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.

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.