At present, India has around 1.05 bln active telecom users, out of which around 70% estimated to be 2G-, or voice-only networks.
Kapania’s comments indicate that he does not expect significant damage to his company’s reliance on 2G voice services to generate profits and to fund investment into 4G.
“2g will remain the operators’ cash cow and 4G their growth strategy,” the CEO added said.
Idea has traditionally relied on the profits generated from its lucrative voice services to fund investments into 3G and 4G services.
The CEO comments come in the wake of worries expressed by investors about the sustainability of the voice-centric and voice-dependent business model of incumbent telecom companies in the wake of ‘free voice’ offerings from new entrant Reliance Jio.
At least some analysts believe that Jio’s ‘free voice’ would destroy the foundation on which existing telecom companies are built, dealing a crush blow to them that would prevent them from putting up a fight in the data market as well.
Kapania also said he did not expect the combined Idea-Vodafone entity to shut down 3G services any time soon. He was responding to questions about whether Idea too plans to shut down and reallocate its 3G spectrum for 4G like its rival Bharti Airtel.
Airtel has already announced that it will shut down its 3G services in the next three to four years. 3G is seen as ‘not having taken off’ in India, primarily because of high spectrum costs, low investments by telecom companies and high tariffs.
Idea is using 3G spectrum in Mumbai and UP East for delivering 4G services in the absence of suitable LTE spectrum in those circles.
Kapania said he did not expect any need for the merged entity to completely shut down the 3G network as it has a lot of unused 4G spectrum, hurrying to add that a final call would be made by the new management.
He pointed out that the combined entity would have 164 blocks of 4G spectrum at its disposal.
Out of this, the two companies have so far deployed only 35-40 carriers.
“Only after (deploying all) that do we need to look at (refarming) 3G,” Kapania said, calling talk of refarming 2100 MHz ‘premature’.
Kapania said Idea is on track to deploying its high-capacity 4G spectrum in the 2.3 and 2.5 GHz bands in the current financial year in its leading markets.
As for reallocating existing spectrum to 4G, he said, the 900 MHz band is higher on the priority list compared to the 3G or 2100 MHz band.
The combined entity is likely to reallocate chunks of 900 MHz spectrum towards 4G, giving the company the ability to successfully take on Reliance Jio in terms of in-building coverage for its 4G network.
At present, no rival — including Vodafone, Idea and Airtel —
is able to come even close to Reliance Jio in terms of 4G coverage and penetration as they all use frequencies of 1800 MHz or higher.
It is estimated that, for the same level of transmission power, the 850 MHz spectrum used by Reliance Jio can cover four times the area that a tower on 1800 MHz can.
Besides coverage, a lower frequency also helps in achieving in-building penetration. At present, signals of frequencies such as 1800 MHz and 2300 MHz drop off rapidly as one steps indoors.
As a result, even when the signal is ‘full’ outside, it can be unusable inside the building.
Kapania said Idea has 900 MHz spectrum suitable for refarming in “a number of circles”.
Out of the 22 telecom circles in India, Kapania said, Idea and Vodafone have 900 MHz spectrum in 17.
It is estimated in around 8 or 9 of these, the merged company will have 8.5-9.0 MHz of spectrum. Out of this, it can use 5 MHz for LTE and the left-over for 2G.
In other areas where it has only 6.0-6.4 MHz, the company will have to either look at deploying a low-bandwidth form of 4G on 3.5 MHz, or use the entire spectrum for either 2G or 4G, but not for both.