See improvement in rate realisation ahead: Idea Cellular

The telecom sector has not done well. It is reeling under margin pressure and regulatory concerns.

In an interview to CNBC-TV18, Himanshu Kapania, managing director of Idea Cellular says, for the last two quarters, there has been a decline in the revenue per minute. "The competitive intensity in the last two quarters was extremely high," he adds. According to him, going forward, there would be improvement in the rate realisation and there will be reduction in the trade schemes. Below is the edited transcript of his interview with CNBC-TV18's Latha Venkatesh and Ekta Batra. Q: Competition is high, and revenue per minute has declined for all telecom companies across the board. For Idea, the revenue per minute is down for the second quarter in a row. Do you then foresee a case for possibly further reduction in traffic? A: You are right. For the last two quarters, there has been a decline in the revenue per minute. It is our assessment that the competitive intensity in the last two quarters was extremely high. But given the fact that we are coming close to the auction, and a reality to generate a lot more cash will make all our operators little more cautious in their approach in the market place. So, it is my assessment that going forward there would be improvement in the rate realisation and there will be reduction in the trade schemes. Q: What exactly is Idea’s strategy in the upcoming auction then? Will Idea only bid for circles where it is actually lost licenses? A: As you are aware, Idea Cellular based on Supreme Court order of February 2, 2012 needs to bid for seven of its licenses. Now, the decision to bid or not to bid will be taken very close to the month of November, when the auction actually takes place. But before the actual decision for auction, we will wait to see outcome of various litigations that are currently on in various courts. Q: What is your expectation of the bidding in the auction itself? Do you think that it will be as aggressive as the previous 3G round or will it be more sedate? A: If you have to analyse the overall reserve price and performance of the industry from the period of 2008, when the spectrum earlier was given at Rs 1,650 crore, you can notice that there are only two-three out of the 16 players that are currently at EBITDA positive level. Even at Rs 1,650 crore, for new operators, there is no business case. So, our view remains that at the current reserve price, irrespective of additional terms that have been put on spectrum, there is no business case. There is no reason for companies to bid for this auction. Q: You are facing some cost pressures, what kind of margins do you expect to see going forward? A: You are right. We are facing multiple cost pressures because of macroeconomic factors, currency fluctuation and interest cost. But besides these macroeconomic factors, on an overall basis, Idea Cellular has been improving its EBITDA margin by better capacity utilisation. We were earlier operating most of our assets at a 13 year life of assets. We have decided to reduce the overall life of assets to ten year, given that there are technology changes and that impact was there in Q1. It will be only seen on the limited basis in the future quarters.