Cost for consumers may rise as cost of spectrum rises, is the word coming in from Himanshu Kapania, MD, Idea Cellular. Telecom companies such as Idea Cellular are eagerly awaiting announcement on reserve price for spectrum auction. The overall spectrum capacity of the company stands at 253 MHz, of which 60 MHz is coming up for renewals.
Most of the spectrum that will be up for renewal is from the 900 MHz band, says Kapania.
Going ahead, he believes that mobile internet will be big business in the coming years considering that only 20 percent customers use internet on the phone.
According to him, 3G will evolve till 2020 and 4G will be relevant only after that.
Below is the verbatim transcript of Himanshu Kapania's interview with Reema Tendulkar and Sumaira Abidi on CNBC-TV18.
Reema: For the telecom industry, the big trigger going ahead will be the upcoming auctions. The Department of Telecom (DoT) had recommended a reserve price which is higher than the Telecom Regulatory Authority of India (TRAI) recommendation and significantly higher than the discovered price in the previous auction. Do you feel that the floor price is too high?
A: Specifically on 2015 outlook or as regards spectrum auction reserve price, I think it is the new auction, the way it is appearing that the final reserve price may come out from DoT is going to have a significant impact on the dynamics of the industry and the way forward on consumer prices. As you are well aware the spectrum that was issued in the past was at administered prices and as the time passes and more and more spectrum gets converted from administered prices to auction prices, the cost of spectrum is going up anywhere between 8 and 10 times of earlier prices and this would mean that finally the consumer will have to pay for it.
Sumaira: Is there any timeline as to when the cabinet is likely to announce this final price?
A: We are also hearing from the media and we are all eagerly waiting for the final announcement.
Sumaira: So Idea has nine circles which are now coming up for renewal in 2015. What percentage of your revenues comes from these circles?
A: You are absolutely right. Idea Cellular at this point of time has an overall spectrum quantity of 253 megahertz spanning over 900, 1,800 and 2,100 megahertz. Against this broadly about 60 megahertz - I am rounding of for ease of your viewers - is coming up for renewal. Most of these spectrums is in the 900 megahertz space and they are in circles, which we call are established circles.
Reema: Can you tell us the exact percentage of revenues which are dependent on these circles?
A: While I can give you that information but some of the information will be misleading because the revenues that come from these circles, come across bands of 900, 1,800 and 2,100.
900 megahertz band primarily is coming up for renewal in nine of these circles and while we have bought some quantity of spectrum in February 2014 by spending around Rs 10,200 crore on 1,800 and out of that amount, a large portion of the spectrum belongs to these nine circles. We also have in eight out of these nine circles 3G spectrum.
Sumaira: What is your take on Rel-Jio, is it likely to be disruptive, would you be worried?
A: There is no doubt that mobile internet is going to be big business going forward. At this point of time, only one-fifth of India access internet from their mobile but this is all going to change going forward. The choices for consumers are to choose between a 2G network, a 3G network and in the long run, the 4G network. Each of the operators is making investments to make sure that based on his understanding of the market and make the best offering.
Idea Cellular has currently almost 80 percent subscribers have ability to access 3G over 12 out of 22 of its circles. We have also bought 4G in eight out of 22 circles, it covers nearly 55 percent of our overall subscriber base. However, we are not launching 4G because we believe it is premature to launch 4G, the device prices are too expensive, equipment prices will stabilise over the years and unless 3G subscribers stabilise even as we speak, there are only 50 million users who access internet from 3G in the country. 2G is far larger. So the point I am making is that while 4G will be important in 2020 and later, it is premature at this point of time. 3G will fully evolve and only when the capacity needs comes up, 4G will happen. This is a view of Idea and this obviously is not view of some new operator and we wait to see its impact on the market place.
Reema: With the upcoming auctions and the company likely to bid, the fear on the street is that the already leveraged balance sheet will only get overextended, so what comfort does the company have on the balance sheet, how much will the debt increase by, how much are you willing to led the debt increase by?
A: Industry is in a highly leveraged position. However, Idea we believe is the strongest placed in terms of balance sheet. In the year 2014, Idea went for a QIP and followed with rights issue, based on Q2 results, we had shown that Idea has on its balancesheet nearly Rs 6,000 crore of cash. We also had shown at the end of Q2 results that our net debt to EBITDA is at the level of 1.35 and we hope to improve going forward. So we are among the strongest in the industry and we would like to make sure that we keep the current status.
I would also like to add here that most of our debt which is currently at the level of Rs 12,000 crore is primarily government oriented. Our debt from the banks including foreign denominated debts has been continuously declining and we hope going forward this will come to near zero.
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