Telcos declining, average price realisation may rise: Idea

The consumer demand for telecom services remains very strong

Himanshu Kapania

MD

Idea Cellular

Himanshu Kapania, MD, Idea Cellular  , says that the number of operators in the market is declining and we expect the overall industry average price realization to go up, then only Idea price realisation would go up.

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Below is the edited transcript of his interview to CNBC-TV18.

Q: What is your view on auction process and on talk about a potential tariff increase? Is it indeed an outcome that telecom makers are looking at? Are you testing the market to see if there is any potential to raise tariffs?

A: On increasing tariff, there is still a lot of competition in the marketplace. Idea Cellular has a current price realization close to Rs 41.2 and according to our assessment the industry price realisation is around 35 paisa. Overall, the number of operators in the market is declining.Idea's price realization would go up if overall industry average price realization increases.

Q: The recent data does indicate that subscriber additions are coming back for telecom companies like yours. Is it a right time in order to go ahead and test the market to increase those tariff or do you fear that it will hit your pure volumes and MOUs?

A: Our review cycle is on quarterly basis. Telecom information is available on a monthly basis but I would resist from drawing any short term conclusions for a long term trench. The consumer demand for telecom services remains very strong. We are going through an aberration period where two corrections are taking place in the marketplace.

Earlier there was lot of wastage of sims and trade expenses was at unrealistic levels. This is getting corrected. Micro management by TRAI is changing the subscriber acquisition norms. Both the factors in last three to four months have impact on customer acquisition. 

Long-term consumer demand for telecom services, even in case of voice remains strong. Currently, on Visitor Location Register (VLR) basis there is only 700 million customers and there is potential for 200-250 million.

Q: The government has indicated that they are likely to conduct another auction particularly for the circles where they did not see any kind of a demand. Have you contemplated that if in the new auction where they might look at Mumbai, Delhi, Karnataka, Rajasthan, will Idea be bidding?

A: There are number of issues that need to get settled before the government were to take a decision on the auction. Last time we had bid for auction, and for no fault of the company, we were forced to comeback to the market and bid for seven circles where our licenses were cancelled by Supreme Court order. Now, for incremental requirement of spectrum; the requirement of spectrum is primarily driven by requirement beyond the voice services into new era technology services.

So, we would like to see a long-term view of the government. How they want to shape the industry? Which bands they would like to offer on Long Term Evolution (LTE) and other technologies? What is the government's forward plan for 3G? We are looking for a holistic view from the government rather than trying to see a piecemeal approach on few circles, which are limited to 1800 MHz. We are extremely keen to participate in an 800 MHz auction and would also be keen in other lower end frequency bands.

Q: Operators have an option of paying 100 percent upfront or perhaps even one-third of it, has Idea decided that in the auctions gone by, you will have to make some payment, which one are you going to be opting for?

A: We are taking the benefit of the credit which government has given. We will be following the practise of adjusting the total fees, which we had earlier paid for seven licenses; in fact 13 licenses had got cancelled. We will pay over a period of remaining 12 years, with two year moratorium. 

Q: What is your sense of the telecom landscape going into the next year; companies like yours have been through a dark phase, are you getting a sense that things are turning a corner either the government being more understanding about slackening of some of these policy expectation or these money expectations or in terms of the fact that the market is maturing?

A: Let us address it at two ends, first is the role of telecom services in the overall growth of GDP. In India, telecom services today contribute around 2.2 percent of GDP. Globally, both strong markets and emerging markets the contribution is anywhere between 3.5 to 4 percent of GDP. So in India, telecom services have a huge potential to increase its contribution to the GDP of the country and this is possible only if the pricing power were to come back to the operators. So, this is one extremely important fact.

The second is growth of new services. India has primarily been a voice oriented market but over the last two to three years, world has changed dramatically and there has been a significant growth of data services. The contribution of data services to overall telecom business has significantly improved. India has to make very large investments, not only in the 3G spectrum but also in future evolving technologies. We see a huge potential of growth of data services in the country. We believe just like what happened to feature phones, smart phone will be the order of the day.

Our belief is that in the long run telecom services will have a very significant role and in fact increase its contribution to the GDP. Although short-term policy concerns, remain a big challenge for the sector. If the government, instead of charging spectrum based on revenue share mechanism, were to go for high front-end fees, then that would change the dynamics of the market. For certain period of time, it may have a muted response and maybe, even result in consumer tariffs going up or consolidation in the market.