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Himanshu Kapania wears two hats: one as the Managing Director of Aditya Birla group’s telecom company Idea Cellular and the other as Chairman of industry body Cellular Operators’ Association of India (COAI).
Though the requirements are more or less similar for both roles, running a telecom venture is a far cry from his role as a spokesperson of the COAI.
In a tête-à-tête with Business Line , Kapania says that the telecom sector is now cheering investors, even though many of them were battered earlier given the perils of the sector. While the data business is extremely positive to both Idea and the industry, the need of the hour is to migrate 2G data customers to 3G, rather than offering high speed services, says the Managing Director. Excerpts from an interview:
The telecom sector had been battered with hyper competition, regulatory uncertainty, high taxes regime and scams. How did this industry survive, let alone grow, over the past two decades?
We believe the telecom sector has anti-fragile properties in a VUCA world (anti-fragile means things that thrive in times of disorder, VUCA is an acronym for volatility, uncertainty, complexity and ambiguity). It’s trying to find its own answers. Yes, there are a lot of headwinds, but we have to balance the headwinds with the huge amount of tailwinds that will come in.
The telecom sector seems to be cheering the investor community. This is due to the discipline in tariffs, expenditure, administrative or opex expenditures and it’s the discipline of our focus on growth.
At a time when the industry was struggling, Idea Cellular posted an increase in both net profit and revenues. What were the drivers?
The multiple drivers for the net profit were the growth in voice and data revenues, coupled with better cost management and arresting of churn (subscriber moving to another operator). Our overall subscriber acquisition and marketing costs fell by about 3.8 per cent during the quarter.
Our voice minutes rose by 12.5 per cent on a year-on-year basis to 147.3 billion minutes, supported by an addition of 7.8 million new customers on an annualised basis. We also registered an increase in data customers to about 30.9 million, of which 5.5 million were 3G users.
The average revenues per user (ARPUs) of telecom companies, including that of Idea, have been on the rise for the past four quarters. What are the reasons?
The number one driver is the improvement in minutes of usage (MoUs) and the rise in value-added services (VAS) revenues. In VAS, it is data. There is also an improvement in realised rate, primarily driven by the clamping down on free and promotional minutes both for existing customers and new customers.
Is data the game changer for the sector and from where is the growth coming from?
Mobile data business is extremely positive. The market has been focusing on technology, but we have to focus on consumers rather than on technology. The market reality is that 94-95 per cent of the Indian consumers own a feature phone of the GSM variety. Subscribers want to access the Web through their current devices.
The growth currently is coming from EDGE 2G circles, because consumers across the country are accessing Internet through their 2G phones. We (Idea) have also changed the headline tariffs on 2G to be able to give a growth momentum to the customers.
Operators are now introducing high-speed 3G dongles and services. Is the game shifting towards speed?
Improving experience to the customer is extremely important, but at what price? The cost component to the customer is the device price and for the operator it is the investment in networks. The need of the hour is to migrate users to 3G and improve their experience.
You have provided a capital expenditure guidance of Rs 3,500 crore? From where will you raise this, and would you also need funds to renew the licences?
This quarter (Q1) we have generated a cash profit of Rs 744 crore. With the company generating free cash flows, we would be able to finance our capex. Our licence comes up for renewal in the year 2015-16, and we are gearing to tie-up all financials - not only for renewal of licences, but even for any spectrum that would be made available.
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