Himanshu Kapania took over as managing director of Idea Cellular this month and faces a range of challenges such as regulatory uncertainty over the re-pricing of 2G spectrum, a hostile telecom ministry and the launch of 3G in a competitive marketplace. He spoke to Katya Naidu and Arijit Barman on how he plans to drive the company’s growth and his next big ‘idea’. Edited excerpts:
It’s all about 3G these days. Is that the next big idea? What about the voice business?
There is still a lot of juice left in the voice business and Idea is extremely well positioned for it, especially in the hinterland. According to our assessment, there are another 300 to 400 million new customers who are likely to join 2G or the wireless business in the next three to four years. The growth story of voice will continue for some more time. I also believe that with time, the current hyper-competition phase will ease out and a degree of pricing power will come back to strong incumbent operators. This will give us an opportunity to improve our overall voice revenues.
But 3G services will only grow, right?
3G technology has reached a stage where consumers can truly enjoy the broadband experience it offers. Also, 3G-enabled feature phones and smartphones are available at a price range of $100 to $200, making it affordable for users to upgrade.
Our belief is that telecom – which entered its boom time between 2000 and 2007, before hyper competition came in – will go back to the 20 per cent growth rates, once 3G settles itself.
But do you fear that someday 3G prices will go the 2G way and alter the dynamics of the business?
In the first two to three years, tariff will not be the driving force. The focus will be on the ability to provide relevant content to the consumer. Success will come to those operators who will deliver content and applications that will allow users to transcend from text and voice to music or video. Tariff war will only become relevant once participation becomes mass.
What will be the tipping point of this growth in 3G?
There are three or four factors that favour Indian operators. One being the entry of operators about nine years after the technology established itself. So, the ecosystem that hampered the growth in developed countries has now transitioned and is well developed. Also, we expect 3G to touch one billion units globally by the end of the year. With such large volumes, the coverage provided by Indian telecom operators will grow significantly. A key deciding factor for growth will be the delivery of content and applications. The Indian IT industry is extremely strong. Also, Bollywood and cricket have a significant role to play. Their adoption onto wireless will be very fast and consumers will move from large screens to the small screens, like they moved from voice to text.
Going back to your 2G business…when do you see a point where you can price better? Will it be within this year?
No one in the industry can make a prediction that can stand the test of time. The fact is that even now, there are 10-14 operators in the market, but the trends are positive. Some new operators who received licences have not launched services. And their rate of expansion has significantly slowed down. Even though there is hyper competition in the market, the top three operators, including Idea, hold almost 60 per cent of the revenues. There seems to be a degree of consolidation in the minds of consumers as well as operators. If this trend continues, pricing power should come back to incumbent operators.
Meanwhile we have seen some of your peers – who participated heavily in the tariff war – inching ahead of you in terms of the number of subscribers…
We do not measure our company on such parameters. We believe that old parameters used by analysts in terms of subscribers and ARPUs need to be abandoned. We need to measure the performance of a company in terms of aggregate gross revenues and revenues per minute, EBITDA per minute and cost per minute. In all these parameters, Idea is one of the top three operators in India and has been strengthening its position over the last three years. In 2007-08 we were at 9.7 per cent in revenue market share and we improved this by 3.6 per cent. We are among the fastest-growing operators in terms of minutes.
There have been recommendations by the regulator that might put pressure on the company, like re-pricing of 2G spectrum and a one-time payout associated with that. If they go through, the hit on Idea, analysts say, could be around Rs 3,000 crore… as much as your annual capex. Aren’t you worried?
If it hurts, it will hurt the entire telecom business, not Idea alone. If there is a significant cost pressure on the industry, the investment climate of the country will suffer. If we do a simple calculation, today we generate over a billion minutes a day and if there is an incremental 2 paise price increase per minute, the growth in the sector will naturally come back. But if cost pressures come in, it will only hasten the consolidation process. In my mind, this will make it more difficult for economically-challenged operators to survive.
You have said the 7,500 telecom towers you hold outside Indus Towers is a strategic opportunity and not necessarily a value unlocking opportunity. What is this strategic opportunity?
Our towers are primarily located in Maharashtra and Madhya Pradesh, where we are the market leaders. We would like to align our towers to ensure that long-term interests are not under threat. There may be companies that are willing to give me a price, but that might not be the only reason for decision-making.
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Idea has two financial sponsors that hold around 12 per cent stake in the company. They would look to exit soon. Will you buy them out to consolidate the promoter stake further?
We believe that Idea with its size and pace of growth, is one of the finest telecom operators and this is a huge opportunity. The opportunity and upside of current shareholders is extremely large.
The buzz on a possible stake sale by promoters keeps coming back to the market. Doesn’t that make existing investors nervous?
These are baseless rumours.
When you received an ex parte order from the Delhi High Court putting a stay on the Idea-Spice merger, you said that you will not be bullied. Where do you think the matter is headed?
The matter is in the high court and we are confident that it will be resolved at the earliest.