Idea Cellular has reported strong overall performance for the sixth consecutive quarter. This was largely driven by the withdrawal of promotional offers and recurrent hikes in voice tariffs in the past year. It reported an increase of 86.5 per cent in net profits from Rs 2.4 billion for the quarter ended September 2012 to Rs 4.47 billion for the corresponding quarter in 2013. A significant rise in profits was reported on account of a 19 per cent increase in net revenues from Rs 53.14 billion to Rs 63.23 billion during this period. This also resulted in higher earnings before interest, taxes, depreciation and amortisation (EBITDA) margins, which grew from 26.8 per cent to 31.2 per cent.

Of the total revenue, the data service business contributed about 8.7 per cent during July-September 2013 as compared to 5.4 per cent during the corresponding quarter in 2012, reflecting higher service uptake. However, the non-data value-added service (VAS) business’s share in total revenues continued to decline on account of competition from over-the-top services as well as implementation of new VAS norms by the Telecom Regulatory Authority of India. The non-data VAS business accounted for 7.4 per cent of overall revenues for the quarter ended September 2013 as compared to 10.2 per cent for the corresponding quarter in 2012.

Idea Cellular’s performance was strong on the operational front as well. In the voice service segment, the average minutes of usage (MoUs) per customer increased from 359 during July-September 2012 to 368 during the same quarter in 2013. The higher usage of voice services led to an increase in ARPU from Rs 148 to Rs 164. Besides, post-paid users now account for a larger share in the subscriber base, which has resulted in higher ARPU. Withdrawal of promotional offers, including free minutes, coupled with a tariff hike has resulted in an improvement in the average revenue per minute (ARPM), which increased from Re 0.41 for the quarter ended September 2012 to Re 0.44 for the corresponding quarter in 2013.

Further, international and national long distance services gained traction during the quarter ended September 2013. Total MoUs increased from 914 million to 1,184 million during this period, while those for national calls grew from 11.04 billion to 12.87 billion.

The data service business also registered steady growth during July-September 2013. The data subscriber base increased from 18.91 million in September 2012 to 33.61 million in September 2013. Of the total data subscribers, 6.2 million were 3G customers as of September 2013. Besides, data usage per person also grew by 13.37 per cent from 157 MB to 178 MB on account of growing 3G service uptake, which resulted in a higher data ARPU of Rs 55 during July-September 2013 as compared to Rs 50 during the corresponding quarter in 2012. An increase in data usage was also led by tariff cuts in select circles in June 2013. However, this resulted in a fall in the average revenue per MB from Re 0.32 to Re 0.31.

Idea Cellular’s 3G service growth could be limited in the next few quarters as a result of the Delhi High Court’s interim order on 3G intra-circle roaming agreements. The order restricts operators from adding 3G subscribers in circles where they do not hold spectrum. Idea Cellular does not hold spectrum in the 2100 MHz band in high-ARPU circles such as Delhi, Mumbai, Karnataka and Tamil Nadu. Given the scenario, the operator risks losing potential 3G customers, who are currently using its 2G data services. High subscriber churn will not only result in a decrease in revenues but also impact its competitiveness in the market.

In the near term, the operator’s financial position could be affected as it may have to shell out significant capital for acquiring spectrum and paying the one-time spectrum fee. Further, a committee set up by the Department of Telecommunications has recommended a penalty of Rs 6 billion on Idea Cellular for merging operations with Spice Communications in six circles, which the committee claims is a violation of the licence norms.

On the upside, tariff rationalisation and higher demand for 3G services driven by greater smartphone adoption have been positives for Idea Cellular and will continue to lead to better revenue realisation. Further, clarity on regulatory issues such as spectrum trading, and merger and acquisition norms will pave the way for consolidation in the market and help the operator plan its long-term strategy.