Idea Cellular: New dynamics, new strategies

New dynamics, new strategies

Idea Cellular’s journey to become the country’s third largest telecom operator in terms of subscriber market share has not been without challenges. The company has had to navigate through stiff competition to get ahead of rivals such as Reliance Communications (RCOM) and Bharat Sanchar Nigam Limited. An astute business strategy, strong inroads into the rural market and opportune tapping of emerging business opportunities have been instrumental in the operator’s success.

Consequently, the past few years have been very rewarding for the company. The number of Idea users has grown multifold, from 89.5 million in 2010-11 to 175 million in 2015-16. Meanwhile, revenues have more than doubled from Rs 154.38 billion to Rs 359.49 billion during the same period. Data has emerged as a key focus area, driving growth for the company. The operator launched 4G services in December 2015 to capitalise on the opportunities promised by this segment and has since been expanding its services across the country.

This year, however, the sailing has not been as smooth for the company. Its net profits have witnessed a continuous decline over successive quarters while revenues have grown only moderately. But this has more to do with the industry’s changing competitive landscape and evolving business dynamics than any major omission on the operator’s part. Reliance Jio Infocomm Limited’s (RJIL) entry into the already crowded telecom market, consolidation amongst key industry players, a lacklustre spectrum auction, the lukewarm response to 4G services, the growing presence of over-the-top (OTT) players and poor quality of services have compelled the incumbents to rework their business strategies.

Idea, compared to the other incumbents, is in a more vulnerable position owing to its relatively lower spectrum coverage as well as subscriber and revenue market share. Most of its customers belong to Category B and C circles – the key markets that RJIL is looking to capture through its free-of-charge offerings. Further, Idea is yet to establish a significant 4G base in the country. While Bharti Airtel and Vodafone India have continued to make extensive 4G roll-outs in the past many months, Idea’s progress in this area has been modest. It was also a late entrant into the mobile money space and is yet to leverage this opportunity in a big way. Idea could also be impacted by the three-way merger between RCOM, Sistema Shyam Tele-

Services Limited (SSTL) and Aircel as the subscriber base of the merged entity could surpass that of Idea, unseating it from its position as the country’s third largest operator.

A look at the challenges facing Idea and the strategies that could help it overcome these…

Battling competition

At a time when voice services account for the majority of operator revenues and data revenues are still growing moderately, the launch of free services by RJIL was an industry-disruptive move. Not surprisingly, there has been significant churn in the market during the first month of service launch. As per data from the Telecom Regulatory Authority of India (TRAI), RJIL added the highest number of users (about 15 million) during September 2016 as compared to Bharti Airtel (2.4 million), Idea Cellular (1.91 million) and Vodafone India (525,281). By the beginning of December 2016, RJIL had managed to notch up over 50 million subscribers on its network.

To counter RJIL’s impact and hold on to their customers, the incumbents, including Idea, have been slashing tariffs. This move is likely to have a deleterious effect on their earnings and profitability, early signs of which were visible in the results of the quarter ended September 2016. The largest impact has been on the realisations in the data segment as the incumbents have been pushing volumes at the expense of per unit realisation. Realisations declined by 10-12 per cent for Bharti Airtel, Vodafone India and Idea Cellular on a sequential basis during the quarter ended September 2016. On a year-on-year basis, data revenue growth fell by about 20 per cent for Idea Cellular, in sharp contrast to the steep growth rate of 70-80 per cent it recorded between 2014 and 2015. That said, the jury is still out on whether RJIL will be able to maintain this edge once it withdraws the “freebies”.

Idea Cellular stands to gain in such a scenario as its quality of service has improved considerably in recent months. TRAI had come down strongly on the incumbents when instances of call drops reached alarming levels. This compelled Idea Cellular to plug the black spots in its networks and ensure seamless delivery of services. In a recent interview, TRAI’s chairman R.S. Sharma reportedly stated that Idea’s call failure rate had become zero.

Moreover, Idea has slashed its existing tariffs by almost half to benefit users. According to Sashi Shankar, chief marketing officer, Idea Cellular, “To provide users with seamless connectivity at an affordable price point, we have launched exciting voice packs that enable prepaid Idea users to make unlimited voice calls across the country.”

Aside from RJIL’s competitive pressures, Idea also faces a strong challenge from the RCOM-SSTL-Aircel merger. Being viewed as the largest consolidation deal in the industry,

the merger will create a strong operator with the second largest spectrum holding amongst all operators, aggregating 448 MHz across the 850 MHz, 900 MHz, 1800 MHz and 2100 MHz bands. It will also rank amongst the top three telecom operators by revenue in 12 key circles.

Countering the OTT threat

OTT players are increasingly cannibalising operator revenues, especially in the SMS and international long distance voice segments. Operators are concerned about their networks being reduced to dumb pipes as OTT apps gain popularity.

Operators are now looking at ways to counter this threat. “We have launched our own app store, MyIdea, which will help consumers at various stages of their interaction with the company,” says Anil Tandan, chief technology officer, Idea. The company is all set to launch Idea-branded game services, and movies and music services in the coming months. It is also looking to introduce live TV, digital magazines and newspaper, and video and audio chat apps in 2017-18. Idea’s model for digital services includes building its own apps or partnering with technology platforms while sourcing content directly from or in partnership with labels and aggregators. In January 2016, Idea partnered with ErosNow, the digital OTT distribution service of Eros International, to offer access to movies and videos – the highest consumed data service for telecom operators.

Digital content will also help the operator in strengthening its 4G play. Idea, moreover, plans to leverage voice over long term evolution (VoLTE) to take on VoIP and OTT players. It is currently in advanced talks with Ericsson and Nokia in this regard.

Mobile broadband push

The mobile internet market in India is ripe for growth and Idea is all set to take advantage of this opportunity. In a bid to enhance its 4G play, Idea bought 349.2 MHz of spectrum for Rs 127.98 billion in the 2016 auction. This spectrum portfolio will allow the company to roll out networks that can carry about 20 times the current data traffic.

Idea has so far deployed 4G services in 11 circles and plans to extend these to nine new service areas by March 2017 using the newly acquired spectrum. The focus is on expanding coverage rather than building capacity. According to Himanshu Kapania, managing director, Idea Cellular, by end-March 2017, Idea’s 4G footprint will cover key 20 circles, which contribute 94 per cent of the company’s revenue and 90 per cent of the industry’s revenue.

As of end-September 2016, Idea had 3.07 million 4G customers, recording a 70 per cent quarter-on-quarter growth. Its overall data subscriber base stands at 30.7 million.

In sum

A focus on data services will be central to every telecom operator’s strategy going forward. Idea too will have to rely on this segment for long-term business growth. This, interestingly, may not be too difficult for it, given its proven track record in adapting to and leveraging evolving market conditions. It has already revised its capex guidance for 2016-17 by Rs 10 billion to gear up to counter competition. While Idea has successfully carved a place for itself among the top three telecom players in the country, it needs to draw up its future roadmap in the face of evolving sector dynamics.

To reaffirm its position in the market and enjoy continued user loyalty, it will have to take a closer look at its existing strategies – abandoning some, reweaving others and devising new ones to align its future goals with the industry’s emerging growth drivers.