Idea Cellular has reported a blended ARPU increase of about Rs12 over the last year (from the Sep-13 quarter to the Sep-14 quarter). We estimate that data contributed about Rs10 to the incremental ARPU, i.e., more than 85%. Data continues to grow at a very strong pace, admittedly from a low base. We believe data will remain the primary ARPU increase driver in the near to medium term. We calculate that voice ARPU increased just Rs1 over the last year, contributing about 10% to incremental ARPU. Non-voice non-data revenues remained flattish Y/Y, at Rs12 per subscriber per month.
Data margins are higher than voice margins for operators that generate a relatively smaller proportion of revenues from data. The reason is that operators install 3G Node-B on towers where they already have 2G BTS, there is no incremental subscriber acquisition cost, as the company has legacy voice subscribers and data revenues do not attract interconnect cost. However, if data becomes a larger part of the revenue / subscriber base, margins start contracting. Management suggests that voice can support data margins, but data cannot support voice margins
Idea Cellular Chants 3G Mobile Data Mantra
Management suggests that it will continue to invest for 2G and 3G footprint expansion, fiber installation and brand building. Idea will roll out 3G services in Delhi and Punjab at the end of CY14. Idea had about 25,164 total 3G cell sites at the end of the quarter, an increase of about 2,648 sites, after an increase of 4,485 sites over the previous three quarters. We believe the 3G site rollout is not as quick as needed to build a data-ready network. Also, the company is installing 3G equipment only in existing 2G sites, i.e., loading the existing sites, rather than leasing incremental sites for data alone.
Idea explicitly stated that it does not believe LTE technology is mature enough to gain scale currently . Hence, the company plans to delay investments in LTE. However, it has purchased 5 MHz spectrum in 1800 MHz band in 9 circles for 4G rollout. Idea rolled out 8,000 km of fiber in FY14 and plans to roll out an equivalent amount of fiber in FY15.
End of 2G Expansion Footprint
The company added 1,436 2G sites, as well, taking the number to 107,605. Idea has increased its 2G footprint about 12.1% over the last year as it continues to broaden its reach. We see these investments as a positive. However, management suggested that it is close to the end of its 2G footprint expansion cycle.
The company evaluates the revenue and subscriber addition profile of various regions and identifies pockets with potentially high revenue / subscriber additions [Idea’s Analytics team profiles customers’ handset capabilities, and Data Usage and decide on 3G Mobile Data Upgrades]. Management will keep investing in such pockets. The company will likely need to lease more 3G sites (in addition to loading) to build a robust data network because 3G is on relatively inferior spectrum band and data is not as scalable as voice.