How has Idea Cellular performed over the past year? What have been the company’s key achievements?

In the hypercompetitive Indian market, Idea has been among the fastest growing telecom operators with an annual growth rate of over 25 per cent, almost double that of the mobile industry. It has consolidated its position as the third largest mobile service provider with a revenue market share of 14.4 per cent as on December 31, 2011. The company has been consistently reporting over 20 per cent of incremental revenues, high visitor location register (VLR) figures and a large market share in terms of minutes of usage (MoU) for the last eight quarters. Also, it serves over 113 million consumers. With the highest active user base in the industry (93 per cent on VLR in January 2012 as per the Telecom Regulatory Authority of India [TRAI]), Idea’s subscriber base is providing it a platform for future growth, not only in the voice segment but also in the emerging wireless data business. In terms of MoU, the company currently carries over 1.4 billion minutes a day on an average. This ranks it among the top 10 global telecom operators.

Despite multiple inflationary cost pressures, the company increased its earnings before interest, taxes, depreciation and amortisation (EBITDA) margin by 3.1 per cent to 23.7 per cent during the third quarter of 2011-12. This was primarily driven by the strong performance in 13 established service areas (launched before 2008-09). While this growth has been achieved in a difficult business environment, the outlook is a combination of headwinds and tailwinds. So, in spite of achieving above par growth in the primary areas of subscriber base, revenues and EBITDA, Idea registers a below par return on the capital employed and profit after tax due to volatile market conditions, regulatory uncertainty and high expenditure on 3G spectrum.

What are the company’s short- and long-term targets?

Idea is transitioning from being a pure mobile voice operator to providing voice telephony and mobile broadband services. There is significant potential in the voice business as currently less than 60 per cent of the Indian population uses mobile services (the industry VLR stood at 660 million as per TRAI’s report dated January 2012) and Idea is well positioned to capitalise on this opportunity. Also, another 300-400 million customers will avail of 2G wireless services in the next three-four years. High speed (21 Mbps) 3G mobile broadband services will take the wireless telecom growth story forward.

Idea is one of the few companies in the world to provide high quality telecom services at the lowest price points and still derive stable profits. With its strong balance sheet and execution skills, Idea would benefit from the long-term opportunities in the sector, once the overcapacity phase is over.

What are your views on 3G uptake? What has been the response to Idea’s 3G services? What are your plans for increasing coverage in the future?

Wide internet availability has resulted in over 2 billion users actively adopting the new digital lifestyle globally. In India, this trend is only beginning to pick up with less than 50 million active users.

Idea launched 3G services at end-March 2011. Since then, it has taken major strides in terms of 3G network coverage. It has expanded its footprint to 3,000 towns and over 10,000 villages.

But 3G network expansion is only one of the drivers for wireless broadband penetration in the country. The company has decided to build on its data capabilities. To this end, it is augmenting its back-end systems. Idea is upgrading its fibre transmission network to high capacity dense wavelength division multiplexing, its microwave to IP radios, etc. It is also improving its billing, customer care and IT capabilities, and building a high capacity network packet core to manage the expected surge in wireless broadband data.

The adoption of the new digital lifestyle in India has been slow. But this is set to change as the ecosystem for wireless broadband improves with the availability of affordable 3G smartphones, relevant applications and content.

Idea will participate in accelerating the development of the 3G ecosystem by launching Idea-branded 3G smartphones at starting prices of Rs 5,850 plus special consumer benefits of Rs 4,200. The distribution and reach of existing handset manufacturers have to be supplemented by operators, which would provide several options to customers for handset replacements.

How will the roll-out of 4G services impact the company?

India is still a predominantly voice-centric market and the adoption of wireless broadband services will necessitate significant investments in marketing initiatives. The ecosystem comprising devices, networks, applications and content is still evolving to meet customer expectations.  Globally, there are over 5 billion 2G users while the 3G subscriber base has reached only 1 billion even after 10 years of service launch. In comparison, 4G technology is being introduced in developed countries like the US, Japan and Germany. Even high-penetration broadband markets such as the UK, France and China either do not have any plans of launching 4G services or would deploy the technology only as hotspot coverage support.

India launched 3G services recently and the technology is at a nascent stage currently. Operators, after spending about Rs 650 billion on 3G spectrum, are making large investments in network infrastructure, development of relevant services and innovative marketing programmes. These efforts will take time to produce the desired results and drive the proliferation of 3G services over the next few years. It is only after mobile broadband on 3G is fully established in India that we should start looking at other technologies.

What has been the company’s experience with the introduction of mobile number portability (MNP)?

MNP has been operational for more than 15 months. While analysts believed that it would not be a game changer, the fact remains that over 31 million users, that is 5 per cent of India’s active mobile users, have ported to new operators. Therefore, MNP remains an important parameter for Idea to exhibit its strength in network, customer services, brand power and employee resilience. We are leading in this space with over 2.8 million net port-ins. Almost one in every four MNP customers has switched to Idea.

What will be Idea’s future thrust areas?

With only 650 million active mobile customers in India, the demand for voice telephony will continue to grow over the next three-five years. While rural consumers will enter the mobile voice category, the aspiring urban population is fast adopting various telecom products and services. The latter consumer segment is demanding ubiquitous 3G mobile broadband services at affordable prices. These users are increasingly switching to smartphones to avail of services like instant internet, social media access, and online music and video, besides using the mobile device for voice and text applications. New devices will improve the overall use of mobile networks and the variety of applications will facilitate the transition from vanilla voice and text to information and entertainment on 3G. As wireless broadband usage increases, new revenue streams in the areas of health, education, transportation, mobile advertising and mobile banking will emerge.

Idea, with a pan-Indian network, over 100,000 cell sites (2G and 3G) and a strong balance sheet, is in a strong position to capitalise on the growing wireless service market.

What trends do you foresee in the Indian telecom industry during the next two to three years?

With strong headwinds blowing due to policy uncertainty, scarcity of spectrum, and a volatile sectoral environment, the demand for wireless services has been subdued in the past few years. The company is looking forward to a new future-proof, transparent and growth-oriented regulatory regime, which will encourage voice investments in deep rural markets as well as provide an impetus to 3G services. We are confident that the new policy will recognise the multiplier effect of telecom services on the GDP and help realise the growth potential of telecom-linked services in sectors like banking, commerce, education and health.

How has the recent cancellation of 2G licences impacted Idea?