Idea Cellular may have been six months behind competitors on rolling out 4G services, but having spent Rs 12,798 crore in the recent auctions, it is now fully equipped to take on competition, especially attract users from smaller rival. Managing Director Himanshu Kapania said Idea was prudent at the auctions, the example being shifting to 2100 Mhz band after initially fighting for 1800 Mhz in Mumbai when prices went high. He added the telco is comfortable operating with its current net debt to equity ratio of 4 to 4.2 for two-three years, given its cash flows, but it has the option of monetizing its tower, if needed. Edited excerpts.
Our Mumbai bidding was part of the game plan. When we started bidding 1800MHz, it was attractively priced because the 4G ecosystem is most developed for this band. When it became too expensive, we went to the next best band — 2100MHz. Across our holding we have increased our spectrum holding by 64%. We now have 650 MHz for broadband service of which 170MHz will be used for 3G and 380MHz for 4G services.
You can deploy 4G on 2100MHz. In fact most devices are 2100MHz compatible, because the fall back from 4G was conceived to be 3G. Now any of the bands can be used for 4G, so where we have a second carrier (5MHz is called a carrier because it is the minimum required to offer reliable service) we will use it for 4G and we expect competition will do the same.
Our priority is to maximize the spectrum we have just bought and what we bought in 2015. This is why in FY16 we increased our capital expenditure apart from what will be spent of spectrum to Rs 7,500 crore. Then this year we had said we will spend Rs 7,000 crore but we will now be increasing it by Rs 1,000 crore. After this the capex will taper off unless there is a big demand for data.
If we continue cash profit there is no need to change plans. We have a current net debt to equity ratio of 4 to 4.2 and we are ok to operate at that for two or three years. We have cash profit that is growing 25% for the last four years. Now the dynamics may change and investors have been cognizant of that. If there is a need for more, we have the option to monetize our tower, but that depends on market behaviour.
Out of a billion users, around 950 million continue to have only 3G and 2G handsets. In a couple of years there will be 100 million smart phone users with 4G in the market. For the remaining 900 million, there will be consolidation as subscribers will shift from trailing operators. Idea has always been a mass operator. In the 4G space we may be six months behind, but the market will grow gradually. Every operator will soon start offering bundled plans, like Jio, to take on the market.
These operators have low income subscribers since they are playing the price war. Which leaves their spectrum as their most valuable asset. Idea has procured enough spectrum that its needs are done. Our focus will be inwards.