IDEA: Can an Idea Change the Fortunes?



In
the communications business last year, it was not only Bharti, Reliance, or BSNL
and MTNL that hit the headlines. At least in the second half of the FY 2004—05,
Idea Cellular attracted good attention.

First, Cingular Wireless decided to put on the block its stake in the company
for about $390 million. Singapore Technologies Telemedia (STT) and Telekom
Malaysia (TMI) consortium expressed their desire to buy this stake. But the DoT
dashed their intentions saying that the same company could not hold more than a
10 percent stake in two operating companies in the same telecom circle.

At the moment, Tatas have 31.7 percent, Birlas have 33.7 percent, Cingular
Wireless has 32.9 percent, and AIG has 1.7 percent.

CEO: Vikram Mehmi
Area of Operation:
Cellular services
Address: Idea Cellular
11/1, Sharada Centre, Off. Karve Road,
Pune – 411004, Maharashtra
Phone: +91 9822003011
Fax: +91 20 56412222
Website: www.ideacellular.com 

V&D
estimates

CyberMedia
Research

Highlights
Bid to sell off 47 percent stake fails; exploring equity market or stake sale this year
Covers 300 cities, 850 towns, and over 6,000 km of highway in 8 circles with 5.07 million subscribers
Plans almost Rs 1,300 crore capex in FY 2005—06, 40 percent network growth 
One lakh customers on GPRS-EDGE services with seven percent of revenue coming from non-voice service

With this attempt failing, Idea promoters may be exploring other options such
as IPO to fund the expansion. They are also in talks with groups such as Maxis
of Malaysia, Orascom Telecom Holding of Egypt, Systema Telcom of Russia, and
Telenor of Norway to sell the 47 percent stake.

At the moment, Idea officials deny any lack of funds and are going ahead with
new network rollouts in three new circles of Rajasthan, Uttar Pradesh (East),
and Himachal Pradesh. The planned capex for FY 2005—06 is almost double of the
Rs 650 crore of FY 2004—05. The revenues climbing almost 83 percent indicate
the company’s health. In FY 2004—05, the company recorded a revenue of Rs
2,409 crore. Of this revenue, 70 percent came from the voice services. The rest
30 included: 10 percent from interconnect charges, 13 percent from roaming, and
seven percent from value added services or non-voice services like GRPS-EDGE and
other downloads. Its one lakh subscribers of GRPS-EDGE can send any other
operator back to revisit their data strategy. And with plans to double its VAS
revenues, Idea is all set to grab a major chunk in this segment of the market.

Like any Indian operator, Idea also does not want to be judged on ARPUs. With
a 75:25 pre-paid to post-paid split and customer churn well under control, the
company is free to launch innovative tariffs and value-added services to attract
new customers and consolidate the existing ones. Also, while other operators
seem to struggle when it comes to quality of service, VOICE&DATA ranked Idea
at number two spot in terms of QoS.

Idea too has applied for 3G spectrum, and the company plans to roll out when
there is a need in the market. The company believes in creating value first and
them taking 3G to the customers. This does not mean Idea does not have 3G plans
but at the moment they are going ahead with 2.5G network roll outs and keeping
their customers satisfied.

Looking ahead the company would not mind acquiring smaller operators. But the
plus point for Idea has been its tariffs i.e. 75 paise per minute and would not
hesitate to go down further to remain in the market.

If Idea decides to go for an IPO, it would be the third-most awaited IPO
after Hutch and Reliance. If not it would be interesting to watch how Idea moves
fulfill the dream of becoming most profitable cellular company in India in next
couple of year. n

"3G hype is more a means to acquire spectrum"

How was FY 2004—05 for Idea? What are your plans for this year?
FY 2004-05 was a historical year for Idea. We completed the largest
acquisition in the industry and integrated Escotel, registered presence in eight
circles with over five million subscribers, introduced EDGE for the first time
in the country and came out with a many new tariffs.

For FY 2005—06 we are planning to roll out in three circles: Rajasthan,
Uttar Pradesh (East), and Himachal Pradesh. We have gone ahead with a soft
launch in these circles and would come out with commercial launch in the coming
months.

What is your network coverage? What was your capex last year and what do
you plan to spend this year?
At present our networks cover over 300 cities, 850 towns, and over 6,000 km
of highways. We plan to increase this number by almost 40 percent in FY 2005—06.
In the next phase of expansion we are covering 10 percent of the headquarters in
the new circles. The capex for FY 2004—05 was Rs 650 crore and this year we
would double this amount with rollouts in new towns and circles. Till now, we
have spent around Rs 6,500 crore as capex.

What has been the reason behind your success?
Our success has been due to a combination of many things. Of our eight
circles, we are clear leaders in three: Maharashtra, Madhya Pradesh, and Uttar
Pradesh (West). We have consciously worked on our customers, the number of
retailers, distributors, and number of contact points. All these are 50 percent
more in comparison to the nearest competitor.

In terms of quality of service TRAI has put us on the number
one position and VOICE&DATA has ranked us number two. We have also been very
innovative in tariff plans, value-added products, and service delivery has been
superior to others. Our customers have been fully satisfied with our reach.

What is the split between pre-paid and post-paid
customers? What is you churn rate?
Our customer split is 75: 25 in favor of pre-paid customers. Our post-paid
churn is better than the industry average and pre paid churn is at par with the
industry’s.

How are GRPS-EDGE doing?
There are almost one lakh GPRS-EDGE customers. Since last financial year,
there has been almost 100 percent growth in the VAS revenues. About 30 percent
of our revenues come from non-voice services and almost seven percent comes from
value-added services including data.

When do you think 3G will take off in India?
We have applied for 3G spectrum. There has been lot of noise in Europe
around 3G. It has not taken off due to lack of handsets and applications. The
handsets have not worked and when they worked there were no applications. For
any technology to advance, customers must have a need for it.

Wireless technology should fulfil the unique needs of
customers and reduce costs. We do not see any of these happening with the launch
of 3G.

What we are talking about 3G is still far off in the future.
Lot of work will have to be done on the network before rolling it out. The 3G
hype is, more than anything else, a means to acquire spectrum.

Leave a Reply

Your email address will not be published. Required fields are marked *