Idea-Vodafone will not be a price warrior: CEO Himanshu Kapania

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New Delhi: Idea Cellular Ltd reported a fourth straight quarterly loss on Monday as intense competition in the telecom sector continued to hurt. Idea, which is selling its telecom tower business to reduce debt, posted a loss of Rs1,107 crore in the quarter ended 30 September, compared with a profit of Rs91.5 crore a year earlier.

Idea’s chief executive and managing director Himanshu Kapania remains hopeful that revenue will increase in a quarter or two and the company will be able to narrow its losses because of synergies from its proposed merger with Vodafone India Ltd. The merged entity will not disrupt pricing in the sector and will focus on profitability and revenue, Kapania said in an interview. Edited excerpts:

What will you do with the cash that comes out of the ATC deal? (Vodafone and Idea on Monday said they have separately agreed to sell their standalone tower businesses to ATC Telecom Infrastructure Pvt. Ltd for about $1.2 billion.)

It will strengthen the balance sheet. While we do so, we also need to expand our 4G footprint. For example, Idea today covers only 47% of Indian population for 4G. We need to improve consumer experience, enhance our overall capacity as more and more customers upgrade from 2G to 4G. To do that, the needs are higher, and this additional cash will accelerate our 4G expansion in India.

What about debt, which has gone up to Rs54,000 crore?

Larger portion of the reason why the debt has gone up is because we had the spectrum auction last year same time and the cost of that shows in our net debt. Now, as far as the company is concerned, all the repayments for FY18 and FY19 are concerned, they have already been pre-paid. We don’t have any instalment to be paid and a large portion of our debt is from the government, where the IMG (inter-ministerial group) is already working towards changing the period of instalments from 10 years to 16 years. It will help us to ease the debt level.

We have had stress in the industry for the past 12 months and it has resulted in the significant rate drop and voice rate has dropped by 33% and mobile broadband rates have dropped almost 85% (on a) year-on-year (y-o-y) basis. The volume growth has not kept pace with the rate drops as society moves from snacking mechanism, where pre-paid were bought in small tranches of vouchers of Rs10-20 to high-value vouchers. With high value vouchers, consumption levels are much higher, rate is much lower and Arpu (average revenue per user) will improve. As more and more customers will graduate from unbundled plans to bundled plans… the overall revenue will improve as subscribers give much higher Arpu. This is one factor which was not there in the past but will be there in future. We are hopeful that as revenue improves, it will have an impact on Ebitda (earnings before interest, taxes, depreciation and amortization). We have lost a very significant amount of Ebitda, almost 80% of our Ebitda has declined and 48% decline has happened on y-o-y basis.

The second big change that will happen in the industry, besides the movement to bundled plans, is the consolidation of the market and the significant market share, which was there, and Idea has also lost 6.5 million subscribers.

Positives of that has started to show early signs, with October showing subscriber growth coming back with bundled plans rate realizations improving, we are hopeful that the revenues will go up. Obviously, we have one more challenge that we have to cross, which is IUC (interconnection usage charge). As IUC will fall from 1 October to six paise from 14 paise, its impact will be Rs150 crore per quarter on Ebitda. That is only the last challenge that we will have to cross.

Is it fair to assume that the prevalent conditions will continue to exist for the next two quarters?

Prevalent conditions have started to recede. I will leave out the impact of the IUC as that is regulatory intervention. In a quarter or two, you will see positive growth of revenues.

Will you be able to narrow your losses?

IUC will be one factor to that. Also, I would want to add that losses will also narrow from the proposed merger where a very significant cost reduction exercise will take place because we have given a guidance of over four-year period to have synergies of about $10 billion.

How do you plan to take on the market when you merge with Vodafone?

The merged entity will continue to focus on profitability. It will be the No. 1 telecom operator, but it will not be a price disruptor, or a price warrior. The focus of the merged entity will be to bring down overall costs through synergies. Some of the early indicators of that is that in October we signed a deal to avoid duplication of capex and for efficiency of capital utilization.

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