3G data usage has seen significant uptick: Mahesh Prasad, RComm

Reliance Communications has emerged with net profit figures beating Street expectations, as well forex gains and EBIDTA margin expansions. Mahesh Prasad, Group President, Wireless Business, Reliance Communications analyses the earnings figures on ET Now.

Sequential fall in revenue and you have given the reason that you are moving away from low margin businesses like the PCO but your broadband and wireless business also fell sequentially, there is a bit of a weakness even in the core business then, is that correct?

Mahesh Prasad: Reliance being a company, which is straddling two technologies, CDMA and GSM, we have a rich portfolio of services and comes with that is essentially balancing of what I call a portfolio of services from time to time. As we have seen worldwide as the mobile penetration and the tele-density of any country for that matter increases, the first one to take a backseat is the payphone calling or the PCO as we call it in India and what we have done over the last three quarters consistently, we continue to focus on the operational efficiencies.

We want to make sure that we are serving our customers with the minutes that are being paid for and not necessarily what we call the FAT or the free airtime in the industry and we had removed about 50% of that what I call the free airtime in the past two quarters and we continue to do that in terms of improving the profitability and building our foundation, so that we can actually build on the portfolios that are profitable and that have the growth drivers with that.

In the process, what we have done this quarter is essentially defocusing on the PCO in terms of taking out what I call the highly discounted minutes, which are huge in numbers but they do not yield the margins that we desire and we have freed up those minutes and consequently we have deployed in over 500 towns, our CDMA high speed data network, which is the wireless broadband services.

We would like to continue to focus on what I call the broadband services as well as the value-added services as we embark on this journey on 3G, so that’s kind of sums up what we have done in this quarter, which kind of reflects in a slight dip in the revenue but at the same time, a dip in the minutes of usage, which I talked about, however, we continue to focus on the high yielding minutes, therefore, the margins or the RPMs have remained stable and among the best in the country for the last three quarters while we have seen dip in the RPM in the sector.

Your ARPU and minutes of usage have also fallen about 9% over the past quarter, this is a trend unlike what we have seen with Bharti and Idea, could you explain the dip there?

Mahesh Prasad: A couple of things, one is for the reasons that I mentioned earlier, you do see what I call a decline in some of the minutes of usage that I talked about in the earlier conversation. At the same time as we have expanded the GSM network and expanded the distribution network in the rural markets, we have seen an increase in the contribution of net additions that we do month over month more from the rural segment as we go into it.

Also what you see is essentially these rural customers who may be for the first time mobile users or some of them could be churners from the existing operators traditionally have had lower usage than the counterparts in the urban centres and that’s one of the reasons why you see but what is really driving the decline in the minutes of usage is taking out what I call the low-contributing minutes from the network.

A belief is also that because of the fact that you have decided to curtail the PCO business and a couple of other initiatives that you have taken, there will be decongestion of network, which will essentially help in data services also, possibly even new customers joining the bandwidth. Do you think that’s a correct estimate and you will see results of this in the next couple of quarters?

Mahesh Prasad: Yeah, you are right on the mark. Data services is a bandwidth hogger as we have all seen across the world. And as we have rolled out these 500 towns, the time is right in terms of people using broadband wireless services with the increase in the smart phones and also increased penetration of what I call the notebooks, net books and the desktops.

So we do expect the data taking the front leader position in terms of the growth that we will see in the coming months and quarters in the country. India is highly underpenetrated as far as wireless, internet or in general internet access is concerned and we do believe that focussing on the data will yield us long-term prospects for the company.

The pickup from 3G, how strong is it? Do you believe that maybe FY12 that will be a significant portion that will come in from that side of the business or too early to comment right now?

Mahesh Prasad: 3G has been rolled out in nearly 50 towns as we speak, Bombay, Delhi, Kolkata were the first ones to get and we were the first one in the country among the private operators to launch what I call 3G services within the 100 days of obtaining spectrum. Now in terms of the uptake for the 3G, it goes hand in hand with what I call the 3G enabled handsets in the country and from the numbers and the analysts figures that we have seen, Mumbai, Delhi, Kolkata contribute to the largest numbers of what I call 3G enabled handsets and we do see that there is a huge opportunity for us to benefit from one of the three operators in these three metros.

Now in terms of the uptake for the 3G, we have seen a significant uptake in the data among the 3G users who have started using 3G on our network in these metros as well as in other cities that I mentioned and we do hope that what we have seen in rest of the world will also take shape in the country.

Give us a sense of the margin picture.

Mahesh Prasad: We are continuing to focus on what I call the margin building exercise and to improve the margins and there are several things that we have done. The one on the network operating costs, we are ensuring that we are getting the best efficiencies in the network operations. Secondly all the efforts that we have talked about over the last three quarters hopefully will yield to what I call better margins on the voice side of the network with the data value-added services on 3G, which are typically high-margin services. We hope that in the coming quarters, the margins should continue to be stable or improve.

What is your view on the TRAI recommendations with regards to the charges for excess spectrum? Two points, one is that currently you may have to pay very little if this rule does come into play but would this not cause pressure later on when you need excess spectrum and prima-facie do you think this is a fair rule for all the telecom companies or this needs some changes?

Mahesh Prasad: We have always maintained that there should be level playing field in terms of the allocation of of spectrum. Having said that, we will wait for the TRAI guidelines and the actions that will be taken by the government in the coming months, however, a spectrum needs to be judiciously used and be paid for by every operator and if that impacts us in the long run, so be it. It has to be a level playing field, which is what we have been asking for.

For the next quarter or rest of the year, what kind of revenue growth, would you stay on the same margins or improve upon these?

Mahesh Prasad: In general, the directions that we have set for ourselves in terms of focussing on the 3G, data, value-added services and continued to focus on rebalancing our portfolio should yield better margins, however, it is kind of difficult for me to forecast or predict in terms of what the revenue growths and margins are going to be in the coming quarters of the year ahead.