“idea cellular limited earnings conference€¦ · idea cellular limited april 30, 2018 page 2 of...

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“Idea Cellular Limited Earnings Conference”

April 30, 2018

Idea Cellular Limited April 30, 2018

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Moderator: Good afternoon, ladies and gentlemen. This is Margreth, the moderator for your

Conference Call. Welcome to the Idea Cellular Conference. For the duration of this presentation, all

participant lines will be in the listen-only mode. After the presentation, a question and answer session

will be conducted. We have with us today Mr. Himanshu Kapania – Managing Director of Idea Cellular

and Mr. Akshaya Moondra – Whole Time Director & Chief Financial Officer of Idea Cellular along with

other key members of the senior management on this call. I want to thank the management team on

behalf of all the participants for taking valuable time to be with us.

Given that the senior management is on this conference call, participants are requested to focus on

the key strategic and important questions to make sure that we make good use of the senior

management’s time. I must remind you that the discussions on today’s call may include certain

forward-looking statements and must be viewed, therefore, in conjunction with the risk that the

company faces. With this, I hand the conference call over to Mr. Himanshu Kapania. Thank you and

over to you, sir.

Himanshu Kapania: Thank you, Margreth. On behalf of Idea, I welcome all participants to this Earnings

Call. On 28th April 2018, our Board of Directors adopted the audited Results for the fourth quarter

and full financial Year 2017-18. The detailed Press Release, Quarterly report and Company results have

been uploaded on our website and I assume you had a chance to go through the same.

Idea is gearing itself to conclude last leg of regulatory approval and remaining activities for merger

with Vodafone India’s mobility assets. The new leadership team for the merged entity has already

been announced on 22nd March 2018 and will take charge with effect from merger transaction

completion date. This is possibly my final earnings call. I have thoroughly enjoyed my interactions with

all the institutional investors and telecom analysts during the last 7 years, and wish all of you happy

investing in future.

My opening remarks will cover the key developments in the mobile sector during the last financial

year FY18 and how Idea Cellular is gearing itself to operate in the new paradigm. While Mr. Akshaya

Moondra, the company CFO will provide details on Idea’s financial performance for the fourth quarter

as well as the full financial year 2017-18.

First: The Indian mobile industry witnessed significant structural changes in FY18


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The Indian mobile industry saw increase in hypercompetitive intensity in FY18 following significant

disruptions in telecom sector, post entry of the new 4G mobile operator in September 2016. The super

aggressive price plans including the deep discounted unlimited voice bundled data plans, offered by

most of the incumbent operators to retain existing subscribers, in response to below cost abysmally

low priced tariff plans of new operator, resulted in explosive growth of voice and data volume. But the

sharp drop in mobile services rate realization and subsequent decline in customer ARPU has led to an

unprecedented steep decline in industry revenue in FY18.

Paradoxically, therefore the industry is in an unsustainable revenue and customer ARPU decline

period, unnatural voice and mobile data volumes explosion and front loaded high investment phase

especially for wireless broadband coverage and capacity, content and new digital technologies. These

sustained rate pressures along with TRAI led regulatory headwinds has deteriorated industry’s

financial health forcing at least 5 subscale mobile operators to exit/consolidate and others to merge

or monetize non-mobility assets.

As per TRAI release, the ‘Adjusted Gross Revenue’ (AGR) of the industry fell in the calendar year 2017

by Rs. 322 billion, i.e. @21.7% against CY16 AGR revenue. In comparison to the top 3 industry

operators excluding the new entrant, Idea’s benchmark AGR and subscriber VLR market share showed

resilience -

1. Idea AGR Revenue Market Share declined from 20.0% in CY16 to 19.5% in CY17, the lowest fall of

0.6% among the top three operators, in spite of new 4G operator reporting positive AGR revenue

@6.4% in the last two quarters of CY17.

2. Idea improved its subscriber VLR market share between February 2017 and February 2018 by 1.5%

to 20.9%, in spite of new operator garnering 15.5% of industry VLR share as per TRAI release.

Some of the key structural changes that impacted mobile industry in FY18 are -

A. Regulatory environment worsened in FY18

Effective 1st October 2017, TRAI amended the domestic ‘Interconnection Usage Charge’ (IUC)

Settlement Regulation reducing the ‘Mobile Termination Charge’ (MTC) from 14 paisa to 6

paisa per minute, aggravating the financial stress of the industry.

TRAI also amended the ‘International Mobile Termination’ settlement charges effective 1st

February 2018 from 53 paisa to 30 paisa per minute.


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Cumulatively, both these interconnect regulations have negatively impacted Idea’s revenue

and EBITDA for FY18 by Rs. 18.45 billion and Rs. 5.29 billion respectively.

Combined domestic and international MTC downward revisions remain a body blow to most

operators and reduced investable funds for the critical ‘Digital India’ Program.

B. Deep discounted unlimited plans are becoming the new norm

The introduction of deep discounted unlimited voice bundled data plans by most mobile

operators during FY18 have been extremely well received by the Indian mobile users.

Over the last year, the price of monthly unlimited voice plans bundled with data at high levels

of 1.4 to 2 GB per day for 28 days validity has fallen from April 2017 level of Rs. 300 to Rs. 165

or lower, net of taxes, effective January 2018.

Based on our internal estimates, India has over 400 million consumers as of March 2018 end,

who have chosen one of the top 4 mobile operators bundled unlimited plan offering. Within

a year of its launch, nearly 35% of Indian mobile users have migrated to unlimited bundled

voice and data plans. With increasing popularity of these plans, we estimate within next few

quarters nearly 50% of the 1.1 billion SIM users of Indian mobile services will migrate to such

unlimited usage plans.

Following mass market adoption of these ‘eat as much as you can‘ bundled plans, the

consumption habits of the Indian mobility users have now undergone a seismic shift with

marked higher per subscriber usage.

Industry voice usage per subscriber has increased 40% YoY in FY18. The voice usage per

subscriber for Idea has risen sharply to 577 minutes in Q4FY18 from 412 minutes in Q4FY17.

Similarly, broadband mobile data usage per subscriber for the company has seen a meteoric

growth to 7 GB per month in Q4FY18 compared to 1.4 GB per month a year back.

C. Unlimited plans driving exponential volume expansion

The adoption of unlimited bundled plans has led to an explosion in voice volumes with Idea’s

highest ever sequential quarterly voice minute growth @16.9% in Q4FY18 (on top of 10.8%

growth in Q3FY18). The mobile data volume also witnessed robust sequential growth of 43.2%

as Idea’s pan India wireless data network carried 818 billion MB of data volume this quarter,

more than 6 times the mobile data volume compared to one year back volume of 127 billion

MB in Q4FY17.


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However, such unlimited plans continue to erode wireless voice and data realization as the

voice rate (including the impact of reduction in IUC rates) sharply declined by an unbelievable

level of 48%, from 25.9 paisa per minute in Q4FY17 to current levels of 13.4 paisa per minute.

The impact on mobile data realization rate was even higher. Idea’s mobile data realization also

fell to less than 1/10th level to world’s lowest data tariff rate from 11.5 paisa per MB in Q4Y17

to 1.4 paisa per MB in Q4FY18.

The steep fall in overall rate realization has led to overall consumer ARPU downgrading from

Rs. 142 in Q4FY17 to Rs. 105 in Q4FY18, while today the same customer enjoys 40% more

voice volume and 6.3 times data volume, a position clearly unsustainable in the future.

Second: Positive underlying trends pave the way for a brighter FY19

While industry has remained in tremendous financial stress in FY18, we remain cautiously optimistic

as following underlying trends suggest encouraging long term prospects for the surviving operators:

A. Industry witnessed faster than expected consolidation in FY18

Significant financial pressure over last 18 months has forced at least 5 subscale operators to

exit or combine with other operators. Charging of services by Jio, albeit at very low price

bundles, has also prompted number of multi-SIM subscribers to choose amongst operators,

further exerting pressure on fringe players.

Multiple operators such as Videocon, Tata, RCom and MTS have shut down their network

while Aircel has filed for bankruptcy in February 2018. Telenor is waiting for its final approval

for merger with Bharti Airtel which is expected shortly.

Idea witnessed strong return of subscriber addition with 12.2 million net customers adds on

VLR in H2FY18 supported by the launch of competitive mass market voice bundled data plans,

gaining subscriber share from the existing operators. The company’s overall subscriber VLR

stands at 208 million as on 31st March 2018.

B. Unlimited bundled plan leading to further SIM consolidation, which is expected to boost future

ARPU trends

Unlimited bundled plans are paving the way for the second phase of SIM consolidation as

consumers who earlier used to split the usage on multiple SIMs are now committing all their

usage to a single SIM, after opting for fixed period unlimited voice with data plans.


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As the initial adopters of this plan were primarily from Idea’s high ARPU base, Idea’s ARPU for

the full year dropped from Rs. 162 in FY17 to Rs. 123 in FY18 and in Q4FY18 was at an even

lower level of Rs. 105. We are however confident that subsequent takers of unlimited plan

from existing Idea consumer base will be value accretive, as casual and multi-SIM consumers

begin to commit larger spends to the company on these bundled plans.

To focus on driving improvement in ARPU, Idea’s strategy continues to be – (1) Building a

companywide culture of selling unlimited voice and bundled data plans; (2) Promoting the

attractive postpaid ‘Nirvana’ plans with feature-rich postpaid portfolio such as data rollover,

free Idea phone security etc., besides unlimited voice bundled with mobile data; (3) Targeting

low and pure incoming customers who are currently in non-unlimited category with aim to

upgrade these customers at least to Rs. 25 to Rs. 150 ARPU levels through a series of tariff and

product interventions.

C. Accelerated broadband penetration provides tremendous long term opportunities

During FY18, industry broadband coverage has improved multi-fold and top 4 companies 4G

services have become increasingly affordable for the masses, with tariffs declining from Rs.

150 per GB a year back to current levels of Rs. 14-15 per GB. As a result, India had an

impressive addition of 127 million broadband users in the CY17.

Idea also witnessed record broadband subscriber addition of 15 million this year improving

the overall company wireless broadband penetration from 13.0% in FY17 to 20.5% in FY18.

Idea’s wireless broadband subscriber base now stands at 39.8 million out of the total 46.8

million mobile data users as of 31st March 2018.

The country is poised to add another 400 to 500 million wireless broadband users in next 3-4

years as proportion of 4G smartphones continue to rise and device affordability further

improves. Idea continues to gain its fair share in the 4G device upgrades and now has nearly

67 million 4G devices on its network, which provides it a significant revenue opportunity as

we encourage our existing customers to move Idea’s SIM to first slot.

Idea is working closely in partnership with the 4G device manufacturers and its ecosystem to

further improve smartphone penetration including - (1) Tie-ups with ecommerce companies

such as Amazon and Flipkart and partnership with important brands like Oppo, Vivo, Xiaomi,

Motorola etc. for sale of Idea 4G SIM with their new 4G handset models; (2) Cash back offers

on a range of entry level 4G smartphones from Karbonn, Sansui, iVoomi etc. priced at less

than Rs. 5,000, provided customer stays and continuously uses Idea's network over 2-3 years.


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In February 2018, Idea introduced country’s most attractive 4G smartphone cash back offer

of Rs. 2,000. This scheme is available for all existing and new customers till 30th April who

upgrade their existing phones to any 4G smartphone irrespective of the brand and model of

the phone. The customer only needs to ensure Rs. 199 or above plan recharge per month over

36 months to avail the new handset linked cashback benefit.

Nearly 3 million new 4G smartphones are being added to Idea’s network every month. Idea’s

customer broadband handset (3G or 4G) has now risen to 111 million as of March 2018.

Third: New subscriber growth after SIM consolidation

While existing customers consolidate their multiple SIMs, nearly 300-400 million Indians who

currently do not use any mobile services are at an inflection point to enter the voice category,

primarily on 2G network aided by lowest ever consumer tariffs and availability of 2G feature

phones for as low as Rs. 300-500 per handset.

Idea and Vodafone India combined will have the deepest 2G network presence covering an

expanse of over 1.1 billion Indians across 500,000 towns and villages and is best positioned to

be the biggest beneficiary of this voice growth post-merger.

The merged entity has 2G voice coverage and capacity of over 270,000 GSM sites, far in excess

of the current market leader, even after adjusting for overlaps between Idea and Vodafone.

Fourth: Massive investments continue in broadband infrastructure to support the exploding data

demand

During FY18, Idea continued aggressive expansion of its wireless broadband infrastructure

adding 44,856 broadband sites in the year. The broadband sites increased from 110,054 sites

as of March 31st 2017 to 154,910 sites as of March 31st 2018, taking the overall network

footprint EoP to 286,356 sites including GSM, 3G and 4G technology sites.

This quarter Idea also integrated 11,345 broadband sites including TDD capacity sites on 2300

MHz and 2500 MHz spectrum band in leadership markets of Maharashtra, Kerala and Andhra

Pradesh to further augment its wireless data capacity.

Idea’s wireless broadband population under coverage now spans beyond 650 million Indians

spread over 164,000 town and villages across all the 22 service areas, which will expand

rapidly post-merger as overlapping 3G and 4G sites will be redeployed.


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Idea also launched voice over LTE (VoLTE) services for employees in select circles recently. The

company intends to launch its VoLTE services for Idea customers from May 2018 in a phased

manner pan India.

The proposed merged entity of Vodafone and Idea already have an installed broadband

network equipment base of over 300,000 sites and post-merger intends to move fast to

expand the merged entity broadband coverage from present 750 million to over one billion

Indian population, offering high speed data services pan India by relocating overlapping 3G

and 4G sites into non covered areas. The combined entity already has mobile data capacity of

nearly 23 petabytes per day and will build on from present level higher capacity on the power

of spectrum consolidation using nearly 170 broadband carriers and existing overlapping 3G &

4G as well as new 4G broadband equipment.

In the interim, both the entities have entered into active infrastructure sharing arrangement

to utilize each other’s spectrum and build capacity in high demand areas.

Besides active infrastructure sharing program, both companies have entered into 4G ICR

arrangement and expanded scope of 2G ICR arrangement to offer services across large

number of new towns and neighboring villages, where one of the operators previously did not

have presence.

On an overall basis, the combined entity is already sharing 49,000 sites either under 4G ICR or

2G ICR or active infrastructure sharing arrangement.

The overall Idea’s capex spend for FY18 stands at nearly Rs. 70 billion, in line with our

guidance. As the company is in transition and merger is expected to be completed in H1CY18,

Idea will not be able to provide full year’s capex guidance. In the interim, the company will

maintain recent quarter’s capex run rate for Q1FY19.

Fifth: Idea transforming from pure play mobile operator into integrated digital service provider

Digital Idea, launched in January 2017, has now completed more than a year and offers

exciting suites of mobile apps and services such as Idea Music, Idea Movies and TV, Idea

Games, Idea News and Magazines along with the self-help MyIdea app.

Idea has been successfully on boarding subscribers digitally for self-help on the MyIdea app

with over 33 million of the present subscribers using the digital app services. This is the

topmost rated mobile app amongst all telecom utility apps with 4.8 rating on the iOS store

and 4.3 rating on Google Play store.


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The company has entered in deep relationship with strong content owners for powering our

products such as with Sony Music, Zee Entertainment, Universal Music, Hungama, Saregama

for music and with Eros Now, dittoTV, YuppTV, Discovery for movies & Live TV content

amongst others.

The Idea Music app constantly appears amongst the top ranked apps on the Play store. The

app offers a rich library of nearly 3.5 million tracks.

Our awarding winning ‘Idea Movies & TV app’ offers 400+ live TV channels and is seeing strong

increase in consumption in regional and vernacular genres. The Idea app offers an assortment

of over 8000 movies across Bollywood, regional and international films and the app has over

75,000 pieces of content for our customers to watch. At strong 4.4 rating, it has been amongst

the top rated app on the Android Play store.

In a short span of one year, nearly 18 million of company’s subscribers are today enjoying Idea

Digital content services.

Sixth: Merger of Idea and Vodafone India in final stage of completion

Idea and Vodafone India merger is in final stages of regulatory approvals.

Specially designated teams across Network, IT, Marketing, Sales, Services, Commercial,

Finance, Human Resources, Regulatory etc. from both the companies, within the framework

of law, are presently working extensively preparing for the ‘day 0' of the merged entity. Both

the companies are committed to deliver the guided capex and opex synergy. Detailed synergy

planning is progressing well and granular details are currently being worked out with focus

towards achieving faster opex synergy realization than originally planned. Capex synergy is

also being assessed to evaluate the quantum of overlapping equipment especially on 3G and

4G technologies and identifying 2G equipment upgradable to 4G. Work on realizing network

fiber synergy has started with first leg expected to be completed for the bandwidth hungry

and critical top 220 cities across 22 circles by September 2018.

As already mentioned, from ‘day 0’ the benefits of coverage extension and capacity upgrade

post spectrum consolidation could accrue quickly to the merged entity, which should help

accelerate subscriber uptake, revenue and superior customer experience.

As already shared, post completion of merger Idea and Vodafone India shall own amongst the

largest spectrum block of 1,850 MHz with nearly 170 broadband carriers including spectrum

re-farming in the efficient 900 MHz band. Both the companies are seriously contemplating


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introduction of 4G services on 900 MHz in 12 to 15 of its leadership telecom circles post -

merger to improve indoor 4G and VoLTE consumer experience.

Separately during the last quarter, Indian Govt. through the Central Government Cabinet

approved the following telecom benefits based on ‘Inter Ministerial Group’ recommendation

to partially address financial stress in the sector including -

o Restructure of spectrum deferred payment liability - The existing mobile operators

can now avail the option to increase the deferred spectrum payment installment

period from earlier 10 to 16 years providing interim cash flow relief. Idea has opted

for longer credit period.

o Revision of spectrum cap - Overall spectrum cap quantum holding for operator has

been revised from 25% to 35% and intra-band cap restriction has been removed, and

instead a new cap of 50% applicable only for the entire range of sub-1GHz band across

full spectrum bands of 700, 800 and 900 MHz introduced. As a result, merged entity

of Idea and Vodafone India will not have to surrender any spectrum as was required

earlier under the M&A clause.

Both these regulatory changes are positive developments for the combined Idea and

Vodafone India entity.

Lastly: Update on fund raising to strengthen Idea’s balance sheet

In Q4FY18, Idea successfully completed equity raising of Rs. 67.5 billion which includes

preferential allotment to promoters Aditya Birla Group for a consideration of Rs. 32.5 billion

and qualified institutional placement (QIP) of Rs. 35 billion.

The equity raise of Rs. 67.5 billion will reduce Idea’s net debt and as a result, Vodafone net

debt contribution to merged entity will also be lower by the same amount.

The sale of Idea’s nearly 10,000 standalone towers was announced on 13th November 2017,

to ATC Telecom Infrastructure Private Ltd (American Tower) for an enterprise value of Rs. 40

billion. The merger of Idea’s tower company ICISL with American Tower is in last leg of

Government FDI approval and we expect to receive the committed tower company sale funds

in H1CY18.

On 25th April 2018, Idea along with its wholly owned subsidiary, ABTL has entered into a

financial transaction for its 11.15% stake in Indus towers, with Bharti Infratel (BIL) and other

Indus shareholders including Vodafone and Bharti Airtel, for the merger of Indus with BIL to


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create the largest tower infrastructure company in the world (excluding China), offering

163,000 tower pan India to Indian mobile operators. This transaction gives an option to Idea

to either: (a) sell its 11.15% stake to BIL before the merger for cash based on valuation formula

linked to the VWAP for Bharti Infratel’s shares during the 60 trading days at the end of Idea’s

election period, which triggers post completion of all regulatory approvals required for the

merger. This currently equals to cash consideration of Rs. 65 billion; or alternatively (b) receive

new shares of the enlarged merged entity at an agreed share ratio of 1,565 shares of Bharti

Infratel for every share of Indus towers amounting to nearly 7.1% stake in the new merged

listed entity.

Even in the case Idea decides to exercise full cash option, Idea will have certain rights in the

merged tower company either in perpetuity or for a period of 5 years, which will help us

significantly protect the interest of our mobility business including the most favored partner

status (MFN), for Idea mobility business until perpetuity.

Vodafone, the joint venture promoter of the listed mobile business entity post completion of

Idea-Vodafone India merger will continue to remain in the joint control along with Bharti Airtel

of the new enlarged tower entity post Bharti Infratel-Indus merger.

To summarize, the merger of Idea and Vodafone India and various fund raising programs are

on track or completed. We expect the new Idea-Vodafone India entity, India’s largest mobile

operator with more than 400 million customers to operate as one unit from the second half

of CY18 and emerge as a strong Indian mobile service provider for both voice and broadband

services across 2G, 3G and 4G platforms.

I now hand over to Mr. Akshaya Moondra – Idea's CFO, for details on the financial performance for

the quarter.

Akshaya Moondra: Thanks, Himanshu. A very good afternoon to participants from India and a good

morning or evening as applicable to overseas participants.

We have seen a 5.7% decline in revenue over the previous quarter, out of which 0.8% decline is on

account of the change in international incoming call termination rate from 53 paisa to 30 paisa and

2.2% is on account of fewer days in the quarter. During the quarter we continued to see ARPU dilution

which contributed to the balance 2.7% revenue decline.


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On the Opex side, we have few one-offs in this quarter being reversals of approximately Rs. 2 billion

in network expenses and Rs. 1.4 billion in employee expenses on account of provisions made in the

previous quarters in this financial year. There is also Rs. 1 billion one-off in license fee and SUC charges

on account of actualization of certain provisions made in the earlier periods. The EBITDA margin for

this quarter stands at 23.6% against 18.8% in Q3FY18.

The ‘Depreciation & Amortization’ charge and ‘Interest & Financing cost (Net)’ for the quarter are Rs.

20.9 billion and Rs. 9.7 billion respectively. The depreciation is lower by Rs. 560 million in this quarter

mainly due to lesser number of days in the fourth quarter. The increase on account of new addition

has been largely offset by assets which have completed their useful life. The interest income is higher

during this quarter mainly due to higher cash balance post equity infusion and interest on certain

income tax refunds.

The standalone PAT loss is Rs. 10.2 billion in Q4FY18 compared to a PAT loss of Rs. 13.5 billion in

Q3FY18. Capex for Q4FY18 stands at Rs. 21.1 billion, taking the overall FY18 capex to Rs. 70 billion in

line with the capex guidance.

For the full financial year, Revenue and EBITDA for Idea stands at Rs. 282.8 billion and Rs. 60.5 billion,

a YoY decline of 20.5% and 41% respectively on account of continuing price pressure and regulatory

changes related to reduction in domestic and international terminal rates. This quarter, Idea

successfully completed equity raise of Rs. 67.5 billion. Resultantly, net debt as of March’18 is lower at

Rs. 523.3 billion as against Rs. 557.8 billion in December’17.

As regards to sale of ICISL stake , the asset and liability values of ICISL continue to be shown as separate

line items as ‘Assets or Liabilities Held For Sale’ respectively on either side of the consolidated balance

sheet. The gain from the ICISL stake sale will be reflected when the transaction is finally consummated

which is expected to be in this quarter.

Lastly pursuant to the merger of IMCSL with ABIPBL, i.e. the payments bank, which has been effective

in this quarter, the company now holds 49% stake in the payments bank.

With this, I hand over the call back to Margreth and open the floor for questions.

Moderator: Thank you very much. We will now begin with the question-and-answer session. The first

question is from the line of Sachin Salgaonkar from Bank of America. Please go ahead.


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Sachin Salgaonkar: Himanshu, it was indeed a pleasure interacting with you for so many years. Wish

you all the best for future, and Akshaya congrats for your role as CFO of the combined entity. I have

three questions. Number one, I just wanted the merger update. Few days back, there was an ET article

talking about US$3 billion of DoT dues related to pending license fees, spectrum usage charge and one

time spectrum charges. Wanted to understand have you got any notice from DoT on that. Point two,

in the Reliance Industries analyst meet last Friday, Jio mentioned that they may not be the first one to

take the tariff hike, but if any other operator takes, they are happy to follow. Wanted to understand

your thoughts on the same. And lastly, about 6 months back, we discussed about potential SIM

consolidation happening in the market. By the looks of it, it is not happening. Just wanted to

understand how should we look at it?

Himanshu Kapania: Thank you Sachin for your good wishes. I will take the questions in the same order

that you asked. As far as the merger update is concerned, the company does not react to speculative

news reporting, but I am going to give you a broad update of various demands from DoT. As you are

aware, these demands are part of contingent liability for all the incumbent telecom operators. The

current disagreement between DoT and telecom operators are in the area of ‘Adjusted Gross Revenue’

(AGR) as well as in the area of one time spectrum charges. The definition of adjusted gross revenue

has been under discussion for quite some time and the recommendation given by TDSAT is currently

under review by the Supreme Court.

As far as AGR matter is concerned, we primarily have a stay on most of these demands and there is

Supreme Court order of no coercive action on any demand until it hears the case. To repeat, there is

a clear court stay for us on the AGR matter and similarly, there is protection from High Court on the

one time spectrum charge demand. All these items will continue to appear as contingent liability in

our balance sheet. If you refer the M&A guidelines, which is a public document, you can see that

broadly any such demand which has a court protection does not require any cash payout. We would

not be able to comment on the specific calculation.

Sachin Salgaonkar: I completely understand your stand, but is there a risk of the merger timeline

getting pushed forward? I saw in your press release that the merger is expected to close in first half

which is couple of months from now.

Himanshu Kapania: We have been consistently communicating that the merger is on track. We have

received approvals from SEBI, from National Stock Exchange as well as from Bombay Stock Exchange.


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We have also received approval from CCI and NCLT, both for Vodafone India in Bombay, and for Idea

in Ahmedabad. We are now in the last leg of approvals, security clearances of FDI approvals are already

received and only administrative work is left out, which we expect will hopefully sort out in the next

month or two. After that, the licenses of Vodafone India will merge into Idea. We are regularly in touch

with government and we see no reasons for delay in merger. You are aware that government has

already approved Bharti-Telenor merger and there were only minor disputes.

Government is moving reasonably fast. Given the complexities in merger of large companies, the

approvals have been obtained at record pace, comparable to global standards and part of the ‘ease of

doing business’ philosophy of the current government. We are fairly confident to retain our original

guidance on timeline.

As regards your specific comment on new operator, I will repeat what I had mentioned in the last

quarterly call that Idea is not a price warrior. We continue to give lot of indications that we are happy

to raise prices. Even in my opening speech, while I mentioned that ARPU of our customers continue

to fall, we would be happy to correct below cost prices. Currently, realization is falling as the unlimited

plans which were sold last year at about Rs. 300 (net of taxes as of April 2017) have now fallen to levels

of Rs. 160-165, while the data volumes have gone up. However, we are not price warriors - Our tariffs

are presently at least 15% to 20% higher than new operator’s tariffs, and we continuously give

indications, both in the marketplace and within the legal framework, that we will be happy to raise

the prices of below cost products whenever the number one operator in the country or the new

operator corrects below cost rates.

Sachin Salgaonkar: What I could deduce is that Jio is waiting for an indication, you guys are waiting

for an indication. So, by the looks of it, the ball is in Bharti's court?

Himanshu Kapania: That is for you to interpret. As far as SIM consolidation is concerned, I mentioned

in my opening remarks that SIM consolidation process has already kicked in. In the last calendar year,

only 40 million is the total additions of SIM, as per TRAI reported subscriber net adds, which is amongst

the lowest annual subscriber addition. Of these 40 million, 88 million was additions by Jio while overall

industry has lost 48 million. The non-Top 3 operators, have lost over 100 million SIMs indicating that

SIM consolidation is well in progress.

However, what is continuously ignored by analysts is that there are 300 to 400 million Indians who

still do not own mobile services. Thus, while SIM consolidation is happening, new customers are also


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entering. In our assessment anywhere around 75 to 80 million customers who were first time mobile

users have entered the category. If we study the trailing 12 months data, there has been at least 30

to 40 million SIMs consolidation. It is a slow process, but the ball has started rolling and SIM

consolidation has happened especially for operators who have exited. Also, if you look at the number

of subscribers smaller operators have lost, based on TRAI reported subscriber net adds, only 30-40%

of the subscribers reported earlier by these operators have ported to the top 4 operators, while rest

of the SIMs have consolidated reducing multiple SIMs.

Moderator: Thank you. The next question is from the line of Manish Adukia from Goldman Sachs.

Please go ahead.

Manish Adukia: I have three questions. First question is on the balance sheet. With your near-term

capex requirement and your obligation to service spectrum debt and interest, how are you thinking

about future fund requirements for the business and what in your view would be the path to lower

leverage over time? Second, on your SG&A costs, your absolute number continued to trend down.

What is the possible run rate and if industry tariffs remain constant for the foreseeable future, do you

think there is room to expand margins in the near term and what is the potential there? And my third

question is what has been the impact in the recent few months at the lower end of your customer

segment, where Jio has been pushing the JioPhone quite aggressively in the last couple of months.

Have you seen any impact on ARPU or subscriber addition? Thank you very much.

Himanshu Kapania: Thank you, Manish. While I am going to ask Akshaya to respond on first two

questions and I will subsequently cover the third part. I just want to give you a broad-brush answer on

your first question. I do not know if you have done the calculations. The total amount that the merged

entity combined has raised, is in the order of US$4-4.5 billion. It includes – (1) Rs. 67.5 billion of equity

raise completed by Idea, through preferential allotment and QIP; (2) Rs. 78.5 billion raised through

sale of standalone towers; (3) Recently announced 11.15% Indus stake monetization; and (4)

Vodafone’s contribution following the equity infusion done by Idea.

The challenge we are facing is EBITDA decline. As summarized in opening remarks by Akshaya, we had

41% decline in EBITDA in FY18. The reason why leverage ratio does not look healthy is the decline in

EBITDA, and the net debt absolute quantum has not increased significantly. Going forward, there are

two big sources of cash benefits. First, our spectrum debt repayment is getting pushed to future years

and the reason for that is changes as per IMG recommendations, now approved by the cabinet, on


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increasing the spectrum installment period from 10 years to 16 years. Our deferred spectrum

installments are now being pushed in future, giving us lot of relief. Secondly, additional cash source is

synergy, we are gearing for a significant amount of synergy post-merger. We see the potential of

delivering far more synergy then what we have guided for and even if you go by the guidance, there

is US$2 billion synergy which we are targeting. Thus we are not under cash deficit threat, albeit the

ratios do not look very good. As far as cash requirement of the company is concerned, we are mostly

funded for our immediate needs. And we look forward to market repair.

I am going to hand over to Akshaya to give you more specifics and additional points.

Akshaya Moondra: Manish, Himanshu has already covered most of the points on the balance sheet. I

would just add that in the current context, our focus is on managing funding for our investments and

we believe we are adequately covered for the medium term. In terms of the ratios getting corrected,

that will happen only as EBITDA improves, and as Himanshu said, will happen through 2 routes – (1)

Through synergies which is more within our control, and should start happening as soon as the merger

is completed, and (2) On account of market repair which all of us are expecting should start happening

soon.

Himanshu Kapania: Do you have any questions Manish?

Manish Adukia: Yes, one follow up. I know that you are not giving any capex guidance but if you can

give us a broad sense, if going forward, capex for the combined entity would be higher or lower than

the capex that today Idea and Vodafone are spending on their own?

Himanshu Kapania: It is not a straight forward answer. You have to remember that we have spent Rs.

70 billion and Vodafone India, while it does not give guidance, our broad understanding is that it is of

similar order as that of Idea. Once the merger takes place, besides opex synergy, there will be

significant capex synergy. We have 300,000 broadband sites combined at this point of time, but lot of

these sites are currently deployed in the same place for both the operators, which will be redeployed

into areas with no coverage. Our coverage will then be far deeper than the current market leader.

Secondly each of us are currently deploying around 600 MHz for broadband spectrum and combined

we are going to deploy re-farmed far higher 1,450+ MHz spectrum quantum, i.e. around 170

broadband carriers and this is going to give us significant exponential growth in network capacity.

Thirdly, there is fiber. We have independent fiber and we will be able to combine a large portion of


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our fiber with a very small additional cost. Fourth, which is not yet talked about but is extremely

important, we have 270,000 2G sites. Everybody ignores the presence of 270,000 sites. As per our

current estimate, a significant number of these 2G sites are upgradable to 4G sites, and the same

applies for 3G. This will bring in significant capex synergy. You thus cannot compare our capex

guidance with others who do not have old reusable equipment for benefit of expanding coverage and

capacities.

Akshaya Moondra: In other words, even if our capex cash spend remains same as what we collectively

did in the last year, we would be creating capacity which is more in line with the market leaders capex

guidance.

On the SG&A, your question is whether there is further scope for reducing SG&A and improving

margins within a flat tariff structure. There is definitely scope to improve further, especially in the

context of the merged entity. There are synergies largely in networks, but there are synergies in other

cost line items as well. As two large organizations or businesses come together, there will be

elimination of duplication which will result in synergies. These synergies have been quantified and

guidance has been given from our side. Besides that, we are also seeing that business models are

evolving, such as more and more of online recharging and e-KYC has started. Customer verification

costs have thus reduced. Consolidation is happening in the industry, so we believe that churn levels

will continue to go down. All these are also factors which will contribute to margin improvement

besides the combination of two businesses itself. Both within SG&A and other heads of expenses, you

will find these benefits coming in. It is possible to thus expand margins in a flat tariff environment but

if one looks at an industry perspective, probably that is not enough for industry to get decent returns

and an improvement in tariffs and pricing is also essential.

Himanshu Kapania: I move to the third part of your question which is impact on lower end of the

customer base. Rather than looking at external impact, the primary impact on customer base is that

we had high ARPU customers earlier, who have downgraded themselves first in the month of April

2017 when we introduced unlimited plan, then the average tariff was Rs. 300 for 28 days plan, and

now in the second round of correction which took place in the month of January of 2018, the ARPU is

down to Rs. 165. This has obviously resulted in much higher volume throughput, as over 25% of our

subscriber base has upgraded to unlimited plans and we continue to get very good traction on these

unlimited plans.


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While there has been downtrading of customers who were on higher end, there is also uptrading of

customers from the lower end. And because uptrading of customers on the lower end takes time, the

remaining customers' ARPU has been on the decline curve. What we are also now noticing is earlier

multi SIM customers are making a choice - on handset as well as network. The customers who were

earlier using two networks, one network for incoming and other network for availing tariffs from the

low priced operators are on the consolidation mode. The industry is currently in disruptive state as

SIM consolidation process is underway.

While SIM consolidation is happening as we speak, presently only about 350 million Indians are

currently using broadband services out of 1.1 billion, and 750 million Indians are still pure voice users.

These users continue to be mostly on the 2G network, and to some extent on the 3G network and

continue to be with us while majority of the consolidation is happening with the exit of 5 operators.

These customers who are entering or present in the market using 2G services, as and when they decide

to upgrade to voice plus broadband services, they look for options either with us or with the remaining

3 operators in the market place and thereby potential for ARPU upgrade.

Moderator: Thank you. The next question is from the line of Kunal Vora from BNP Paribas. Please go

ahead.

Kunal Vora: Couple of questions. First is your operating metrics as well as financial metrics this quarter

were slightly weaker compared to competition. Any reason for that and how are you looking to correct

that? Second, how is your data capacity currently compared to the other 2 operators and how do you

see this number changing over the next 2 years, and what investment would be required for you to

get there?

Himanshu Kapania: Kunal, you are right to some extent about the financial metrics. I believe what you

are mentioning is that revenue and broadband addition for Idea is lower. One of the reasons is the

market leader is aggressively investing, while we as a company are focusing most of our effort to

operate as a merged entity. Our challenge at this point of time is to make sure that there is less of

duplication of capital investment and wait for the merger to take place.

As a combined entity, we continue to closely monitor our performance metrics, be it overall data

capacity or broadband subscribers. Our overall VLR growth in FY18 continues to be much ahead of the

current market leader as a combined entity. You will find that post-merger, once we report all the

metrics, you will find how much better off we are in comparison to market leader, which market is not


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able to relate to. I believe in the first 6 months we had weak subscriber growth and some of these

factors also affected revenue related metrics for us. But in the second half, we have been able to

recover smartly with addition of over 12 million subscribers.

We are also trying to be a little more cautious as far as price is concerned. Rather than go overboard

on discounted subscribers, we are trying to maintain a right judicious mix of prices, and not trying to

be a price warrior. Some of it is reflected in the results. But we believe that the gap is small and we

are comfortable at this point of time because we have to make sure that as a combined entity, we

meet all the M&A guidelines. If you are fine with this answer, then I will move to data capacity.

Kunal Vora: I just have one follow up question. As a merged company, how many quarters do you

think it will take to stabilize because it looks like your competition is seeing your merger as an

opportunity to gain some market share. By when do you think the merged co will be ready to take on

the competition?

Himanshu Kapania: These are all “figures of speech”. At this point of time, we have not lost

subscribers. If you look at exiting subscribers, the MNP gain for the merge co has been far better than

the existing top operator. If you look at the additions of unlimited plan on combined basis, we are far

better compared to individual operations. If you look at one simple metric, which is calendar year 2017

AGR performance, you will realize that Idea has done significantly better among the top 3 incumbents.

You have to understand that there are different reporting methodology being used by different

operators on the basis of which performance of others operators may look better.

We do not expect any subscriber loss once the merger completes. We continue to have our eyes on

the market. That said, we are not going to operate as a discount warrior, and we will not chase

subscriber addition at any cost. That is not our company philosophy. That is not our focus metric. We

are not losing any AGR market share, we are not going to lose our high-end subscriber base and we

will continue to offer world class service across 2G and 4G platform to the customers. You can look at

any benchmark report of TRAI, we continue to remain extremely competitive.

As far as data capacity is concerned for the merged co, as we mentioned, we have a radio capacity of

around 23 Petabytes per day. We are building as much capacity as we require till the merger happens,

and post-merger, there is going to be spectrum consolidation which will give us one big jump in terms

of capacity.


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Kunal Vora: How does it compare with the competition? And how long do you think it will take you to

converge the capacity?

Himanshu Kapania: There are 2 key pointers. We have 400 million subscriber base on a combined

basis, out of which only around 25% of subscribers use broadband services. In terms of voice capacity,

we have sufficient capacity to address the demand and we are getting very robust QoQ growth. Both

as individual companies as well as merged entities, we will be able to handle the voice demand. We

are also introducing Voice over LTE (VoLTE) services which will significantly add to overall voice

capacity. As far as broadband data capacity is concerned, our focus will be to expand coverage by

redeploying overlapping equipment into uncovered area and consolidate our spectrum. This will help

us provide broadband access to our existing base with broadband devices. We believe, within a period

of 2-3 quarters, we would have made significant progress on spectrum consolidation and

redeployment of overlapping broadband equipment.

Akshaya Moondra: Kunal, just wanted to add one thing, historically we always used gross revenue

(GR) to measure market shares. However, the practice of booking captive revenue between circles has

gotten different between different operators over a period of time. Thus, in the current scenario, the

best way to look at market shares would be to look at Adjusted Gross Revenue (AGR), not GR.

Himanshu Kapania: And in AGR, you will notice that Idea's drop is the lowest among the top 3

operators.

Moderator: Thank you. The next question is from the line of Srinivas Rao from Deutsche Bank. Please

go ahead.

Srinivas Rao: Himanshu, thank you very much for leading the company for a long time. I think there

have been both highs and lows during your tenure and it has been a truly transformational period. I

wanted to start with one question on the penetration of the bundled or the broadband subscribers.

Currently, you have 40 million broadband subscribers vs 111 million smartphones on your network.

How quickly can that gap be bridged? Right now, are the balance 60 million odd subscribers using

competitors 4G network?

My second question is whether the company is constrained for capital, which I think lot of investors

have raised, but I think you have adjusted partly as the operating outcomes do not reflect an

immediate need. Is that the fair way to think about it? Do you believe your EBITDA will more than


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cover your capex cash requirements in the mid-term which is primarily capex and the spectrum

payments for the DoT? And thirdly, my question is on the sales structure of the company. Any thoughts

on how the sales structure of merged co will be? If you can throw any light at this stage, that will be

helpful? Thanks.

Himanshu Kapania: You are right. We have broadband subscribers of 40 million and smartphone

device owners at 111 million. There is a gap, which can be explained is due to two reasons. One, as we

mentioned we currently have 650 million broadband population coverage, while our 2G coverage is

nearly one billion. Nearly 350 million population which gets 2G coverage, does not get 4G coverage.

In these areas, there is a possibility that the customer prefers to use our voice network and use

competition’s broadband network. Secondly, just because customer owns a smartphone does not

mean that he is ready to use mobile broadband. Currently, there are only 350 million mobile

broadband users out of 1.1 billion SIM cards, and the remaining 750 million are pure voice users.

Based on our internal analysis, while there are 1.1 billion SIMs in India, there are only 800-850 million

devices and around 250-300 million are multi SIM users. Of the 850 million devices, we believe

smartphone owners are in the range of 350 to 400 million and 2G phones are in the range of 450 to

500 million. We thus estimate that nearly 25% of devices have multiple SIMs, irrespective of whether

the device is smartphone or a feature phone.

To summarize – (1) The device owners are much lower than SIM users on account of multi SIM

phenomenon, but the consolidation process has already started (2) Post-merger we will aggressively

expand 4G coverage redeploying overlapping equipment, reducing the gap between our 2G and 4G

broadband coverage, and enabling the customers who currently use only voice, to use Idea broadband

services as well; (3) Large number of customers, even though they own smartphones, only use voice

services. While the broadband customer base is rapidly expanding, there is still a big gap between

broadband customers and total customer base, which will gradually reduce over the next 2 to 3 years.

Akshaya Moondra: I think your next question is whether the operating flows are adequate to take

care of capex and debt servicing. In the context of merged entity, there is a certain EBITDA and

synergies are going to come in. And if you combine these synergies along with the EBITDA, that would

be adequate to meet the capex requirement which needs to be incurred.

In terms of debt servicing, we have restructured our debt, also there is additional relief from the

government side in terms of restructuring the spectrum payments from 10 to 16 years. For Idea alone,


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the principal debt servicing for the next 3 years is less than Rs. 35 billion, while rest would be interest

servicing. From capex and debt servicing perspective, we will have adequate funding from operations.

Of course, we also have to fund the interest payments and to that extent, we have raised capital right

now which will provide us sufficient buffer to meet any deficit in the medium term. Ultimately, we do

believe that market will recover which will result in improved EBITDAs from the current levels.

Srinivas Rao: On the sales structure, any thoughts?

Himanshu Kapania: Sales structure, I will assume that you are referring to the fact that both

companies have independent distributors. Primarily, our business is prepaid and we have common

retailers because the business is through multi-brand retailers. My assumption is that your question

is about independent distributors. Distributor consolidation will definitely be a focus area post the

merger. Our teams are working together to assess the best way for consolidating distributors, whether

to select model of shortening their territory or moving to a larger distributor common base. To realize

synergies, our first focus area will be network consolidation and second will be sales consolidation,

primarily distributor & sales team consolidation. And third focus area will be brand consolidation. And

as mentioned repeatedly by us, the opex synergy will not only come from network, which is obviously

very easily accounted, but also from the non-network elements. Consolidation of our sales and service

network as well as consolidation of brands should bring us additional synergy.

Moderator: Thank you. The next question is from the line of Sanjay Chawla from JM Financial. Please

go ahead.

Sanjay Chawla: Himanshu, my first question is, you mentioned the total mobile broadband coverage

for the combined entity as of now is 300,000 BTS. But in terms of unique unduplicated mobile

broadband sites, what is the number currently? And related question is that your mobile broadband

additions are quite low, much lower than peers. Jio has reported 26 million adds, although it includes

JioPhone as well. Bharti has reported 14 million, while your number is 5.2 million. Apart from the

coverage deficit, is capacity also an issue? And the second question is, Akshaya, your leverage ratio is

running quite high at 9 times. Do you anticipate any hurdle in refinancing of the spectrum installment

in FY19 and FY20, at least the principal component? Could refinancing be an issue given your leverage

ratios are already quite high?

Himanshu Kapania: We have shared in our opening remarks that Idea's broadband coverage is 650

million and combined entity coverage is around 750 million, because of overlapping sites. Idea’s


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broadband sites is around 155,000 sites while the combined entity has more than 300,000 sites. There

is a large component of overlap, exact number we are not sharing at this point of time, but a lot of

overlapping equipment will be reused to expand in uncovered areas. And post spectrum consolidation,

the same equipment will give us much larger capacity.

Sanjay Chawla: A related part, why mobile broadband additions are lower than peers?

Himanshu Kapania: As mentioned in the earlier response, there are two approaches. There are very

aggressive broadband entry level plans being offered at the lower price levels of Rs. 49 and Rs. 99. We

have chosen not to participate in both these price plans. We currently have mass market bundled

plans at Rs. 199 and Rs. 149. For Rs. 109, we only have segmented offers, primarily to protect our voice

customers. We do not have a plan at ~Rs. 100 price point for our broadband customers, because we

believe that price is unsustainable and it is far below cost. That is the one reason we understand why

our broadband subscribers growth is lower.

There is no shortage of capacity. But we believe Rs. 49 and Rs. 99 is not the right price point to operate

unlimited voice and bundled data plans. That is the view we have taken and we have consistently

maintained that we are not price warriors. The key price plan which is available mass market offering

unlimited voice and bundled data, is Rs.199. Which itself if you take a net of taxes at a level of Rs. 160

against earlier offer of Rs. 300. We do not want to participate in Rs. 60-70 price points with unlimited

voice and broadband data offer of 1-3 GB.

Sanjay Chawla: How difficult or easy it is going to be, to get the customer back once the customer has

started using network of other operators?

Himanshu Kapania: We have taken a conscious call and we have not lost any of our high ARPU

customers. The gap at this point of time in comparison with others is not large. We will keep a close

watch in the market. There is no point in selling significantly below cost. That is not the model that we

want to participate in.

Sanjay Chawla: Himanshu, just wanted to clarify if I picked up these data points correctly, you said

merged co has 23 petabytes of radio capacity, is that the number right now?

Himanshu Kapania: That is right.

Sanjay Chawla: And you mentioned 175,000 3G BTS on a combined basis?


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Himanshu Kapania: The combined broadband sites, which is 3G + 4G is 300,000.

Sanjay Chawla: And Akshaya on the second part?

Akshaya Moondra: Sanjay, I think there is no need for refinancing. As you know, there is cash on our

balance sheet today. We will be concluding the tower transaction which will bring an additional of

Rs.4,000 crores. The Indus stake monetization, as and when it happens, will also bring in additional

cash. When the merger happens, Vodafone will be bringing some cash on its balance sheet. We have

done this evaluation and we do not see any need for refinancing in the foreseeable future. We will be

able to service our debt out of the funds raised and the operational cash.

Himanshu Kapania: I hope you got the summary on cash availability. The total cash once all the fund

raising initiatives are completed, will be in excess of US$4 billion, it includes (1) the equity that we

have raised of Rs. 67.5 billion, (2) standalone tower sale of Rs. 78.5 billion, (3) Indus stake sale of Rs.

65 billion, and (4) Vodafone cash injection against Idea's equity raise. Additionally, our synergy

guidance stands at US$2 billion. You can do your independent analysis. I do not believe there is any

cash need in the immediate future.

Sanjay Chawla: Sir, I thought the assumption was that the cash which has been raised, along with

EBITDA will go towards interest payment and capex. Will the portion of cash be used to repay the

installments as well?

Akshaya Moondra: Sanjay, we are not distinguishing between the source and application. We are

saying that in totality, the source is available, which is enough to meet our requirements in the

immediate future and I do not think there is any challenge. We can have an offline discussion, US$4

billion of funds plus synergies kicking in provides us sufficient cash to meet all our requirements. We

do not need to refinance anything.

Himanshu Kapania: And there is a general belief that over a foreseeable future, the market repair will

happen.

Sanjay Chawla: Just a related question, apart from the capex and interest, how much one should build

in for spectrum liberalization charge and tower related penalties which may come in. Is the spectrum

liberalization charge a must before merger or can it be delayed or avoided given there is so much


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litigation and court protection? Also, any guidance on the onetime spectrum charge and all the DoT

demands?

Himanshu Kapania: As we are still in process of discussion with the regulatory authorities, it is not

possible for us to give any guidance.

Sanjay Chawla: A last question if I could squeeze in one. My question is on the legacy 2G equipment,

there would be some duplicate legacy 2G equipment as well. Should one build in some write offs on

account of the equipment which simply cannot be used any more or there is no need to use it?

Himanshu Kapania: Today, if you see that our voice growth is in the order of 35% or more on a YoY

basis. Not just Idea, other operators are also witnessing similar kind of volume growth. On a combined

basis, we have a 270,000 2G equipment, of which a significant portion is upgradable. Some of the

equipment that we have upgraded over a period of time supports multiple technologies. The capacity

reduction of the 2G equipment will be compensated with introduction of VoLTE by both the company.

In summary, we will be using 2G equipment beyond the life of these equipment for voice.

Moderator: Thank you. The next question is from the line of Rajiv Sharma from HSBC. Please go ahead.

Rajiv Sharma: Couple of questions from my side. Himanshu, you provided lot of color on the

competitive landscape and mentioned that you do not want to participate in plans which are below

cost. But what happens if the situation changes and subscriber loss starts happening in the lower end.

In that case, could we see you trying to close the gap on at least Rs. 98 plan? Secondly, the 2G market

is consolidating between the merged co and Bharti. There are 100 to 150 million subscribers on each

side which will be at monthly revenues of Rs. 25-30 or lower. Will there be a scope to get some upside

there on the ARPU given that the 2G capacities are consolidating? Thirdly, how do you see this whole

network getting integrated given that there are so many moving parts? You have different vendors,

then you have to redeploy some spectrum and ensure that services are not disrupted. Is it 6-8 quarter

process or a 4-6 quarter process?

Himanshu Kapania: As far as Rs. 49 plan is concerned, we are definitely not participating in it. On Rs.

98 plan, we are closely monitoring the situation. In some weak markets, if there is a need, we may

offer some segmented plans. But on an overall basis we are keeping ourselves away from below cost

plans, but we are closely observing the markets. At present, we are focusing our attention primarily

on Rs.149 and Rs.199 plans.


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Our current point of view is that it is better to have a profitable growth even if leads to half percent

less revenue. But we will closely watch the situation and we are a very flexible company, but not a

price warrior. We will adjust ourselves according to what is necessary. In terms of minutes’ or data

volume, we had robust growth, but we do not want to participate in below cost plan. Beyond that, it

is very difficult to answer at this point in time

As far as 2G market is concerned, the 2G market will consolidate and most of it is due to exiting

operators. Lot of subscribers were reported by operators who exited the market, of which only 30%-

35% of the overall number have ported to other operators and there have been fair share of

distribution between the three incumbent operators, in line with our market shares.

After the overall market settles, I would expect ARPUs to start going up because customers who are

using multiple SIMs will move all the usage to one operator. Once that happens, it is natural to expect

that 2G ARPU will also go up, who are dominant voice users. And the current plans of unlimited voice

being offered to customers are extremely attractive. It was never this good even in the best of its time,

even back in 2010-2011, prices were never this low. This is encouraging a lot of customers who are

non-users to enter the category. With the merged entity, having almost 1.6-1.7 times 2G equipment

and far larger capacities and coverage, we expect to gain maximum on 2G consolidation. If you are

fine, let me cover the most significant part of the question which is the network consolidation.

Rajiv Sharma: Sure.

Himanshu Kapania: On network consolidation, first and foremost I want to remind everybody that we

have been doing network consolidation for many years. Whenever we deployed 4G spectrum, and we

had old equipment or we had to change the equipment supplier, we were able to do that successfully

without any disruptions. We were able to move one set of equipment between circles and change

suppliers. An example of that is Delhi circle where we completely moved all our existing equipment to

new supplier, both for 2G as and 4G. The same has happened in Rajasthan, Bihar, as well as Karnataka.

In certain circles, for example Kerala, we upgraded the old equipment when certain equipment

completed full life. Typically it takes over 6 to 18 months to carry out this activity, depending on the

size of the network and it never disrupts any services of the customer. We have mastered the art of

swapping equipment and it is not the first time we will be doing network consolidation.

There are 3-4 activities in the process of network consolidation. First is overlapping broadband

equipment in the broadband side which is capable of supporting multiple spectrums. Currently, both


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the companies are using independent spectrum and hardware, post-merger the same hardware can

be used for the combined spectrum and the remaining equipment can be moved off from the

overlapping site into an uncovered broadband site. This activity will be a key focus area for us.

Then, there is overlapping 2G equipment where both the companies have same equipment on the

same tower. We would immediately get opex synergies of an order of Rs. 20 billion (annual run rate)

on day one, as tenancy on overlapping sites will convert to loading. The next step will be consolidating

our spectrum to augment our capacity.

As far as supplier is concerned, we can have a single supplier in an individual circle or we can decide

cluster by cluster. All of this is currently under discussion. We have done this kind of activity many

times over the last 4-5 years where we have worked across multiple circles with multiple type of

technologies and multiple suppliers. Similar activity has been done by all top telecom operators. We

are very confident that the network consolidation will be a seamless exercise, which is not going to

disrupt any customer service in any circle or town and instead will significantly enhance customer

experience. Our initial focus will be to first complete the network integration in circles with highest

revenue market, while the overall activity may take 12-18 months. But highest revenue generating

market should be done first as well as redeployment of overlapping equipment will yield highest

results in these markets. Rest, we can connect offline some time to explain you in greater detail.

Rajiv Sharma: Is it fair to assume that most of the capex will be focused on the top 15 circles in the

first 12 months?

Himanshu Kapania: We have a fairly large coverage across the 22 circles. We will focus on wherever

we get the maximum bang for our buck. Specific strategy is not being shared, but we will obviously

like to maximize our revenues and EBITDA first.

Moderator: Thank you. Ladies and gentlemen, that was the last question. I now hand the conference

over to Mr. Himanshu Kapania for closing comments.

Himanshu Kapania: Thank you so much, Margreth. Once again, I would like to thank all the

institutional investors and telecom analysts. All of you have done a lot of good and detailed work,

providing us great insights, which helps us to fine tune our strategy. I would miss you all and wish all

of you happy investing. I hope you will continue to support the telecom sector. Thank you so much

and all the very best.


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Moderator: Thank you. On behalf of Idea Cellular Limited, that concludes this conference. Thank you

for joining us and you may now disconnect your lines.

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