Idea Cellular’s Mobile data revenues were up 9.3% qoq and 61% yoy in 2QFY16. Share of data in mobile revenues increased by 190bps qoq to 19.6% in 2Q. Data traffic or volume growth was 83% yoy, driven by 118% growth in 3G traffic and 47% growth in 2G [EDGE, GPRS]. Within mobile data, 3G revenues showed much stronger growth at 15% qoq/95% yoy compared to 2G [flat, +23%]. Idea management explained the 5% yield drop was driven by competition in data market and stiff resistance from price-sensitive consumers to data tariff hikes initiated in July/August that forced a roll back data. Management highlighted that data supply growth has accelerated but data demand was slow to pick up so far; nonetheless, mgmt. is hopeful that demand growth will increase over time, and is accordingly targeting 20-25 mn new data subscribers every year.
Four circles saw an ICR partner deploying its own network and hence, 2Q did not see 3G ICR pay-ins in these circles,
leading to VAS+SMS revenue coming down. In the next three years, 3G ICR arrangements should wind down completely
Idea Cellular plans to introduce Idea-branded digital services and applications (music, games, movies, digital wallets) with focus on regional and vernacular content from FY17. The company is also looking to launch 4G LTE services across 750 towns by June 2016.
Challenging Times Ahead for Idea 2G Voice RPM
Just in time execution specialist company Idea is facing an uphill task as far as Voice RPM is concerned. Voice RPM trajectory has been weak for the past few quarters and it hadn’t worried us yet as thus far we had seen it as a temporary competitive issue. The structural linkage of voice RPM to data pricing (where we expect a downward trajectory), which the management delved on for the first time, is what surprised us. Idea management’s almost-resigned stance on its inability to move voice pricing up on account of contextual (competitive intensity) and structural (risk of voice volumes getting cannibalized by VOIP) reasons.
In the past one year, Idea has expanded its 2G BTS count by 11% (to 119,276 sites) and 3G node B count by 58% (to 39,867 sites) but has seen its network opex go up only by 10% yoy. We note that the company has delivered 17% voice volume growth and 83% data volume growth yoy. After increasing capex guidance twice in the past two quarters, management maintains high capex guidance of INR 60 – 65bn. Additionally, Idea’s change in stance towards LTE rollout plans in 2016 (which were until the past quarter undecided) will further impact capex requirements. The strong ramp-up in data penetration has the potential to grow capex at a higher pace.