transcript earning call 08-09q2

8/8/2019 Transcript Earning Call 08-09Q2

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future, but at this juncture, when the world economy is going through an

inflection point and also the Indian telecom sector is going through a flux, Ithought we would take some license with our old habit and be a little more

expansive in our comments.

Now, let me place the context in which we approach our day-to-day work, weapproach this call, and we approach everything that we do in our Company. In

our Companys view, the competitiveness of mobile operators in the Indianmobile sector, going forward, and I stress the point, this is going forward, will

be predicated on three key factors, and I would like to expand upon them one by

one. These are the three key factors and the reason we picked three is, becausewe believe any fourth factor really is a distant fifth or sixth, but these are the

three important ones.

Now, factor number one, in these three, I am not rating in any order of priority,numerically the first factor is, in our opinion, what we call in any business is,

access to raw material, and in mobile telephony, our raw material is spectrum.Now, we know that all Indian operators are spectrum challenged. No one hasenough spectrum by world standards, but if we analyze the availability of

spectrum by operator and by circle, both in terms of quantity and more crucially

in terms of the quality of spectrum, and by quality of spectrum, I would includewhether it is GSM, whether it is CDMA, whether it is 800, whether it is 900

megahertz, whether it is 1800 megahertz. If you do a kind of tally and

whichever way you may like to assign weightages, you will find that the

government operators, that is BSNL and MTNL, are by far, much betterendowed both in terms of quantity and quality. But among the rest, among the

private sector operators, Idea, the larger Idea after one includes Spice, would

have a national spectrum profile, which in our opinion is as good as any oneelses, as good as the best, and is better than the average and better than the

majority. So, this is the first competitive factor which is what kind of access you

have to raw material and where we believe that at least among the private sectoroperators, Idea after the Spice transaction, is very well placed. As well placed as

anyone else.

The second factor I would like to go on, which again is a success factor, whichwe believe is important for competitiveness, is the balance sheet of the

Company. Now, after the recent issue of preferential shares to TMI and the near

term forthcoming investment by P5 in Aditya Birla Telecom, the balance sheetof Idea is absolutely robust. Idea will be determining its future steps based on

hard-nosed strategic purpose of the Company, not based on balance sheet

fragility. Essentially what I am saying is that the dog will be wagging the tail;the tail will not be wagging the dog. So, at least as far as this competitive factor

is concerned, we are second to none. We have as much funds as are required for

our business. We dont need more than that.


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The third competitive factor, which is what we call, within our Company, is

management, and by management I do not mean, the top 10 people or the top100 people. What we mean is that in an increasingly large, increasingly

complex, very fast changing and very hyper competitive sector and where you

have thousands of your management team members who dont work in clusters;

they are disaggregated into the recesses of our country. The robustness and therefinement of management processes and the management spirit, if I can use a

qualitative term, have become very vital competitive factors. This, I think, is notrealized. Because our sector has changed, companies have become very large,

very complex, it is a much underrated factor. We would not like to boast and

say that in such a soft area, Idea is ahead of others, but having said that, wewould like to ensure that Idea in this competitive factor is second to none.

So, fundamentally what I have sketched to you is what we believe are the three

competitive levers going forward, and we believe that in each one of them, Ideais very attractively placed. Additionally, in the last year or so, the Idea brand has

gained stature and now stands taller than ever before. We have made successfulentries into Mumbai and Bihar. We will be entering several other geographies inthe next few months. Our national long distance and international long distance

plans are fortifying. In effect, we have never been stronger, in the 10-12 years of

the history of our company; as strong as we are today. This alignment ofcompetitive factors has not happened by accident. We have worked hard and

we have worked to a plan to get to this point. Having done the hard work, our

Company has no intention of being timid just because there is a little financial

turmoil for some period of time or even because there is clearly overcapacity inthe Indian Telecom sector coming up. Our company believes that every sector

eventually throws up a handful of winners, and these handful of winners are

based on genuine business prowess, not on some irrelevant or some otherfactors. Our Company will remain completely focused and unwavering in

executing its plan. Now, it was important for me to give you this preface which

really is not directly related to Quarter 2 results. Because our Quarter 2 results,and subsequent results will, not just for the succeeding quarters but for the

succeeding years, will show how substantially we are able to deliver or execute

upon what we believe is a golden opportunity.

Turning now to our Q2 results, these are in fact a manifestation of our strategic

intent. Just to give you a flavor, in the first six months of the year, we have

added 8,600 cell sites. This represents a 35% increase upon our year openingtally of 24,800. So, we have added 35% sites, or you can roughly say 35%

capacity in the last six months. Further, as the majority of these new sites are on

a rent paying basis instead of the majority on an ownership basis, the percentageincrease in rent paying sites during the first half is actually 56%. Now, the speed

of the rollout and the profile of the rollout will naturally place pressure on

percentage EBITDA margins. To compound that, during this quarter, minutes ofuse have been depressed in terms of minutes of use per subscriber, not

withstanding the fact that we had a decline of 3 paisa, the realized rate per


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minute from 65 to 62 paisa. While some of the drop in minutes of use per

subscriber and consequently the ARPU per subscriber would be due to thesoftening of the economic environment around the world and in India, but it is

our assessment that most of this drop has to do with the fact that July, August,

and September are poor seasonality months. We saw a pretty similar pattern last

year, and we believe, we expect, that October-December quarter, we will see areasonable bounce back in MoUs. Although that is still probing into the future

and no one can be 100% certain about it, but we believe that October toDecember will be a departure in terms of usage.

During this quarter, we have also accomplished a very satisfactory launch ofservices in Mumbai. The Idea brand has been very well received. We crossed

100,000 subscriber marks within just five weeks of the launch as on end of

September. After the end of the second quarter, in fact, during the early part of

October, we have also operationalized services in several major towns of Biharand early indications from there are also very positive. I will not take time on

this, but as a regular practice for several years, we measure through third-partythe brand strength of the Idea brand and customer satisfaction indices, and I canshare with you that these are impartially done and they have been improving on

a broad front over the months across the country reflecting the growing power

of Idea.

In our 12 operating service areas, after the launch of Mumbai, during the

quarter, we added 3.19 million subscribers. Our subscriber count at the end of

September is 30.38 million. This does not include Spice. Our market share, wenever really look at national market share, we look at relevant market share, but

for those of you who are statistically inclined, our national market share has

increased in this three months period from 9.6% to 9.8%.

Towards the end of this quarter, which is in the month of September, UP East,

one of the bigger circles of India and one of our three new service areas, whichwe had launched in the fag end of 2006, turned EBITDA breakeven and that has

not happened yet for Rajasthan and Himachal Pradesh. But as I had mentioned

and clarified in our previous earnings call, we received spectrum from the

government for 40% of Rajasthan, which is particularly the Western Rajasthanarea, only a few months ago and therefore we had a fresh round of investments

in Rajasthan. But the good news is that last month some big districts like

Jodhpur and Bikaner have been lit up and are now operational and therefore ourservice is going to be increasingly more popular in Rajasthan also.

Just to briefly apprise you about the status of various transactions announcedlast quarter. We have, during this quarter, completed the 14.99% preferential

allotment of equity to TMI and received a sum of Rs. 73 billion towards that

preferential equity. The open offer for Spice shareholders closed earlier thismonth on the 6th October and the process of paying off all their shareholders

who have opted has been already completed. The process of transfer of the


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Modi Group stake, which was in Escrow, has also been completed and

effectively, now Spice is a joint venture between Idea and TMI, pending itseventual merger into Idea which will happen post the court process.

We have also very recently received approval from the Government of India, in

fact, from the Cabinet Committee for Economic Affairs with respect to theforeign direct investment which is to be made by P5 Asia Holdings for their

equity infusion into Aditya Birla Telecom Limited, and this transaction shouldalso be completed in the coming weeks.

Preparatory work for the launch of Idea operations in the service areas of Orissaand Tamilnadu is progressing. Steps have been initiated very recently to

strengthen processes in the Spice service areas of Punjab and Karnataka and in

the coming few months, we will also take up the re-branding exercise. In

another two quarters once Punjab, Karnataka, Tamilnadu, Orissa startoperationalizing, the yellow colors of Idea will be fluttering across most parts of

India.

I will now hand over to my colleague, Akshaya Moondra, for his commentary,

after which we will open this up for any questions you may have.

Akshaya Moondra: Thank you Sanjeev. I once again welcome and thank all the participants who

have dialed in today. Sanjeev has given you a broad direction about this quarter,

and I will now take you through the quarterly financial highlights.

Firstly, similar to our experience of last year, we have witnessed a subdued

second quarter this year also. Our growth in total minutes has been 10% in this

quarter, which is similar to the levels seen in Q2 of last year. However, thegrowth in the three quarters preceding this quarter has averaged about 20% per

quarter and hence Q2 represents an exception to this general trend. Secondly, as

stated by Sanjeev, we are today on the path of creating long-term competitiveadvantage. Both these factors have impacted our profitability in this quarter.

Our consolidated revenue of Rs. 23 billion for the quarter showed a growth of

5.8% over the last quarter ended June 08 while EBITDA declined by 16% overthe previous quarter. However, I would like to emphasize that this is also to be

seen in the context of what has happened over the last one year. For the first half

of this year, our revenues are higher by 47.3% over first half of last year andEBITDA is also higher by 29.3% for the same period. The EBITDA during this

quarter has declined by Rs. 1.13 billion compared to the last quarter and in

absolute terms stood at Rs. 6.07 billion. In percentage terms, EBITDA marginshowed a reduction of 6.7% on a quarter to quarter basis and stood at 26.3% for

the quarter.

There are three main reasons which have contributed to EBITDA decline in this

quarter. The first is that the volume growth has been 10% this quarter against an


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average of 20% in the previous three quarters, which substantially is a

seasonality issue. The two other factors are the ones which are a result of ouraggressive growth strategy. These are; the EBITDA loss of Mumbai which

affected our EBITDA margin by 1.5% and the higher marketing and brand build

spend in this quarter which had an impact of 1.4%. The higher marketing and

advertising cost at national level is also driven by Mumbai launch in midAugust and Bihar launch early this month. This will also give us long-term

benefits as we launch other new circles in the later half of this fiscal year.Besides these, third main factor, our number of cell sites has increased 35%

since the beginning of the year and 70% of this addition has been guest sites.

This has resulted in higher network costs in short term but this will generaterevenue with some time lag. This quarter is also the time when our

compensations are revised and this being once-in-a-year event, impacts the

performance in this quarter disproportionately on a Q-on-Q comparison.

Coming to the interest and financing charges in this quarter, we have seen a

decline of Rs. 30 million compared to last quarter. This is mainly because of thecombined effect of acquisition financing debt which was outstanding for the fullquarter and additional equity received from TMI in the middle of the quarter.

We are fully hedged for our borrowings in foreign currency. However, as a

matter of policy, we do not hedge our payables for equipment supplies andforex loss of Rs. 187 million was booked on account of same in this quarter.

Our depreciation and amortization has gone up by Rs. 283 million on a quarter-

to-quarter basis which is in line with our Capex growth. At Idea, the Capex for

this quarter has been Rs. 10 billion. The Capex for the full fiscal year isexpected to be in the range of Rs. 75 to 80 billion excluding any investments on

account of 3G.

With this, I would like to hand over back to Manjula and open the floor for

questions and answers. Thank you.

Moderator: Thank you very much sir. At this moment, I would like to hand over the

proceedings to WebEx International moderator to conduct the Q&A for

participants connected to WebEx International. After this, we will have a

question and answer session for participants at India Bridge. Thank you andover to you Brandon.

InternationalModerator: Thank you moderator. We will now begin the question and answer session for

participants connected to the WebEx International Bridge. Please press *1 to

ask a question.

At this time, there are no questions from participants at WebEx International

Center. I would now like to hand over the proceedings back to the Indiamoderator.


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Moderator: We will now begin the Q&A interactive session for India participants.

Participants who wish to ask questions, please press *1 on your telephonekeypad. On pressing *1, participants will get a chance to present their questions

on a first-in-line basis. Participants are requested to use only handsets while

asking a question. To ask a question, please press *1 now.

First in line, we have Ms. Priya from Enam Securities. Please go ahead.

Ms. Priya: Yeah, hi. Good afternoon to the management team and congratulations onincrease in your market share. My first question relates to this Capex amount of

75 to 80 billion. Does this includes that of our proportionate share in Indus

Towers and does it include Punjab and Karnataka as well?

Sanjeev Aga: Madam, it does not include proportionate shares for Indus Towers, because that

is a separate company and it does not include, none of our results include,

Punjab and Karnataka because that again is not consolidated into our results asof now.

What it does include is Idea and its subsidiaries, it includes our Capex. Not justnetwork Capex but IT Capex, all other heads of Capex, and it includes our

national long distance, whatever expense we have on international long

distance, and it includes whatever expenses we have on new circles includingMumbai, Bihar, Orissa and Tamilnadu which will be incurred during this fiscal

year.

Ms. Priya: Okay, sure. Thanks for this. My second question relates to the reduction inlicense fee which is likely to be effective 1st April 2009. Would it be applicable

for your existing 11, at least the 8 established circles earlier from 2010 itself or

do you see it partly in 2010 and partly in 2011 onwards?

Sanjeev Aga: We have done a very cursory and preliminary calculation, because there is not

complete clarity about how a block is defined. But on the face of it, given thefact that we have very high coverage; we will be covered in most of our areas.

On the face of it, almost everywhere, we would be approaching 95% or have

already crossed 95%, of which Himachal would be left out. Rajasthan also may

be left out, but the definition is a little fuzzy, so I would hesitate to give you ayes or no answer.

Ms. Priya: Sure. And just further thing on when can we expect consolidated Spicenumbers. Is it from Jan to March quarter or maybe from Q1 FY10?

Akshaya Moondra: Basically, we will start consolidating Spice Financials from the quarter endingDecember, and post merger with the appointed date of merger likely to be

somewhere in October-November, then when we draw up our financials for

fiscal year 31st

March 2009, that would have the complete Spice financialsconsolidated.


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Ms. Priya: Okay. And what would be the fully diluted number of shares?

Sanjeev Aga: We will just check and get back to you during the call.

Ms. Priya: Sure.

Sanjeev Aga: Any other questions Priya?

Ms. Priya: No, just on the subscriber acquisition cost, there was sort of one-off item

because of this brand building exercise. Is it possible for you to quantify that

amount?

Sanjeev Aga: No, subscriber acquisition and brand building are not the same. So, the two

would not be related. The subscriber acquisition fundamentally is what you pay

the network people, the distributors or the retailers and also the cost of Sim cardand kits and stuff like that. Brand building comes under advertising and

promotion.

Ms. Priya: Okay, sure, sure. Thank you so much.

Sanjeev Aga: We will get back to you on this number. We are just turning the pages and giveyou the correct number.

Ms. Priya: Thank you very much sir.

Moderator: Next in line, we have Mr. Rajiv Sharma from HSBC. Please go ahead.

Rajiv Sharma: Many thanks for the opportunity. Couple of questions from my end. One this337 million loss which you had in Mumbai circle, is this for 1 month or is this

1-1/2 months, if you could clarify?

Sanjeev Aga: We launched Mumbai on 20th August, but really our operations started around

24th or 25th August, so it is about five weeks of operation and that is the point

where we stopped capitalizing and it becomes an operating circle. So, it pertains

to, you could say, five weeks.

Rajiv Sharma: Okay, fair enough. And what is the number of year end cell sites which we are

planning by March 09?

Sanjeev Aga: Well, let me just give you an accurate answer. My colleague who knows it by

heart is not here at the moment, but I will give you an answer along with thenext question which I am answerable. I will have to leave out Spice for the

moment and again Tamilnadu and Orissa. Just give me a minute and I will get

back to you.

Rajiv Sharma: Yeah. Can I go ahead with my next question?


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Sanjeev Aga: Yes, I will answer your question during the call.

Rajiv Sharma: Okay.

Sanjeev Aga: I will just get these details in the meantime.

Rajiv Sharma: Sure. My next question is you mentioned about that lot of cell sites which havecome in, were in nature of rental sites. So, could you give your breakup of as of

now the 33,000 cell sites you have, what is the breakup in terms of owned and

rented?

Sanjeev Aga: Yeah, I will give it to you, just a sec.

Akshaya Moondra: Actually our owned sites are roughly 50% of the total number of sites.

Sanjeev Aga: Actually we have the exact number, just a minute. We had as on the beginningof the year 10,660 sites on which we were paying rent. These could be eitherguests on someone elses network or on a build-operate vendor and that number

from 10,660 has gone up to 16,628. So, as I mentioned the increase in the

number of sites is 35%, but the increase in rent-paying sites is 56% and so thismakes a difference in terms of before EBITDA or after EBITDA. Is that what

you were asking?

Rajiv Sharma: Yeah, that is one. And the other was the number of cell sites by this year endand out of this overall 33,000 cell sites which you have today, how much say

towers or cell sites would be transferred to Indus or these do not include any

numbers for Indus?

Sanjeev Aga: We have 33,377 as on September end. By today which is 21st

October, the

number has gone up. This does not include Spice, which we are notconsolidating as of yet and as we have clarified in earlier calls, all the sites

which were there in the circles of Kerala, Andhra Pradesh, Gujarat, Haryana,

Rajasthan, Eastern & Western UP, Delhi, Mumbai would all go to Indus. What

would remain is all the sites in Madhya Pradesh, about 1,000 sites inMaharashtra and all the sites in Himachal. So, these would remain.

Approximately our number of sites by the year end will be between 41,000 to

42,000. It does not include Orissa and Tamilnadu. But this would include Bihar.

Rajiv Sharma: Okay. And out of this, how much would be transferred to Indus?

Sanjeev Aga: As I said, you exclude the sites; there are those 10 service areas which are part

of Indus. And everything else, anything that is in Bihar is not part of Indus,

anything that is in Orissa is not part of Indus, anything in Madhya Pradesh is notpart of Indus, anything in Himachal Pradesh is not part of Indus. All the rest

goes into Indus.


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Rajiv Sharma: Okay. And your Capex which is, about INR 75 billion, so this includes as youmentioned Capex for Mumbai and also other Indus circles, so we will see a

reverse of Capex or it is only the electronics Capex and not the tower Capex?

Sanjeev Aga: It is, by the way, the figure is between Rs. 75 bn to 80 bn. It is a range. It wouldnot include passive infrastructure Capex for the Indus circle areas, but it has not

just GSM, it has other backhaul and all the other stuff, and it includes passiveinfrastructure in non-Indus circles.

Rajiv Sharma: Okay. And can we have some sense of when Orissa and Tamilnadu could berolled out?

Sanjeev Aga: Yes both of them within six months but let me not be more graphic in terms of

timing.

Rajiv Sharma: Okay. And my last question that if you could give a breakup of in your currentnetwork Opex, what portion of it is because of the cell site rentals and do youthink branding expenses will be continued to be on the higher end for the next

two to three quarters given you have these launches or we will see some

smoothening out and easing out?

Sanjeev Aga: Your first question, I will wait for Akshaya to get the data and answer maybe

later in the call, I am a little mathematically challenged, so you will pardon me,

but as far as branding is concerned, roughly we expect that expenses in the thirdand fourth quarter will be lower than the last quarter but higher than the first

quarter.

Rajiv Sharma: Okay. That helps a lot. Thank you very much. I will await for that network

Opex.

Sanjeev Aga: Yes, we will get that data and answer it during the call.

Akshaya Moondra: In the meantime, can I just answer the question on dilution of equity by Priya I

think, and our shareholding after the merger would be 3,300 million sharesroughly.

Moderator: Thank you very much sir. I would like to hand over the proceedings to Brandonto conduct the Q&A in the international bridge. Over to you Brandon.

InternationalModerator: Thank you moderator. We will now begin the question and answer session for

participants connected to the WebEx International Bridge. The first question

comes from the line of Nakul Krishna. Your line is open.


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surrounding benefits you get from increased coverage. But as I said, coverage is

just one part, I mean there is a lot of work on the service delivery, on the salestrend, on the distributor front. So, this is a strategy we intend to pursue. Our

strategy in all the Indus circles, all our new sites will be on a rental basis and in

the circles which are not on Indus, there we may have different approaches

which could vary from circle to circle, which would include some of themwhere we would build on our own. If you are looking at an overall one answer,

there was a point of time when if we had 100 sites, a year and a half ago, 70were on our own and only 30 were as a guest. This percentage is certainly going

to increasingly diminish.

Mr. Kevin: Alright, and I have just another question with regards to the 3G policies, the

likely for 3G circles, given in the event of a substantial increase in the cost of a

3G license per circle, are there any particular circles that you will be focusing

on without 3G services or will it be an all-India based coverage that you try toprovide?

Sanjeev Aga: Kevin, in an auction kind of a situation, it is impossible for any operator to sharewhat his preferences would be, much as I would like to, that is number one. So,

I really cant answer your question. Number two, we still have to wait for a lot

of details in terms of availability, further rules. It is a call on what you aregetting for what you pay. You have got to take a call on which way will be the

history of telecom in terms of technology, what is going to be the direction of

spectrum reform in the coming years, and our Company will assess all that. We

are one of the leading companies, so we would have a high interest inparticipating and do whatever we believe is sensible.

Mr. Kevin: Okay. My third question, it just occurred to me that the VAS component ofyour ARPU has increased substantially from 8.9% to 9.8%. Could you give us

some color on that metric and the source of it?

Sanjeev Aga: We had our Board meeting a little earlier and this quarter we have also picked

up the same data. On the one hand, the bad news is that when your voice is not

growing because of poor seasonality but if VAS holds up, so the percentage in

any case will look a little better. But as I mentioned in previous earnings call,there are areas where relatively speaking, we were not as strong as the strongest.

One of them was value added services and other was roaming, and we have

been focusing on this area, and we had good increases in the old fashioned SMSthrough a little bit of, should I say, more intelligent use of segmentation and

tariff reform, but we have had wide ranging growth in rentals, in data, and so

on. And of course music is one of the areas where our Company is strong andthat has been very popular with all Idea subscribers, dialer tones and ring back

tones.

Mr. Kevin: Alright. That is all from my side. Thank you.


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Moderator: Thank you very much sir. Next in line, we have Mr. Vinay Jaisingh from

Morgan Stanley. Please go ahead.

Vinay Jaisingh: Thank you. I have four questions from my side. When I look at your

consolidated results vis--vis your standalone results, I cannot find out the

contribution which Indus has given to the Company. So, if you could throwsome light out there. Second question, you have obviously moved to the 11th

circle versus new circle launch, for showing your EBITDA. If you could tell uswhat is happening to your three circles which shifted up, are they now EBITDA

breakeven? The third question is on the tax front; your tax rate has gone down

this quarter. What is your future tax rate assumption, if you can throw somelight there? And finally you have, so less of net debt, your finance cost hasnt

gone down. Do you expect that to go down in the next quarter? Thank you.

Sanjeev Aga: Hi Vinay. This is Sanjeev here. I will leave the first, third, and fourth questionto be answered by my intellectually inclined colleague, Akshaya, but on

EBITDA on three circles, what we have decided is that our three circles, in thetwo-three months, will get to be two years old. So, they better grow up and theyget into being bunched with the rest of the circles. We have placed Mumbai

under a special microscope, and we will do the same for Bihar and so on. As I

mentioned during the call, if you may have tuned up late, out of the three, UPEast broke even in terms of EBITDA during the quarter and we will not look

back now hopefully. Rajasthan and Himachal, I dont have the breakup readily,

but their contribution to negative EBITDA is not really significant in money

terms. We have put up lot of BTS sites in the districts of Barmer, Bikaner, andJodhpur and started incurring costs and the revenue started coming in only in

the fag end of September. So, Rajasthan in fact should have regressed

marginally, but will pick up once we get traction over there. So, I think that is itfrom my side.

Vinay Jaisingh: On your Spice part of it, whenever you start doing it in the next quarter, wouldthat also come in the 11 or would that go in the new launches. I assume being

existing operations, they will go in the 11, right?

Sanjeev Aga: Well, we hadnt thought of this. Now that you have mentioned it, we will tryand be as transparent as possible without making it so complicated that we

ourselves get confused. So, we had in fact earlier thought that we will have one

for 8, one for 3, and one for Mumbai, and then at the end of it, we couldntfigure out where we were coming or going. So, we will try and give you more

transparency for Spice for sometime, if necessary. Either we will do it in the

classification or we will do it in the elaboration. Let me hand over to Akshayafor your questions on Indus, tax, and net debt.

Vinay Jaisingh: Thank you.


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Akshaya Moondra: Hi Vinay. Vinay, to answer your first question, as far as Indus is concerned, on

the P&L side, EBITDA contribution of Indus is about Rs.13 million and at aPAT level, it is Rs. 60 million negative. So, this is as far as the P&L is

concerned.

On the balance sheet front, as far as the gross block is concerned, our share isRs.1, 916 million and on the loan side, it is Rs.1, 676 million. So, these are the

major impacts of Indus consolidation.

On the point of interest, you see what has happened is that as I stated in my

opening remarks that we have this acquisition debt which was Rs. 3,000 croreswhich was outstanding for the whole quarter and the equity infusion of about

Rs. 7,300 crores came in the middle of the quarter. So, on balance actually, it is

being evened out because we had a carried forward debt also. The major impact

of this will come in the next quarter whereby we will have this entire equitywhich has come in middle of August, be available for the whole quarter, but it

will gradually keep on reducing with the Capex being incurred. So, the fullimpact of this equity infusion would be coming in the next quarter.

Vinay Jaisingh: Great sir. Tax rate?

Akshaya Moondra: Okay. On the tax matter, the tax was impacted due to lower deferred tax and this

is due to deferred tax assets of Indus also because Indus has an asset in the form

of deferred tax.

Vinay Jaisingh: What should I take as my assumption for my tax rate for the year as a whole of

next year, lets say?

Akshaya Moondra: The tax rate remains the same. There is no change in the tax rate as such. In any

case, one point I would like to emphasize is that as far as the deferred tax is

concerned, it is not a cash flow item. So, from a cash flow perspective, it hardlyhas any impact. As far as our tax payment position is concerned, we will remain

on MAT. So, I guess deferred tax is more a kind of adjustment which is a book

entry, but it doesnt affect the cash flow in anyway.

Vinay Jaisingh: Sir, if I may ask just one more question in that tone, Indus, I would have

assumed, with three of you joining hands for Indus, there would be some

positive benefits coming in either in the form of duplications which are going tobe stopped and your EBITDA and your bottom line should increase

significantly as far as Indus is concerned when the ratio increases of tower

sharing. Do you think that will come in the next few quarters and it is too earlybecause towers have not yet been fully shared or some views there would be

very helpful.

Sanjeev Aga: Vinay, it is me. Yeah, I think the areas where the eventual benefits will be

captured are many. Yes, I think it is fair to say that more of the benefits will be


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back-ended and secondly some of the benefit will be captured in the form of

profitability of Indus. But in the early years, in the first year of Indus, neither tothe Telco operators nor to Indus, it is going to see a huge upside in terms of

numbers because though Indus is completely operational, but not in terms of its

balance sheet. It is still not borrowing on its own. One of the benefits of Indus

would be that it has the capacity to borrow money once the assets aretransferred to its books and then it becomes a very self sustaining kind of

operation. So, that is another financing benefit which hasnt kicked in yet. Buton the whole you are right that you would see the benefits, huge benefits, their

strategic benefits, but they dont pop up in the first few months or the first few

quarters.

Vinay Jaisingh: Thank you sir.

Moderator: Thank you very much. Next in line, we have Mr. Rahul Singh from Citigroup.Please go ahead.

Rahul Singh: Good afternoon everyone. I have three questions. Firstly on the populationcoverage which went up 6% during the quarter. Just wanted to confirm whether

that includes Mumbai also because I presume in Mumbai you would be

assuming close to 100% population coverage. The other thing related to thecoverage was if I compare these numbers with your peers who show 75%

coverage, is it like to like and does it imply some kind of a catch-up which is

required in your existing circle of operations. The second question was again

something which someone else also asked about the impact of the 70% ofincremental cell sites being on shared towers. Is it possible to quantify the

rentals or the Capex recovery which is an additional hit on EBITDA margin

which would not have happened if these sites were your own? And the lastquestion was on Indus, I would have presumed that Indus would have at least

contributed a positive EBITDA to Idea, but the numbers which Akshaya

mentioned showed that these numbers were negative which is slightly surprisingbecause that would happen only if the tenancy is less than 1 which is very, very

unlikely in Indus.

Sanjeev Aga: Rahul, hi. I will answer your first question and Akshaya will answer the othertwo. As far as population is concerned, I think the number shows 58% going to

63.3%. Now, this is what we do through our satellite maps and the first thing is

different operators have different tools and would have different definitions. So,if you have a cell site, so what is your definition of how much is covered, how

much is not covered may not be exactly similar. But the number would include

Mumbai and by and large, we are one of the top companies in terms of qualityof network. So, 63-75, I dont know whom you are referring to but would be

slightly misleading because it is quite probable that this is like UP East,

Rajasthan which have a large population and where we are newcomers, butotherwise, in most of our other states, we are in the ballpark along with the


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leaders, maybe a little bit here or there, maybe 1% or 2% behind, but nothing

significant.

Akshaya Moondra: Okay, on the question that you mentioned the impact of 70% of the sites added

being on guest Basis, Actually you see on the network cost, that has an impact,

but in terms of lets say financial, on a very rough basis, that impact may beabout Rs. 30 million or 40 million in a quarter. So in absolute terms, that is not

very large, but coupled with that is also the fact that when we talk aboutnetwork cost, the rollout has been aggressive and definitely the revenue streams

would follow a little later, but just the impact of 70% being on guest basis, that

impact is not very large.

The second thing you mentioned is that Indus is negative. Indus is a negative

EBITDA now. It is a small amount of 12 million which could turn positive very

easily, but I think the Indus IRU is expected to be signed as of 1st

of November,and once that happens, then they will be fully operational in real term. So, I

guess the IRU not having been signed that puts some constraints on theirworking as they would want to in the full mode. So, I think it should starthappening once the IRU is signed.

Sanjeev Aga: Rahul, fundamentally the rentals from the passive infrastructure, the old passiveinfrastructure would start accruing to Indus after the IRU is signed or becomes

effective. So, today you are getting very strangulated top line and bottom line

which is based on the new sites which have recently been built out. So, this

may not necessarily be very representative of what will happen in the comingquarters.

Rahul Singh: Okay. So, one related issue would be from next quarter we might see someseparation of your own sites which are being contributed to Indus. You might

have to separate that also and take that impact into your wireless margins,

would that be a correct statement to make?

Sanjeev Aga: Okay, Rahul, and not just for you but for all others on the call, assuming this

IRU becomes let us say effective from 1st

November, then a lot of our sites

which are not incurring rent because they are on our own towers, those towerswould mutate to the advantage of Indus and we would start paying rental. So,

there would be an adjustment in terms of above EBITDA line and below, with

no real impact on profitability. In terms of margin, it would have an impact, andwe would, in our next earnings call, we would try and separate that and give that

to you.

Rahul Singh: Okay. Thanks a lot sir. That was very, very helpful.

Moderator: Thank you very much sir. Next in line, we have Ms. Reena from DSP MerrillLynch. Please go ahead.


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Ms. Reena: Yeah, thank you for the call. Just a couple of questions. Sorry for going around

in circles, but your network Opex, can you please just explain again why yournetwork Opex has gone up as a percentage of sales and do you think it is going

to settle around these levels because Akshaya just mentioned that the guest sites

or the rented sites are not really a big contributor to the jump in Opex, and if

one works backward from the number of sites that you have mentioned either,that doesnt explain the increase in network Opex. So, can you please help us

understand whether this is a structural level going forward.

Sanjeev Aga: Your second question Reena, you said

Ms. Reena: No, I will stop here because, I have quite a few questions, I dont want to lose

you.

Sanjeev Aga: You will lose me if you dont ask questions.

Akshaya Moondra: See, Reena, on the network Opex, I mean lets say we try to look at it in twoways. One is what is the impact of the volume increase and if I just forget thevolume increase on sales, if I just look at the network cost going up, roughly

480 million has gone because of more number of sites during this quarter

compared to previous quarter and roughly 60 million has gone up because of theincrease in cost per cell site. So, the point I was mentioning earlier also is that

the major impact of increase in network cost on an absolute basis is coming

because of the rapid expansion of network. So, if I look at on a quarter-to-

quarter basis, our average number of cell sites in Q2 have been about 14% to15% higher than the previous quarter, whereas our total minutes have grown by

roughly 10%. So, this 5% differential in the network growth vis--vis the

volume growth results in that situation, but as I also mentioned earlier, in thethree quarters preceding this quarter, the volume growth was 20% quarter on

quarter and that is where I think, as we said this quarter is a subdued quarter and

to that extent, the volume growth lags the network expansion whereas normallyit would be more than the network expansion. So, I hope it answers your

question to some extent.

Ms. Reena: No, so in absolute terms, the network Opex growth whatever, the increase of Rs.730 million or so and you broke that up into Rs. 480 million because of

increase in sites and Rs. 60 million because of increase in cost per site and what

is the remaining please?

Akshaya Moondra: Okay, Actually this I am saying on the 11th circle basis, the rest would be

relating to Mumbai. I am just making this comparison independent of Mumbaiwhich was launched in this quarter.

Ms. Reena: But Mumbai launch was with 1,000 cell sites, that should be like no more than,maximum of Rs. 10 crores, maximum of 100 million of cost.


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Akshaya Moondra: Okay, I think what I am saying is 480 million on account of increase in this,

about 60 million on account of higher cost, about lets say 100 million onaccount of Mumbai network cost, and this Mumbai is for 1-1/2 months, so I

dont know the figure you calculated is for a month or a month and a half.

Ms. Reena: No, I just looked at the Q-o-Q increase, 2Q versus 1Q.

Akshaya Moondra: So, roughly these would be the factors, 480 plus 60, 540 and if I just takeanother 100 on account of Mumbai, so that makes it 640 or it could be 640 or

680 depending on a month or month and a half and the balance is another 50

million, so it is a broad reconciliation. There would be some other items also.

Sanjeev Aga: If we get more details Reena during the call, we will give you this.

Ms. Reena: Okay. And my other question is in terms of your EBITDA per minute, justlooking at your established circle margins, looking at where they are, what do

you think what kind of returns should we expect from the company goingforward? When you take this decision of renting out more sites or not beingimpacted by the turmoil in pursuing your strategic direction, how exactly do you

come up with that because it looks like, your costs are rising faster than your top

line?

Sanjeev Aga: Reena, this is a good question, but it is a wrong question because we have to do

what we believe is right and if we believe investments have to be made, just

because the markets are going to misbehave for two quarters, we are not goingto hold back on that and repent for the rest of our lives.

Let me just take a little minute and that is why I gave the preface at thebeginning as to how we have, as a company, built up our competitive strength

very hard way. We werent gifted with it. We have come to a point where we

can compete going forward. We cant make up for the time which has beenlost, but we can compete with anyone going forward and competition means

that we must be strong, be there right at the top, and we have got the ability to

do that and the time to do it is now. So you have to decide whether having got

into telecom, having got into let me say leadership position in 900 GSM wherewe have an opportunity to build enduring durable strength, for decades. This is

not the time to cry and even out quarter by quarter. We are launching Bihar

now. Another quarter, we will launch Tamilnadu. So, we have to step out. Wehave to be efficient and we have to step out.

And now to answer your question on returns on investment. Returns oninvestment never flow from the spreadsheet. They eventually come from being

better equipped, giving better service, being more competitive than the others

and that is what we have to focus on and that is what will give returns oninvestment. We can all retrofit returns on investment by moderating our cost

and revenue drivers into a cost smooth curve. I am being a little difficult here,


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but this is what I truly believe. So, if we are going to strengthen ourselves,

whatever happens to the telecom sector, whatever happens to the worldeconomy which none of us control, but we will do well and that is the way to

returns on investment and that is the way the people who are getting good

returns on investment that have come up in earlier years. Not by being timid

where their conviction told them otherwise. You have lost me now finally.

Ms. Reena: No, thank you very much for that and just my final question is on Spice. Canyou please help us understand, what kind of profits, I mean the profit

performance of Spice and also the subscriber performance has kind of taken a

beating in the last quarter, is this temporary? What kind of recovery you expect?Can you give us some color on that please?

Sanjeev Aga: Okay. Just to augment what I said earlier, a couple of years ago, we had again

similar convictions, and I remember exactly a year ago we went through a samequarter where our Q-on-Q growth was a little lower and we had the same

questions, but we have no doubt in our Company that in the last two years wehave strengthened ourselves. We could always have sweated our assets and be itin terms of management and other things, but it would have diluted the long-

term potential of the Company. Now the success factors are not what they were

two years ago, they are different. But we are equipped and there will be goodtimes where the Company will do very well and there will be bad times where

people may question what we are doing. But so long as the outcome is good,

hopefully we will all be happy and that outcome may not be three months, six

months, and it is not going to be very bad either, but it is just that we may not beplaying to a script which is predetermined.

As far as Spice is concerned, every company has different methods ofrecognizing the subscribers and Spice has sort of aligned with the Idea method

of recognizing subscribers. So, there hasnt actually been a loss of subscribers,

but it is more a recognition issue and that is over and so that is history.

Now, as far as Spice is concerned, the whole basis for our transaction was the

fact that it is not what Spice is as it is, but what we can do with Spice. It has got

good clientele, it has good quality spectrum, it has two very good strategic stateswhich are very contiguously located with our strength areas. And now our

various company processes, whether it goes into pricing or distribution channels

or IT or service delivery or technology happening, it will happen gradually, Ithink we will start seeing, I am just taking a guess, we will start seeing traction

perhaps by January-February and eventually, when I say eventually, I dont

know whether it is two years or three years, but I see no reason why theprofitability of the two Spice circles should not be equal to the average of all

Idea circles. Because inherently and competitively, that is how that is placed.

Now I cannot place my finger and say whether it will take 12 months or 24 or36, but that is what we are aiming, and I also dont know what the profitability


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of Idea will be two to three years from now, but all I am saying is that the two

Spice circles should be on par with that.

Akshaya Moondra: Reena, also to answer your question of the last quarter performance of Spice,

that was because of several one-off adjustments which are not representative of

that quarter. Spice results are not yet declared. All I can say is that there wouldbe some accounting treatments which we do not agree with and there may be

some adjustments, but on an operational basis, the performance generally goingforward would be better.

Ms. Reena: Sure. Thank you and just a final small question is on your cost of borrowing. Iknow you have a lot of cash on the books, but how has your cost of borrowing

moved in the last quarter?

Akshaya Moondra: Again, our cost of borrowing, there are some things which are on fixed termbasis, so they do not get reset immediately, so they are continuing at the same

rates, and there has actually been no new borrowing. Some are floating, someare fixed, so it is a mix of that. There has not been any significant change I cansay.

Ms. Reena: Okay. Thank you.

Moderator: Thank you very much maam. Next in line, we have Ms. Nupur Agarwal from

UBS. Please go ahead.

Suresh Mahadevan: Yeah, hi. This is Suresh Mahadevan from UBS. Good evening and, thanks for

the opportunity to ask these questions. I had a couple of questions on strategy.

One is, I mean we have seen in the past, I think some of your rivals fan intoother circles, particularly Bharti earlier and later, I think, Vodafone and

somehow I think the margin dropped, I mean this is also the feedback from

some of the investors we spoke to. Margin drop seems too large. I understandthe big picture story that you think there is an opportunity to do a land grab

here. I am just wondering two things, two perspectives, one is, I mean just

wanted to hear, are you operating at the sweet spot of this cost and Capex

efficiency that is number one, what would be your reaction? And second is howdo you expect your competitors to react to this because, I mean clearly I think

some of them are probably well-entrenched incumbents and they see you doing

this, how do you expect them to react because obviously I think it is about, Imean the only risks in this sector are about competition and regulation, so

would like to hear Mr. Agas views on that.

Thirdly, I am a little bit confused about the consolidation of Indus because I

thought it will only happen post the IRU signing and some of the numbers seem

pretty low for a company which is very large. So any light you can throw therewill be helpful. And finally fourth question, I understand the number of sites

that were added in the first half were 8,600. Can you give us a sense of what


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was added in second quarter 09 and also, I think it was asked earlier also, what

is the, lease expense. If you had not accounted for it as a lease expense, howmuch it would have affected your EBITDA margin because the EBITDA

margin comparison doesnt look like an apples to apples.

Sanjeev Aga: Suresh, I will answer the Indus question. Indus was formed and some of the newtowers are being on Indus. So, it gets rental incomes from those limited towers,

but the bulk of towers have not yet been transferred and that is why the profitand loss statement of Indus is small and that is why the loss or profit which is

consolidated is small and once the IRU happens, then it will bloat in size.

Suresh Mahadevan: So, this has started from this quarter onwards.

Akshaya Moondra: No, it was there last quarter also. You see Indus is an operational company and

ABTL is the one which has invested in it. So, the shareholder status and theconsolidation status dont change. It has been there from last quarter or maybe

before that also. So, that is related to shareholding.

In terms of the operations, the operations have been higher and the first time we

have had significant operation in Indus has been in this quarter. Until last

quarter, it was very, very small and going forward, once the IRU isimplemented effective from 1st November, then it would kind of start operating

at its full potential.

Suresh Mahadevan: Okay, fine.

Sanjeev Aga: Secondly, the breakup between 8600 quarter one and quarter two is quarter one

was 2801and 5783 in the second quarter.

Suresh Mahadevan: That is a clear access or expansion.

Sanjeev Aga: Yes, these things happen, but that would include also approximately 1,000 of

Mumbai, which would be in the second quarter. So, that is one. It is also a

function of the deliveries not exactly as smooth as you would like them. So, it

isnt as if we have changed our gears in the last quarter, it is just the way thepenny drops.

Suresh Mahadevan: Okay.

Sanjeev Aga: Okay. Now, you have asked for is the sweet spot. First of all, congratulations on

India winning the cricket match and I think that is why I find you on the call, Iwas thinking you would bunk. Secondly, the cost of Capex. Let me answer this

in an impressionistic way. No one knows the answer because the bill of quantity

or the bill of material for telecom is like a project; it runs into hundreds ofpages. No two projects are similar, and anything which does Capex per line,

Capex per subscriber, is a very, very crude approximation. Even people like us


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who are very close to the subject, are just able to make our assessment. On the

whole, as any company which is wanting to improve its management, wealways are squeezing out efficiencies and we feel that we need to improve our

Capex efficiency, cost efficiency. At this point of time, there are so many such

programs running within the Company to do exactly that and every time we

dive into something, we find some area to squeeze out efficiency, but havingsaid that, I would also say that on the whole, my guess is that our cost of Capex

and operating costs are pretty comparable to the best operators for comparablequality, and I can say with a certain degree of confidence because, we operate in

a joint venture on the passive infrastructure side, so we can deduce outputs and

so this is a rough idea that, we will be, I have no doubt that one year from now,we will be more efficient, but I think we are as efficient as anyone else.

As far as your second question which is, what will competition do, I had right in

the beginning of the talk, if you had tuned in, mentioned what is inherentcompetitiveness. I had not sketched out our strategy, but basically if you enter

in a game, you know are you inherently handicapped or are you inherentlyendowed. And it is our conclusion that going forward we are well equipped tocompete with anyone else. Now, obviously we will have a strategy and I would

not be able to, not that it is great secret, but anyway why make it easy for your

competitors, spell it out in the call, as you would appreciate that, we would nothave exactly the same strategy. There would be a difference where we have

inherent strengths of spectrum. There would be differences where we are

starting as a 9th

operator or an 8th

operator, 10th

year and there would be a

different approach for NLD, there would be a different approach for say thePCO business and all that, and there would be an approach which is still to be

chalked out for 3G because we are just looking at it from all angles. But

eventually the die will be cast on the last day. But let me put it to you that anystrategy which can be countered by a competitor, is not a worthwhile strategy.

So we would be aiming to operate in arenas where if someone counters it, he

cannot defeat you, he can hurt you, but he will get hurt even more and that iswhat hyper-competition can potentially lead to and the question is, when all is

over and everything is done, who comes up on heads and who comes up on

tails. So, we are positioning ourselves to be able to play this game in a manner,

we hope that times will be good, but we are preparing for bad times also, so weare preparing for all eventualities.

Suresh Mahadevan: Okay. I mean in terms of just margin drop, I think, lot of investors seem to bequite concerned about it, because I think you have yourself expanded earlier

into three new circles, I think your rivals have done it, so that, I mean I think it

just coincided with a few other things, like, rentals and low usage and brandstrengthening, etc., I would assume. I understand you mentioned very clearly

like quarter on quarter

Sanjeev Aga: No, let me say, Suresh since you are a research analyst of repute, you all

understand that there are these curves, 10-year, 15-year curves and any


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investment goes into a trough for the beginning which is a gestation period and

then comes up. And not all curves are similar, some curves come right up, somenever come up, but if you try and understand a business in terms of a succession

of investments and we have to understand telecom not as a static figure,

EBITDA or earnings, but if you, for a moment, disaggregate it and either break

it up into circles or even better break it up in terms of time, these are all perhapspotentially value creating. All of them need not be, I am not saying all operators

investments are value creating. It gets really confusing, but that is where you getthe fruit. So, anytime you have back-ended investments which are potentially

taking our company to great strengths in the coming years will appear negative

and on the other hand if you just sit back and let go of any focal opportunitywhich comes once in a lifetime to build a company of stature and size, you will

get very pleasing ratios. So, as businessmen, we take our calls and we do what

we think is to the best of our ability is right.

Suresh Mahadevan: Yeah. Thank you so much for the detail insight, it is really helpful to

understand, where you are coming from and, I mean, I wish you all the best interms of executing this.

Sanjeev Aga: Thank you. Best of luck for the Delhi test.

Suresh Mahadevan: Thank you.

Moderator: Thank you very much sir. Next in line, we have Mr. Shubham Majumder from

Macquarie. Please go ahead.

Shubham Majumder: Thank you for taking my question. Some of my questions have been answered.

Before I get to my questions, I just had a small clarification, may be Akshayacan give me. You said expenses in 3Q and 4Q would be lower than 2Q but will

be higher than 1Q, were you talking about overall Opex, I actually missed what

you exactly said, was it a particular cost entity you were mentioning?

Sanjeev Aga: No, Shubham, that was me, I was giving my assessment on advertising and

media, not on all costs.

Shubham Majumder: Oh, this is just the advertising and business promotion expenses.

Sanjeev Aga: That was by the way I said it off the cuff. I am not 100% sure, but that was myassessment, it will not be as high as Q2 but it will be higher than Q1.

Shubham Majumder: Sure. On that point, I was just wondering, on advertising and businesspromotion and subscriber acquisition costs, I mean, if you look at the absolute

increase on a quarter-on-quarter basis, it has gone up by about 78 crores of Rs.

in this quarter and if you just look at it in respect of media spends of some of thelargest advertisers in India like Hindustan Lever, they are about Rs.2 to 2.25

billion in a quarter. So, I was just wondering as to how this massive scale-up on


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a Q-o-Q basis actually came through. What exactly were like the big heads of

spending in this quarter and more importantly, are we sort of realigning ourexpectations in terms of being at the elevated levels of spend as we fan out into

20 circles or 22 circles eventually over the next 1 to 1-1/2 years as to create a

pan-India brand?

Sanjeev Aga: Shubham, no, it is not as striking as you think. The problem is or the reality is

that, our advertising and media expenses are debited exactly as our bills areaccepted or services are recognized. So, you sometimes have a lot of bills which

may be you had lot of items committed in the first quarter but the bill may come

in the next quarter. This is an inherent problem. I wont call it a problem, butthis is the way our auditors in our company recognize accounts, so we dont

really even it out. So, you can have unevenness across quarters. Secondly, in

this quarter, and this is a coincidence, we were about to launch Mumbai-Bihar.

We also sponsored Idea Cup in Sri Lanka, we had a very successful advertisingfilm of What An Idea which has actually worked very well for our Company

and some of these things came together and therefore Q2 was high.

Now, to your question that, is there something which is going to happen every

time we launch Tamilnadu, Karnataka, Punjab, Bengal, actually not really.

There will be a little bit of expense specific to the circle, but the good news is aswe expand to all circles, the wastage of our advertising reduces. In fact, I can

tell you that when we do go to Karnataka or Punjab under the Idea brand, the

money we have spent in advertising, now is going to help us because the brand

is already recognized as one of the leading brands, even though people havenever seen a Idea Sim card. In fact, even in Calcutta, there were colleagues of

mine who have just come back and they say the brand recognition is very high

and the brand imagery is very high. So, in coming years, it is actually goodnews because today, I mean all of last year, we were advertising and half the

country we were not having presence, it was getting wasted, but there will be

greater efficiency of advertising in the next fiscal year and in quantum,advertising will go up as we become a larger company, but its per circle

apportionment would probably decrease.

Shubham Majumder: Because I was just looking at it on a Q-o-Q basis, these two cost rates which areadvertising and business promotion expenditure and subscriber acquisition,

servicing expenditure, they have gone from 11.6% of revenues to 14.3% of

revenues. Now that is a completely orbital shift that you have seen, so are thosethe new levels of spend we should basically be getting ready for, give or take 50

basis points?

Sanjeev Aga: Okay, there are lots of things which come under this. Now, your question is

that what you should be looking at going forward.

Shubham Majumder: Yeah, essentially, yeah.


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Sanjeev Aga: Yeah, that is what, but let me tell you what goes behind it. As far as cost of

acquisition is concerned, the good news is that since unfortunately thedenomination of products is coming down from 1000 bucks to 500 bucks, I am

talking about things like Lifetime, so correspondingly the cost of acquisition

also reduces. But along with that, the revenue, top line you get also reduces. If

you look at it purely as a cost of acquisition point of view, this is a dampeninginfluence. On the other than, this is the most competitive end of the value chain

and with more and more people jumping in, this is the easiest way for manycompetitors to buy business. So, there is a little pressure to maintain it. I think

as far as cost of acquisition in percentage terms is concerned, I would not guide

you either upwards or downwards.

As far as cost of servicing is concerned what is happening really is that we are

launching in a very, very big way, We have our objectives that any Idea

customer should be no more than half an hour away from our serviceirrespective of how many villages we are in. So, we are opening a lot of

franchise service centers. Most of them are not on a subsidy model, so therefore,do not necessarily put up cost, but we are also drastically upgrading our qualityand quantity of subscriber touch points in terms of call centers. So, we have, in

the last few years, consolidated with top notch call center people like MphasiS,

like Minacs and with top of the range IVRs and this, in the short run, do resultin one time cost and also an increase in cost per head. However, it will, in due

course of time, will moderate slightly because the real job is in proactively

reducing the need for a subscriber to call. So, by compressing the number of

calls made and by dealing with an increasing number through the IVR, we doget a handle on this. So, this is a bit like our investment in IBM a year ago

where in the first quarter or two quarters, you incur the costs, but the benefits of

that are wide ranging, not just on the cost front but also on customer satisfactionfront. In fact, I mentioned in my preface that our customer satisfaction scores

are growing and we see a clear pattern that wherever this change has happened

earlier, there is a correlation between that and customer satisfaction. It isdifficult to measure it one is to one, but it seems to indicate a pattern. So, I

would say that yes, this would remain so for a little while, but eventually it will

work its way down and will also result in a much better service provider.

Akshaya Moondra: Shubham, if I may just add, in that figure, the major increase is coming from

advertising and market promotion and this is both for what was specific to

Mumbai in terms of the advertisement done in Mumbai and also the increasedadvertising levels on a national level and so the major increase is coming form

there which definitely will not continue at this level.

Shubham Majumder: Okay, sure, I appreciate that. The second issue is that if I could make light of the

network Opex line, I am just trying to look at it from a completely different

perspective. You heard about all the adjustments that need to be made onaccount of towers and Indus consolidation and so on and so forth, simply

putcan I not look at this as two elements, one being the tower rental part,


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obviously the Indus consolidation will come in there, but to my mind, the cost

of non-rental bit which is essentially if you are looking at it from a tower co-perspective, then these are essentially the reimbursable expenses, which are

essentially fuel and power, that bit to my mind is clearly more than the part

which will go into tower rentals. If you look at the number of base station

increases that you have seen in this quarter and if you account for the fact thatdiesel prices have gone up by about 8% in this quarter, essentially by about Rs.

3 in the quarter, then, you kind of arrive at the results that would drive the kindof network Opex increase that you have shown in this quarter. Is that a fair

assessment?

Akshaya Moondra: Are you saying that the cost of running towers would increase significantly

because of the increase in diesel cost, is that your question?

Shubham Majumder: No, I am just saying that there are two elements, lets assume, we are trying toforecast numbers here, so if we go ahead and look at post Indus arrangement,

IRUs being signed, what I am trying to say is that if you look at the number ofbase station increases that have actually happened in the quarter and the fact thatthe cost of running each base station site has gone up by about 9% on a Q-o-Q

basis for you, that is what the numbers actually say, that 9% is pretty much in

line with the cost of diesel having gone up by 8% Q-o-Q really speaking.

Akshaya Moondra: Actually, Shubham, the thing is that the diesel running cost, although it is a

significant cost, but as a percentage of the total network cost, it would be quite

small because majority of the consumption there is electricity. So, diesel comesin play for the backup supply or if you set up some new site and where the

electricity connection is not there, then you need to use diesel. So as I

mentioned earlier that if we look at the overall context that what has been theimpact of diesel price increase, what has been the impact of our using more

guest sites, all that combined together is coming to somewhere a figure of lets

say Rs. 60 to 70 million for this quarter. The major increase if you look at inabsolute terms is coming from the fact that the number of sites which we had on

an average in this quarter is about 14% to 15% higher than what we had in the

last quarter. So, the higher number of sites is the major contribution to the

increase in network costs.

Sanjeev Aga: Shubham, this is Sanjeev here, I just want to add which we have not said so far

and I would not like to get into any detail but we have also had in this quarter anincrease in our carriage cost which we pay to some people from whom we buy

minutes and this is a factor which has negatively impacted us. I wont like to

quantify it. This is again a factor which by quarter four will work itself outbecause of the various mitigating steps we have taken. In fact, that will leave us

a stronger company, but this has been something which has impacted us in this

quarter and may impact us marginally in the quarter in progress.


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Shubham Majumder: Sure, I mean how much of your national long distance traffic is being carried by

your NLD arm in-house and how much are you giving out to outside parties likeBharti Telecommunications and so on and so forth.

Sanjeev Aga: That is the last question we will answer Shubham on that topic, but it is about

15% now, it was zero at the beginning of the year, and it will be a much higherpercentage by the yearend.

Shubham Majumder: So, captive is 15% now.

Sanjeev Aga: Yes. It was zero at the beginning of the year and for what we buy, the capacitywe buy, there was an increase, I wouldnt like to expand on that subject, there

was an increase which has made a dent in our EBITDA and profitability in this

quarter, but due to various steps we are taking, by the end of the year, we will

be back to where we were at the beginning of the year and be just stronger forthat.

Shubham Majumder: Okay. And Sanjeev, one more question on the personal expenses, which isanother item which has gone up significantly. I understand that your pay cycle

revision for the year and your annual bonus payments do happen in the July-

September quarter. But if you look at the personal expenditure per employee,that has actually gone up 35% on a quarter-on-quarter basis and there was

similar increase registered last time in September 07 of 19% and in December

06 of 25%. I was just wondering why should our employee cost inflation be of

an order of magnitude of 35%.

Akshaya Moondra: I think Shubham that figure of 35% may not be right because I am just seeing

the overall increase is 29% and during the period, the number of employees hasalso increased. I dont have the exact per employee numbers. So, the per

employee increase would be much lesser. It cannot be 35%.

Shubham Majumder: No, Akshaya, I have the numbers. The personal expenses are up 38% quarter-

on-quarter and your manpower has gone up 2.2% Q-o-Q.

Sanjeev Aga: Now, I am suspecting Akshaya is giving a large bonus to himself because even Iam taken by surprise.

Shubham Majumder: Yeah, because

Sanjeev Aga: Let us just reconcile this, but your figure is not correct, we will just tell you the

correct figure.

Shubham Majumder: No, I am just using your figures itself. I know that personal expenses have gone

up 38% Q-o-Q to 132 crores and the number of headcount has gone up to 6521which is a 2.2% Q-o-Q jump, which leads you to the personal expense per

employee of 35% jump Q-o-Q.


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Sanjeev Aga: Shubham, we will confirm to you offline, but it is nothing close to that andnothing to worry about because in this quarter we get not just the annual

increments, but we have this deferred pay system for all employees which is

paid out in one shot. I think, this is probably the change from in-source to

outsource and all that. So, we will reconcile and give that to you.

Akshaya Moondra: The numbers that are appearing there are only for Idea employees but thisincludes the impact of Indus consolidation, this includes the impact of

subsidiary which supplies manpower to us, so the manpower costs and the

numbers may not exactly match each other.

Sanjeev Aga: The numerator and denominator may not be matching.

Shubham Majumder: Sure. Obviously if the outsourcing has gone up significantly, yes, that must bethe case then.

Sanjeev Aga: Pradeep will give you the details.

Shubham Majumder: Yeah. And finally you have looked at a cost of about 37-38 crore on the

Mumbai launch in absolute terms. Now, that is only for the period that you havebeen operational, which is about 41 days in this quarter. In the coming quarter,

is it fair to assume that Mumbai and potentially other circles which are large in

size like Chennai, TN, and so on and so forth, the quarterly losses at the

EBITDA level could be to the order of 75 plus crores?

Sanjeev Aga: Well, I am counting on some of you to take an Idea connection to mitigate the

loss, but let me just take time off and go to your next question and I will getback to you before the call is over.

Shubham Majumder: And the other question I had was that Sanjeev, I mean, I appreciate the long-term assessment in terms of continuously growing the business and possibly

growing the business ahead of the other field operators launching and I am sure

the investments will pay off in the medium term over a 12 to 18 or 24-month

period. I was just wondering on a base of 8 or 9 profitable circles, how much ofa dent in the short term, which is next two to four quarters or five quarter

results, would we have to go through, given that you are launching into highly

penetrative markets where there are 8 competitors already in place and theinvestments may take actually longer than expected timeframe to pay off,

essentially given the profile of the circles you are launching it, which is

Mumbai, Chennai, Tamilnadu, Spice, revamp in Karnataka to some extent,Orissa, Bihar, and so on and so forth, Calcutta.

Sanjeev Aga: Yeah, Shubham, I have the figure of our budgeted losses of Mumbai before me,but it would be prudent for me not to speak it on the phone because I think we

have indicated earlier that generally speaking, we expect many of these to turn


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EBITDA breakeven anywhere between 20 to 30 months, sometimes sooner.

This is true for Chennai, this is true for Bihar, this is true for Mumbai, thenumber can be plus/minus three-four months here or there. It is also a function

of, in fact, it may be a function of long-term value because you can have a

smaller launch and have a faster breakeven, the more extensive the launch, the

breakeven sometimes gets protracted and we dont have the same approacheverywhere.

Your original question assumes that on the 8-9 circles, how much can you. We

will not do that. We have a separate game plan and one is not at the expense of

the other. We will now have 9 circles where we are on 900 megahertz includingSpice. We obviously want to build strengths in Mumbai and Delhi and then we

have got opportunity areas like UP East which has got a huge population and so

on. But it is not going to be, it isnt as if, anything we are going to do in Orissa

is going to take a rupee away from Maharashtra. So our thinking is very clearand secondly nothing that we will do in any of these new circles is something

which deliberately is going to be value destroying. We are working and we willstick to it that these have to meet the rates of return and these have to meetcertain objectives of cash flow and these also have to strengthen the overall

company. They are not here to weaken the company. So, if we go in Bengal or

if we go in Tamilnadu, Idea will be stronger because of that, Idea will not beweaker because of that. These are mutually exclusive. They are not fungible.

But yes, they are within the same Idea umbrella and that is our plan and we

believe we will execute on that and our plan is need not be the 10th

operator

plan. There is a difference between let us say an Idea going in Mumbai and any10th operator coming in Mumbai and we are seeing that in the market. Our

product has not actually travelled in the market, but our product is sold at a

price which is higher than the average of the Mumbai market. So, there is nosuch thing as a 10th operator business case. It is a situation specific to everyone

and if we find for any reason that our strategy one year later, two years later

needs a little bit of tweaking and course correction, of course we will do that.So, I dont think there is any risk.

Shubham Majumder: Anyway, I just wanted tothe answer to my earlier question, do you have that?

Sanjeev Aga: Which earlier question?

Akshaya Moondra: We said we will do it offline.

Sanjeev Aga: Pradeep will give to you, but it is nothing close to what you are saying.

Shubham Majumder: Sure. And just to be clear Sanjeev, in fiscal 09, which are the circles without

necessarily defining the exact time frames of launch, but which are the circles

which should go live in fiscal 09?


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Sanjeev Aga: Orissa will go live and Bihar has already gone live. Orissa will certainly go live

and Tamilnadu may be borderline.

Shubham Majumder: Okay. So, these are the ones over and above Mumbai. And in 2010, do you have

any sketchy idea?

Sanjeev Aga: Well, if Tamilnadu doesnt go live in this year, it will go live next year and we

dont have spectrum, but we are expecting spectrum, so I think Bengal will golive next year. There is not too much left after that. There is Northeast, Assam

and J&K.

Shubham Majumder: Yeah, there will be West Bengal and Calcutta as well right.

Sanjeev Aga: Thats right.

Shubham Majumder: Is there a likelihood of the Providence money coming in this quarter itself given

that if FIPB approvals and most of the things are in place now?

Sanjeev Aga: There is a very good likelihood.

Shubham Majumder: Okay. And in terms of the funding requirement for the Capex over the next 12-15 months, would the cash coming in from TMI and Providence be enough to

fund all of the Capex up till 2010 fiscal?

Akshaya Moondra: Not until 2010, but for at least 12 months it will be adequate.

Shubham Majumder: Okay, sure. And I just had a small question. You mentioned, you were talking

about the PCO business. Is there a big game plan? What exactly were youreferring to?

Sanjeev Aga: No, it is not a big game plan. It is a very regional and it depends on place toplace. There is no big strategic national game plan. Okay Shubham, can we

move on.

Moderator: Shall I take the last question sir?

Sanjeev Aga: Yes please, because actually we are already over on our time by 45 minutes.

Moderator: Sure. Next in line, we have Mr. Sameer from BNP Paribas. Please go ahead sir.

Mr. Sameer: Good afternoon. A quick follow-up to I think questions asked by Reena, Suresh,and Shubham. In terms of your internal targets, how are you going to balance

your profitability with the upcoming rollouts, your internal target for your

EBITDA margins as you kind of start rolling out the new circles and the secondone is, do you have any sense of visibility into the spectrum grounds for circles

beyond Tamilnadu, Orissa, and Chennai?


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Sanjeev Aga: Like any other company, we have very strict financial targets and apart fromfinancial targets for EBITDA or profitability, they also come to cash flow, they

also come to Capex and so on and then there are targets on quality of market

share, quantity of market share, pricing and so on, and these are dynamic things,

because the market may change, but we operate within all of that and generallyspeaking we have enough experience of running telecom operations in India. So

our actual delivery against targets is not too wayward. Our assumptions arereasonably sanguine, so that is answer to your first question.

Your second question was spectrum visibility. You know how predictable it hasbeen, which has not been very predictable in the past, but today we have got

only West Bengal, Calcutta, Assam, Northeast and J&K pending and we are

pretty high up on the priority list and so I expect in the next few months all this

will come through.

Mr. Sameer: Thats all I had. Thank you very much.

Sanjeev Aga: Thank you.

Moderator: Thank you very much sir. At this moment, I would like to hand over the floorback to Mr. Sanjeev Aga for final remarks.

Sanjeev Aga: Thank you maam. Thank you Sheriar. It has been a very long call, it has been

almost an hour and 45 minutes and when I reflect, I feel that, perhaps a lot oftime was taken up by me, and I could have made the call more efficient if I had

left it more for the questions, but thank you all for participating. These are

unusual times and I appreciate your questions because anytime there is a changeas we have and we have three changes, in fact. One is, the financial markets are

changing, secondly the telecom sector is changing at this point of time, and

thirdly our company is changing and therefore a lot of numbers suddenly pop upand it is difficult to figure out whether they are good, bad, good news, bad news.

I just want to repeat that in our opinion, we worked ourselves into a position of

strength we have never had before. We are stronger and in our opinion, we areas capable of fighting anyone or competing with anyone in the telecom market

going forward. We have got to this position and we intend to use it, and we will

use it efficiently and we will use money very efficiently. We will do our best,and we expect that a year or two years from now, we will emerge as an even

stronger company in a great sector. You know business cycles come up and

down, stock markets go up and down, but we will keep doing because ourenemy is time and there is no such thing that can I not do it now, can I think of

it one year later because there is the opportunity which is there right now, is not

there next year. So, we believe we are doing the right thing and we will, withyour blessings, keep pushing. Thank you for your support.


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Sheriar Irani: Thank you very much Sanjeev and thank you for the entire management of Idea

Cellular. Thanks. Bye.

Moderator: Thank you very much sir. Ladies and gentlemen, thank you very choosing

WebEx Conferencing Service. That concludes this conference call. Thank you

for your participation. You may now disconnect your lines.

transcript earning call 08-09q2

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