Focussing on increasing 3G users; Q2 usually weak: Idea

Despite the second quarter being a seasonally weak one due to larger percentage of rural subscribers, mobile data is in a phase of demand generation and there is intense competition in subscriber acquisition and mobile data, says Himanshu Kapania, MD, Idea Cellular.

He says at the moment only 25 percent of Idea subscribers are using 3G network and the focus is on increasing the subscriber base.

In the quarter under review, he adds the company's voice realisations declined by 9.8 percent year-on-year.Idea Cellular's net profit slipped 13.1 percent to Rs 809.3 crore in September quarter from Rs 930.8 crore on a sequential basis. Both voice and data realisations were under pressure.  During the quarter, its revenue slipped 1.2 percent to Rs 8689 crore against Rs 8798.3 crore in quarter-ago period. Overall, the result is inline with muted expectations.Below is the verbatim transcript of Himanshu Kapania’s interview with Latha Venkatesh & Sonia Shenoy on CNBC-TV18.Sonia: It is slightly tough times for the telecom space now with the onset of Reliance Jio as well as with pricing declining for so many quarters. Are you getting a sense that things will only get worse from here?A: You are absolutely right, last quarter we have had a rate decline in mobile data. Over the last one year there has been a rate decline in voice about 9.8 percent. However, this has more than been compensated as far as Idea Cellular is concerned by volume led growth.On a revenue basis our revenue has increased by 14.7 percent on year-on-year (Y-o-Y) basis. We would like to remind the viewers that Q2 is seasonally weak quarter as we have a larger number of rural subscribers and rural subscribers tend to make less call during monsoon season. So, we are not too worried. Rate battle, as far as voice is concerned in our assessment is almost at the final leg of decline.Major decline over the last one year has been besides competition also because of regulatory interventions. There have been three big regulatory interventions that viewers have to keep in to account. Number one is interconnect settlement charge from 20 paisa to 14 paisa. Its impact is about 5 percent on Y-o-Y basis.Second is cap on roaming rates. In our assessment, its impact is around 1 percent.Third is service tax, we were not able to pass the increased service tax from 12.6 percent to 14 percent. So, these are three big factors which had impacted which is outside the control of telecom sector.As far as a competition is concerned competition is intense in subscriber acquisition as well as in mobile data. On voice rates it is, at this point of time, muted.Latha: Would you worry more about data? That was the one that was expected to bring the big booty going forward. There your pricing has fallen by 11.8 percent Y-o-Y and 5 percent quarter-on-quarter (Q-o-Q). Is this is a promise that is not delivering.A: As far as mobile data is concerned, we are in a phase of a demand generation. Very massive supply side investments are underway.Specifically talking about Idea, we have added during the last one year over 14,700 3G sites almost 58 percent expansion taken place. Also with the new auction of 2014-2015, there has been more 3G spectrum being issued. So, supply side is on the increase.We are very confident that demand will go up. As we speak, India has about 980 million users. However, the last report of Telecom Regulatory Authority of India (TRAI), the 3G users was just at a level of a 93 million, about 9 percent of the total India mobile subscribers use 3G. This will change primarily because coverage is expanding.Number two is because device prices are becoming more of affordable. So, if you look at Idea’s own number -- while we have about 19.6 million out of the total subscriber based of 3G, which industry has of 93 million, from our own consumer base about 48 million of the consumer base have 3G and 4G phone.So, just about 40 percent of the consumers today are using 3G services. We expect all this to change as prices become more affordable, coverage is widespread and consumers see lot more avenues for using internet. So, it is only matter of time this will happen. This is a lag factor is what we see at this point of time.Sonia: I take your point about the volume growth in data because that is something that we have been seeing for the last many quarters but the problem is the realisation because there is an onset of so much competition. Everyone is giving better packages these days on data. Do you expect the realisations to fall more because now you are earning just about 23 paisa per minute in data; you think it could get worse than that because of the competition?A: There are two ends -- one is competitive pressure and other is to be able to attract consumers to enter the category. Our average revenue per user (ARPU) on data is Rs 144 and about 25 percent of Idea subscriber base currently access internet from their mobile. If it is a pure 3G user, its ARPU goes up to Rs 202 and about close to about 25 percent of Idea consumers are using 3G. So, if you look at both these are very strong ARPUs.What is necessary is to get the lower-end and mid-end consumers who currently give for voice around Rs 125 to start using data. So, while rate is a short-term worry, our long-term focus for the company as well as industry is how do we convert from a current 3G users of less than 100 million to take it over the next 5 years to 500 million and take it over the next decade a billion.So, we are on a long-term path of this growth journey. We are very confident that consumers may be little lagging behind at this point of time but they are showing very positive trend by buying devices, by slowly adopting to lot of new applications, which are available in internet. E-commerce is growing very strong, so various internet applications are growing strong and all of this will reflect in telecom sector.Latha: Look at the numbers, I am sorry to persist with this. Data volume growth for you has slowed from 90 percent to 83 percent. I agree the base is growing but it is still a small base. For Bharti Airtel it has slowed from 80-70 percent. Now look at the realisations for you three straight quarters of 4 percent decline (Q-o-Q). Both sides volume and realisations are a pressure. All this is before Reliance Jio. Now what happens when Reliance Jio comes, so should we be prepared for lower ticks on both?A: I can sense market worry about mobile data realization rate. All we can say that we have been studying whole of south-east Asia. If you look at Idea itself about a year back its overall mobile data volume was at 39.5 billion megabytes and it has now reached 72 billion megabytes overall basis.So, we have never had an absolute growth at levels today of 33-34 billion megabytes in one year. So, while it may represent 82.5 percent in terms of absolute percentage, the pace of growth is very large. So, it is a little lag factor as consumer is concerned. I can see short-term worries of investors. However, I can confirm to you the trends that I am seeing at the market, at consumer end are extremely positive. It is only a matter of time this will get converted into volume growth and revenues.Sonia: You did mention that you are focusing on increasing your 3G subscribers to 500 million in the next five years. Can you give us a slightly shorter term target? In the next say one year by the end of FY17 what could your subscriber addition look like?A: So let us go step by step. Let me confirm to you that what I had talked about from 100 million to 500 million -- this is for the overall industry and Idea is currently, nearly 19-20 percent player. So, our numbers will be in the ballpark of around 20 percent market share of the industry level so that is step one. We currently have about 19.6 million of 3G users and we are working extremely hard to be able to -- over the next five years -- come closer to a level of 70-80 million and over the next one year almost doubling the subscriber base.So, the effort in that direction is that our coverage of 3G has increased. Now today we cover about 305 million overall population against an overall population for 2G coverage which is about 966 million. We have just announced our capital expenditure (CAPEX) plan of Rs 60-65 billion. We intend to add additional 30,000-35,000 3G and 4G sites over this financial year. Which will in our assessment add incremental 200 million population of coverage and give opportunity for about 500 million Indians to be able to use Idea brand of 3G and 4G services.Latha: Now the question on bank, when is it getting launched itself? We understand Paytm could launch as early as March so when is yours coming and more importantly what does it do to your telecom business? Will it just give you stickiness or will it give you volume as well?A: You are right, our joint venture (JV) where 51 percent partner is Aditya Birla Nuvo and 49 percent partner is Idea Cellular has received in-principle approval for payment bank. We are working hard, as we see today our assessment is by the end of calendar year 2016, is when we will be able to launch our payment bank.I don’t think we are in the race to be first off the ground. Our focus will remain our strength. We are present in 3,75,000 villages across Pan India and we want to ride on the strength of our distribution to be able to get to our current subscriber base of 170 million. Hopefully, by the end of calendar year 2016 excess of 200 million subscriber base, an opportunity to do micro payments as well as open a payment bank account.Our focus will be more on the physical form while we will have a digital offering. So, very large IT investment is currently in place. We are also getting our compliance fully in place as well as distribution in place. However, we are not waiting for payment bank to come. We also have a prepaid payment instrument (PPI) licence and we have started digital Wallet journey. We currently have 1,50,000 subscribers in digital Wallet. We are committed to be able to take it by the end of this financial year to a million customers who will be on digital Wallet for Idea Cellular.So, obviously the first focus of Idea Cellular as of payment bank and digital Wallet is to give more avenue to our existing customers to be able to use digital services than to transfer moneys. However, in the long run it will not be limited to loyalty of our customers and stickiness. It will be a standalone business though we see that in little distant future.