What an Idea, sirjee... really?

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Idea Cellular might have picked up the stake of Spice Telecom for Rs.2,200 crores, but will this deal really rake in synergies for this telecom player from the stable of Aditya Birla group? Noteworthy is the fact that Spice Telecom had operations in Punjab and Karnataka, the two places where Idea till now had no presence at all, although they had been granted the licence for the same. So, it really gives Idea an access to a readymade customer base of a wee-bit more than one crore subscribers (subscriber base as on May 2008 by COAI). But they have ended up paying a mind-boggling price of Rs.21,900 per subscriber. But then, Idea had not been present in these circles till now and would have had to build its brand from scratch in these circles given that Spice has no intention of selling their brand to them. On the up side is the fact that this addition in its existing costumer base would enable Idea to displace Tata Indicom and lap up the fifth spot in the race for service providers. Add to it the fact that Spice Telecom, through its recent aggressive marketing tactics, had been billing the highest number of subscribers in the Punjab belt and second highest in the Karnataka region which would give some ground to Idea as it makes an entry in these areas. Another positive for Idea is that surprisingly, Spice Telecom is also one of the telecom operators that even today has a Average Rate Per User (ARPU) at a healthy Rs.304 as compared to an industry average of Rs.220 which would now be going into Idea’s kitty. The irony of this deal though is that Spice Telecom had recently got the license for four new circles – Delhi, Haryana, Andra Pradesh and Maharashtra. Although Idea had to pay through its nose for these circles as well, but the fact is that they already have established subscriber base in all these circles so there wasn’t much business sense in garnering these circles additionally. There are also arguments being raised that Spice Telcom has been a loss making proposition till date (loss of Rs.365.06 for the quarter ending on 31st March 2008). But Idea feels that the reason for these losses is the operational inefficiencies surrounding this player and that Idea could turn the losses into profits in as little as three quarters. On the overall, this move is in sync with Idea’s plans to soon become a pan-Indian operator with a sizable subscriber base.

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Source : IIPM Editorial, 2008

An Initiative of IIPM, Malay Chaudhuri and Arindam chaudhuri (Renowned Management Guru and Economist).

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