Idea Cellular’s sale of its entire stake in its wholly-owned tower subsidiary Idea Cellular Infrastructure Services Ltd (ICISL) is in line with its plan to shed non-core assets, with the stake in Indus Towers to follow. In a tete-a-tete with BusinessLine , Idea Cellular Managing Director Himanshu Kapania said the industry saw subscriber growth coming back from this quarter, along with an improvement of financial metrics. Edited excerpts:
Is the sale of the tower assets the first step in monetisation of Idea Cellular’s non-core assets?
On March 20, when we announced our merger with Vodafone India, we also announced our intention to strengthen our balance sheet by selling off our non-strategic assets. Now, we are monetising our towers as we need to improve our broadband coverage, our 4G and overall capacity for 4G. Idea now covers almost 47 per cent of our population, and needs to improve this too. With these tasks on hand, we needed additional funds and monetisation will help us with addition sources of funding.
How you are planning to utilise the proceeds from the ATC deal?
We will receive ₹4,000 crore while Vodafone will get ₹3,850 crore from its deal to sell its mobile towers separately, if both these deals are completed before the planned merger of Vodafone with Idea Cellular.
During the first half of this fiscal year the tower business reported revenue of ₹596 crore and EBITDA of ₹194 crore. The funds received from the sale of tower assets will be used to strengthen the balance sheet by deleveraging debt. We are yet to take a call on how much debt we will pre-pay. All that I can say now is the overall amount received from the sale of the tower business by both the companies will be equivalent to 6.5-7.5 per cent of the net debt of the merged entity.
What is the other monetisation initiative?
The other initiative we announced earlier was the stake sale in Indus Towers. Idea Cellular has an 11.15 per cent stake in Indus Towers, and we are still evaluating our options.
Idea has posted a standalone net loss of ₹1,176 crore in this quarter...
We had the most disruptive time during the past 10 months, with voice rates tumbling by 33 per cent and mobile data rates falling by 85 per cent on a year-on-year basis. The volume growth is not compensating for the rate loss and with revenues declining, EBITDA also fell. This has pulled down net profit.
When do you expect the turbulent times for the industry to end?
We are seeing early signs of a market revival. The market, which was hyper-competitive earlier with nine operators, is now reducing to the level of 4-5 operators. A number of non-4G telecom operators are exiting the market or have decided to merge with existing ones. The subscribers of these operators are being relisted with the top three operators. The icing is the new entrant deciding to improve pricing.
These are helping the industry get back subscribers and improve metrics. We are hopeful of returning to growth in coming quarters. From this quarter, we are seeing subscriber growth coming back, which is an early sign of market revival.
Will there be any funds left to make fresh investments after deleveraging of the balance sheet?
We have stated capital expenditure of ₹6,000 crore for this fiscal year to expand broadband coverage, increase wireless data capacity and introduce LTE voice services. We are on track to complete this investment and improve our reach to customers. The merged services of Idea and Vodafone will emerge the leading 4G service provider with market share of about 47 per cent.
Has the consolidation in the telecom space helped you?
We have benefited substantially from Reliance Communications’ decision to discontinue its 2G and 3G services. This apart, we have seen some new customer additions post the announcement of Tata Teleservices’ merger with Bharti Airtel. These developments have arrested the slide in our user base and we have added new customers. Our realisations have also improved with the addition of new customers.
What is the impact of the cut in interconnection usage charges on Idea Cellular?
The industry has gone through tremendous financial stress in the last 12 months with the new entrant offering free voice and below cost data services. The cut in IUC has inflicted a further strain and led to consolidation in the industry. However, on the positive side, the new entrant has already revised its tariff twice in the last two months. It is an indication that the cost has started pinching the new entrant and they will not be able to bleed the industry any further. This is very positive for the industry as a whole. The impact of the rise in IUC for us is about ₹150 crore to ₹180 crore at the EBITDA level in the last six months.
Is the Idea-Vodafone merger facing hurdles? Are you on track to complete the merger before the deadline?
We have a deadline for completion of the merger by the end of this fiscal and we are confident of executing it with all regulatory approvals. We have received almost all the approvals and waiting for just two permissions. Both stock exchanges and shareholders of both the companies have approved the merger. The creditors have also given their approval.