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Focussing on Driving Rate Per Minute Higher: Reliance Communications

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The big disappointment has come in with the wireless business not showing too much traction both in terms of the operating performance for the wireless business as well standing at about 29% or so. What would the outlook be now?

A: If you see this was a highly seasonal quarter for the industry and none of the operators who have reported results could get much traction. In fact most were flat to negative. In fact at R Com we were at the positive side of it and we actually grew revenues marginally on sequential quarters by 0.2%.

I think the even better news is that EBITDA was positive. EBITDA grew by 20 basis points quarter on quarter as well. So despite this being a very seasonal quarter I thought we at R Com managed to hold on and deliver a very decent quarter despite tough times.

Q: Can you just highlight your ARPU (Average Revenue Per User) going forward. While your minutes of usage have been declining quite significantly sequentially it’s your rate per minute which you have managed to stabilize for three odd quarters now. What exactly is your trend going forward and what can we expect from both these fronts?

A: I think clearly one has to understand that there is no elasticity in the market. There is no point diluting RPMs. With tariff intensity which happened in the last 12 months, I think a smart operator will have to recalibrate its strategy.

We at R Com did that and we have been talking about it consistently for the last three quarters or so saying that we are very focused on the Rate Per Minute and the paid minutes of usage that we will drive rather than driving minutes at any cost and at any rate.

I think that's paying dividend. If you see quarter on quarter our minutes of grown marginally, our RPM is rock solid 44 paisa for the last 3 quarters now despite industry most players going down in terms of RPM. So we've bridged the gap in RPM versus most other operators.

So I think the order of the day going forward would be stable RPMs and maintaining RPMs and only playing segmented in circle clusters where we see elasticity. I think that’s the order of the day in terms of minutes elasticity and RPM play. We do not see any major national play happening on the RPM dilution.

Q: Getting back to that point you made about your ARPUs in the last couple of quarters you have seen a significant decline quarter after quarter almost about 6.5% every quarter. At about Rs 122 right now what is the target for FY11 in terms of ARPU if you could give us any kind of indication? Are you expecting it to slow down even further?

A: I think the ARPU decline is a result of all other action that you take in the market and our ARPU decline is in line with industry. In fact the decline is at the lower end of the industry. If you see most operators have declined between 6% and 8% if I remember correctly. So we at 6% - 6.5% at the lower end of that.

I think more importantly the industry is moving towards metrics of RPM, paid minutes and EBITDA per minute. I think those become the more important KPIs (Key Performance Indicators) to look at now as well as going forward because you have got to look at quality of operations which we at R Com have stressing for the last 3 quarters now and moving away from gross acquisitions which the industry used to talk about some years or a year back or so.

So I think RPM and EBITDA per minute are the more important KPIs to look at. We have been maintaining our EBITDA, and are actually improving it marginally. We are at 13 paisa per minute EBITDA and holding on very rock solid. In fact we have grown EBITDA quarter on quarter by 20 basis points.

Q: Coming down to your financial charges, they are down around 36% for this quarter. But your net debt to equity is 0.95 times versus 0.73 times. Can you just explain the disparity between that?

A: Our net debt is at about Rs 29,180 crore at the end of Q2. If you see the finance charges this is a combination of interest and derivatives. Last quarter we had highlighted in our analyst call as well that the derivatives loss was about Rs 200 crore. This quarter it is about Rs 50 crore and that Rs 150 crore is the difference which you just mentioned.

Q: Could you also tell us about your global business then because the margins have been unimpressive over there. What kind of pricing pressures are you facing?

A: Actually, the global business has grown marginally quarter on quarter as well as margins have grown as well by 2.1%, our EBITDA has grown on the global business. We are seeing stability in terms of both orders coming into the global business with Europe stabilizing a little bit and US also stable. There are no significant price moves as well on the global business. So I think this quarter sequentially we have seen an improvement in EBITDA margins.

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