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Striking the right balance

Himanshu Kapania is leading Idea from being a pure-play voice-based telecom operator to one that is looking to grow equally in data services as well.
twitter-logoAlokesh Bhattacharyya Print Edition: January 3, 2016
'We're building infrastructure ahead of time, so that we can have balanced growth both in voice and data,' says Himanshu Kapania, MD, Idea Cellular.(Photo: Rachit Goswami)

The guffaws echoed for a while, not just from the CEO, but from the others in the room as well. The question that triggered the laughter spasm: "What are your usual work hours?" The response came from the CEO, in pieces: "In today's world, where is the definition of work hours, when you wake up your mails are on, calls are on." Taking a breather, Himanshu Kapania informed that he is not an early morning person, and while he goes for a 30-minute run each morning, his usual workday is from 10 am to 8 pm. "Given a choice." More guffaws.

Kapania, Managing Director of Idea Cellular, India's third biggest telecom operator, is a busy man. And he has kept his company busy, too, racking up subscriber additions, and transforming it from a pure-play voice operator to one with a more balanced portfolio between voice and data. Over the past three years, Idea has built its data capabilities. According to data from the Telecom Regulatory Authority of India or TRAI, the company boasted 16.67 million wireless broadband (which includes phones, dongle and fixed wireless) subscribers at end-June 2015, which was about 10.6 per cent of its subscriber base of 157.81 million then. That, actually, is not bad, considering the overall industry numbers. India had 980.81 million wireless subscribers in June, of which wireless broadband were 93.15 million, which works out to 9.5 per cent. However, Idea's market share in wireless broadband at 17.9 per cent was much lower than its competitors - Airtel's 24.8 per cent and Vodafone's 22.1 per cent in end-June.


BEST CEO TELECOM: IDEA CELLULAR LTD
  • INCOME/ 3-YR CAGR: Rs 31,732 crore/ 18 per cent
  • OP. PROFIT/ 3-YR CAGR: Rs 9,688 crore/ 31 per cent
  • PAT/ 3-YR CAGR: Rs 2,810 crore/ 70  per cent
  • AVG MCAP/ 3-YR CAGR: Rs 54,194 crore/ 24 per cent
  • AVG MCAP (APR-SEPT 2015)/YOY GROWTH: 19 per cent
  • ROE/ ROCE: 15 per cent/ 12.8 per cent
  • CASH/DEBT: Rs 1,542 crore/ 25,875 crore
  • NET PROFIT MARGIN: 9.00 per cent
Standalone data, net of extraordinary income and expenses

Overall, Idea is the fastest growing cellular operator over the past three years in terms of adding subscribers. In the three years from October 2012 to October 2015, according to data from the Cellular Operators Association of India or COAI, Idea grew its subscriber base 44.6 per cent to 167.29 million, compared to 27.7 per cent growth for market leader Bharti Airtel and 23.7 per cent for the No. 2 operator Vodafone. Today, with a subscriber market share (GSM) of 22.6 per cent, Idea is breathing down the neck of Vodafone, which has 189.48 million subscribers (market share: 25.6 per cent) as of October 2015. Of course, Airtel is way ahead at No. 1 with 237.98 million subscribers and 32.2 per cent market share.

How was Idea's growth achieved? The first component of spectrum was aggressively approached. "In the four auctions since 2010, we have committed Rs 48,000 crore and acquired 235 MHz of spectrum," says Kapania. In the purchase of spectrum (2G, 3G as well as 4G), Kapania has focused sharply on rural markets where the teledensity is today at 48 per cent, compared to 144 per cent for urban areas. "This gives the possibility of about 400 million people joining mobile subscriptions," says Kapania, claiming that in terms of coverage, over 975 million Indians now have the opportunity to buy an Idea connection. He believes that India will become the largest voice market in the world, bigger than China. "That's why we are investing in expanding coverage," he says. "In the past three years, we added 12,000 (2G) sites. Currently, we are present in 375,000 towns and villages."

Kapania's strategy over the past few years has been to continue to strengthen Idea's voice business while building its data capability. "We are transitioning ourselves from pure voice growth to balanced growth between voice and mobile broadband," he says. The reasons are not difficult to seek. "Data has suddenly started taking precedence," says Mayuresh Joshi, Fund Manager, Angel Broking. "Data revenue for Idea is close to 20 per cent and for Bharti about 22 per cent. Four years ago, they were about four to five per cent."

"Everything that is offline - shopping, banking, governance, education, transportation, advertising - all will go online. This will need a platform and telecom will be the platform," says Kapania. The first baby steps in data were taken in 2010 when Idea bought 3G spectrum. "In 2011, media and top telecom operators told us the internet market was primarily going to be in the metros - Delhi, Mumbai, Bangalore, Chennai, Kolkata," he recalls. "We never bought spectrum in any of these five markets. We chose the hinterland and we continue to focus there." Idea's 3G investments were in the markets of Madhya Pradesh, Maharashtra, UP (both West and East), Andhra Pradesh and Kerala. In 2014, the company bought 4G spectrum again in similar markets plus Punjab and Haryana.

However, despite buying 3G spectrum, the company continued to focus largely on voice. It was slow on the uptake of 3G, even as competitors Airtel and Vodafone upped their 3G coverage aggressively. In the past one and a half years, though, Idea has added 20,000 3G sites. "Our (3G) population coverage went up from 100 million subscribers to 275 million subscribers," says Kapania. The company has announced that in the next one and a half years, it will add another 50,000 3G + 4G sites, and increase its population coverage of wireless broadband to 500 million subscribers. Kapania claims that Idea's 3G coverage has been expanded to 13 circles, which covers about 80 per cent of its overall subscriber base, and its 4G spectrum covers 10 circles and 60 per cent of its subscriber base.

Romal Shetty, Partner and Head, Telecom, KPMG in India, says 3G adoption has picked up pace and is being primarily driven by data usage. "But as a country, 2G sites are still being rolled out, so are 3G sites, and now 4G sites are also being added," he says. "In rural areas, for instance, 2G rollout will continue, 3G will grow most in mid-tier towns, and 4G will start in the metros. All three will co-exist for some time."

"We're getting ready for 2018-20, when we believe Indian society will have largely transitioned from the current analog lifestyle to a digital lifestyle," says Kapania. "We're building infrastructure ahead of time, so that we can have balanced growth both in voice and data."

This transformation from being a pure-play voice operator to seeking balanced growth has changed the direction of the company in recent years, from being distribution-led to analytics-led, with investments in IT and processes, introduction of big data and analytics for understanding customer profiles and segmenting customers for types of usage.

"We are gearing up to be able to do digital in a very big way," says Kapania. "So, transitioning from pure offline distribution where length and depth was the focus, to online distribution to be able to sell our SIM cards online." Idea is targeting 20 per cent of its sales online, to be able to move recharge completely online, and to be able to give its existing consumers wide choice of music, movies and high-quality games. Newer talent has been inducted to strengthen its effort to become an analytics and marketing-focused company, and transitioning from a mere telecom to a large internet company. "That's the transition the company is doing," says Kapania. "Massive changes are taking place."

The Big Challenge Ahead

The next big battle for Idea - as indeed for all telecom operators - is 4G, a technology that is expected to give broadband speeds of up to 100 mbps, compared to 8-20 mbps currently. Airtel has already taken the lead, and the imminent entry of Reliance Jio might disrupt the entire market. Reliance is reportedly investing a mammoth Rs 1 lakh crore in its 4G initiative, though it has not yet launched its services. Airtel, on the other hand, launched its first 4G service in Kolkata three years ago, in April 2012, and has recently gone all aggressive, with services being launched in several cities, and with high-decibel advertising campaigns backing its offerings. Reliance Jio is expected to launch 4G by April 2016 and Vodafone by the end of this year. "Jio will be a big game changer for everyone in the industry," says Joshi.

THE BIG PICTURE

India's total broadband subscribers 108.85 million

Wireless broadband subscribers 93.15 million

Vodafone 22.07 million

Bharti Airtel 23.09 million

Idea Cellular 16.67 million

Figures as of June 2015; Wireless broadband includes fixed wireless, dongle and phone;
Source: TRAI


Idea, meanwhile, will launch 4G in the first half of next year, according to Kapania. But he's not worried about being last. "This is a long journey, and who makes the first two steps is not going to be important," he says. Idea had initially announced that it would launch 4G in late 2016-early 2017, because it believed that prices of phones and capital equipment for 4G would take time to fall. But that changed, once China decided to move into 4G on the 1800 MHz spectrum and installed one billion base transceiver stations (BTS), prompting prices to crash faster than Idea expected. So, it revised its plan and will launch in 750 towns by mid-2016.

Kapania expects growth in wireless broadband - 3G and 4G combined - to really pick up pace in about three years from now - from 2018 to 2022. "By 2025, we believe wireless broadband consumers will cross 700-800 million subscribers. By 2022, it will be about 500 million."

Why would it take so much time, given the rapid pace of growth of the internet economy businesses, and the rising sales of smartphones? He offers an interesting explanation. Having observed consumers in stores, he says many consumers buy smartphones for the camera and sound levels. "He's never asking for the internet," says Kapania. Then after using the smartphone to click pictures, the consumer feels the desire to share and starts using apps like WhatsApp and Facebook. And this process is fuelled by peer pressure. "Peer pressure is in the process of happening; it is not as easy as pressing a green button," he says. "That's exactly what happened to the voice business - it is a slow growing process."

As evidence, he points to his own home, where the youngsters created the family WhatsApp group - he joined later. Then the housewives joined the group. This Diwali, his mother, father and mother-in-law also joined the group. "Whether they are welcome is another topic (laughs heartily), but somehow they squeezed themselves in. So, this is the change which is happening, but it has taken four to five years."

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