Idea Cellular believes that the current recommendations are aggressive and retrograde. They will push the growth of telecom sector far behind. "The overall policy environment has to ensure level playing field," he said in an interview to CNBC-TV18. Idea will rebid for spectrum based on number of slots that are made available and final auction price. Reports indicate that government may price the spectrum at about Rs 1,400-1,600 crore a megahertz. If spectrum is priced based on the current proposal then tariffs could rise by Rs 0.30-1 a minute in the metros, he cautioned. Also Read: Voice market still far from maturing, says Idea's Kapania Below is the edited transcript of Kapania’s interview wit CNBC-TV18. Also watch the accompanying video. Q: Given the kind of early signs you heard from the regulators on spectrum pricing, what is Idea’s strategy this time around to regain its seven cancelled licences or for rebidding? A: Idea Cellular believes that during the last five years policy environment has been generally in the dark period, but Idea’s strength remains managing of market and its management’s strength to build customers. As specifically our strategy on gaining back our spectrum from the cancelled licences, I think that is largely going to be dependent on what is going to be the policy of the government in terms of number of slots as well as the final auction price that is determined. The policy that we will apply is that our decision should be in the interest of all our stakeholders specially our investors. Q: You heard the initial recommendations from Telecom Regulatory Authority of India (TRAI) and the Department of Telecom (DoT) and that looks like its going to be significantly high. Can you give it a pass or given the comparative nature of the market you would need to bid and that might put pressure on your earnings and also your balance sheet? A: I will repeat Idea Cellular is one of the pioneering telecom company, we are a serious telecom player. We will continue to build the business in the country but having said that we will also fight for our rights. We believe that the overall policy environment has to ensure level playing field. There cannot be a situation where there are going to be operators who are operating at a different price point for the basic raw materials spectrum vis-à-vis existing operators. We believe we will find answers and if necessary agitate to make sure that the company is no way at any disadvantage vis-à-vis existing players. Q: As a market player what is your observation on the kind of price recommendations that have been put out and whether at those prices any operators will find it remunerative or profitable or even feasible to go out and bid. Is there a fear of an auction failure if the government persists on such higher prices? A: You are right. I will repeat what the company has said. First and foremost our view remains that over the last five years we are going through a dark period on policy. There is a lot of uncertainty and it is not inline with the long-term objective stated of the government of growth both in the rural sector as well as growth in the wireless broadband business. We believe the current set of recommendations are aggressive and retrograde and will push the growth of telecom sector far behind. Having said that, our calculations states and we have shared it both with TRAI as well as DoT and even made presentations to all concerned ministries that if the raw material price of spectrum is going to be priced at the current proposal there will be a direct impact on tariff and it may wary between 30 paise on an average to as high as Rs 1 in the metros. _PAGEBREAK_ The current business model which is led by growth of volumes at world’s lowest price will have to be abandoned if government were to pursue its current thought process of keeping spectrum at such high prices. You can see that already what is happening on the 3G where the prices have been relatively high as well as on 4G where the existing winners of 4G licences are finding it difficult to launch the services. Q: What is the probability when the auction does happen, the reserve prices much lower than what the recommendations are in the vicinity of 7,000-8,000 crore? A: We are very optimistic. This is not the first time that we have had policy hurdles. We have been in building customer franchise over the last 16-17 years. There have been policy flip-flops. There is no doubt that last five years has been the darkest period, but our belief is in the long run the telecom business has very important role to play as far as growth of GDP. There is a direct impact of almost 1.2% for every improvement of 10% penetration of voice customers in the country. The impact of wireless broadband is even higher on the Indian economy. The fact that telecom plays a very significant role on the growth of the country’s GDP and its impact as a multiplier factor in the long run will play a very important role for the setting of the raw material prices. We believe the current thinking of policymakers is far away from the realities of building businesses and empowering the consumers. We are hopeful that it will undergo a change in the long run. Q: What is the latest on spectrum refarming because nobody is clear about the modalities? Have you heard anything new on that front and what are your expectations with specific regard to that? A: Idea Cellular is closely observing the movements refarming. We have issued a white paper and we are asking some fundamental questions. We are asking is refarming is for whose benefit. It is our belief if the reforming in the current process it happens. It is not only redistribution of spectrum, but it is our belief that it is eviction of spectrum from the current holders who have legally binding contracts of extension for next ten years. Having said that, nowhere in the world has refarming in the current construct ever been recommended or even in the process of implementation. It is going to have major disruptive impact on the country. Our initial assessment is almost 100,000 villages or even more will become dark if the refarming in the present form was to go through and consumers will face lot of quality issues. Q: The kind of slip that you saw in revenues per minute in the quarter. Do you expect this kind of pressure to continue given pricing trends? A: My assessment is that Idea cellular in terms of markets is doing fine. Last year we have grown almost double the pace of the market. On a full financial year basis our growth rate is 25.8%. This was reflected in our EBITDA margin, which has grown by 1.6% and an overall growth on an annual basis of over 35%. We continue to strengthen our position. We also are currently on incremental basis, not only in terms of revenue, but also in terms of Visitor Location Register (VLR), in terms of minutes; subscribers are currently generating over 20% of the market. We believe that the company is doing fine and it maintains enviable record of being the fastest growing Indian telecom operator in the most fiercely fought markets.