Idea says 35% of tariffs swallowed up by taxes

Idea Cellular, the AV Birla group company, has become the No.3 mobile services provider in India from the seventh position in six years. Himanshu Kapania, MD, Idea Cellular, spoke to Beryl Menezes about Idea’s rise to become Street favourite, brand stickiness and his wish-list for the Union Budget. Excerpts from the interview:

What’s the story behind Idea’s rapid rise to the top?
Since Aditya Birla group bought out Idea’s stake in 2006 and went in for the IPO, we have never looked back. From Rs3,000 crore in 2006-07, we clocked revenues of Rs19,600 crore in 2011-12. This helped us rise to No.3 position after Bharti Airtel and Vodafone, beating Reliance Communications, which was the number two player when we entered the market. In the same period our cell sites rose from 4,000 to 85,000, while RMS went up from 6% in 2006-07 to 14.6% today. For fiscal 2013, we are expecting revenues of Rs22,500 crore. This shows a steady investment in network upgrades, which has been the primary driver to our success.

But ten quarters of consistent growth is some feat in a market of 14 operators....
Well, we chose to break away from the standard business practice. Hence, we were the only brand to grow from outside-in -- that is from the hinterland to metros. Even when we entered the metros, we continued with a unified approach, with products and services that would cater equally across income brackets, age categories and literacy levels, maintaining consistency throughout. Thus, we looked at long-term investments, rather than mere quarter-on-quarter growth.

How is your smartphone business contributing to the bottomline?
The objective of low-cost Idea branded handsets is to drive smartphone sales, although its contribution to overall revenues is inconsequential.

What are the developments on new licences you won in the November 2G auctions?
We have made all the payments for the new spectrum and are now awaiting the new licences.

What are your views on the one-time spectrum fee?
We were extremely surprised by the one-time spectrum fee, especially since we had already paid Rs44 crore in spectrum usage charges. We have thus filed a petition against the same in the Bombay High Court, which has got a stay order till March 1. This is to give the Department of Telecom time to file a reply and then we will provide a rejoinder.

What’s your recipe for brand stickiness?
Idea is the only telephony company to have kept ‘telephone’ out of the brand name, in order to be identified as a service brand instead of a mobile service provider. This was also the reason behind choosing the tagline, ‘An Idea can change your life’, keeping the customer at the centre. We believe people have identified with this strategy. A good example of this is the fact that Idea’s customer satisfaction score is far ahead of RMS and subscriber market share -- which means that one out of every four subscribers going in for MNP chooses to port to Idea. Apart from that, 2.5-3% of our revenues come on account of ads and promotions.

Any Budget suggestions for the telecom sector?
Telecom is the most taxed sector. More than 35% of the tariffs we get from subscribers are swallowed up by taxes. These are in the form of 12% service tax, licence fee, spectrum usage charges, USO fund, direct and indirect taxes, custom duties and other related taxes. Besides, there is severe inflationary pressure on account of diesel and electricity charges. Thus, we appeal to the government to reduce the burden on the sector as the telecom industry serves over 900 million consumers. Also, for growth of wireless broadband the government needs to release more spectrum at a reasonable reserve price, so that subscribers are not saddled with higher tariffs.