Getting ready for a tsunami of users: Himanshu Kapania

Interview with Managing Director, Idea Cellular

Idea Cellular, which has stepped up its fourth-generation technology (4G) offer to 20 of the country's 22 telecom circles, is looking at increasing its share of revenue from data to 35-40 per cent in the coming three to four years. The company, which has bought Rs 12,798 crore worth of airwaves, will fund the spectrum acquisition mainly from internal accrual. Himanshu Kapania, managing director, spoke to Kiran Rathee on a host of issues. Edited excerpts:

You have acquired 349.20 MHz of spectrum in the recent auction. What is the total spectrum footprint now and how much of that will be used for wireless broadband?

All the 349.20 MHz will be used for wireless broadband and if I have to remove only 20 MHz out of this, which is going to be used for 3G, 329 MHz will be used for 4G. So, we have a total of 890 MHz of spectrum now and only 250 MHz is going to be used for GSM, meaning 640 MHz will be used for wireless broadband.

With this, we will be a pan-India operator for wireless broadband. In 20 of the 22 circles, we will be able to offer 4G; in 15 circles, we can offer 3G. We are going to launch nine new markets for 4G – Bihar, Rajasthan, West Bengal, Assam, UP (West), Gujarat, J&K, UP (East) and Mumbai. The launch will happen within four to six months of receipt of spectrum. We are mostly done with our spectrum purchase.

So, now it is going to be a data play for you. Currently, data contributes about 20 per cent to Idea’s revenue. With over 85 per cent data spectrum now, how much will data contribute to the company’s revenue in three to four years?

The voice business continues to grow in this country but is moving from double-digit to single-digit growth in the next four-five years. The mobile data business is expected to sustain triple digit growth over the next five-six years. In India, all the one billion users are using voice but only 125 million use 3G or 4G services. So, there is going to be a tsunami of customers who will  upgrade their existing usage of pure voice to voice plus data. In the next three-four years, we are expecting that from the current level of 125 million users, there will be about 500 mn who will use 3G or 4G services, and we will be among the four operators to get the benefit from this great demand.

In three to four years, 35-40 per cent of Idea’s revenue will come from data. Currently, data contributes about a fifth of the company’s overall revenue.

How is the company going to fund the spectrum charges? It needs to pay about Rs 6,000 crore as upfront payment to government, isn't it?

Most of it will be from internal accrual and a very small portion will be taken from incremental debt. We have spent in excess of Rs 60,000 crore in the past three auctions and we were clear at the time of participating that our net debt to Ebitda (operating earnings) will be in the range of 4-4.2. Most of our needs for spectrum have been done and our capital expenditure (capex) intensity will reduce.

We are fairly confident that our net debt to Ebitda will decline after four to six quarters. Last year, we spent about Rs 7,500 crore in capex, excluding spectrum; this year, about Rs 8,000 crore will be spent.

This large sum is helping us to upgrade our existing GSM towers to 3G and 4G. Earlier, from FY12 to FY15, we were doing 10-12 per cent of our revenue as capex. In FY16-17, we are doing 18-20 per cent as capex and going forward we might do 14-16 per cent as capex.

What is the reason for you to acquire spectrum in 2,500 MHz? Currently, the device eco-system is not there in India.

As far as the eco-system is concerned, China has started to deploy 2,500 MHz spectrum. In fact, 2,300 MHz is used for indoor coverage and 2,500 MHz is used for outdoor coverage. With China and a number of other countries deploying 2,500 MHz, it is going to be an important spectrum for enhancing of capacity.

The 700 MHz band remained unsold. If the government revises the price, will you be looking at acquiring spectrum in the band?

We have met all our spectrum needs and do not require more in the coming years. In the 4G space, the eco-system is prevalent on 1,800 MHz globally. Unless there is a real rethink on the part of the government and the 700 MHz price is below that of the 1,800 MHz spectrum, there is no value in participating in any procurement of the 700 MHz band.