Sistema to concentrate on getting more data customers

New Delhi: Having scaled down operations to just 9 telecom circles, Sistema Shyam Teleservices (SSTL) is now focusing on acquiring data customers and working towards a break even by the December quarter of 2014. It has not given up its ambition of growing its voice business through an acquisition in India but will not make any moves unless the government clarifies and formalises rules for mergers and acquisitions in the telecom industry.

So till then, the Indian mobile phone unit of Russia’s Sistema is doing the next best thing: working to get more data customers - of more value than those wanting to brand MTS for voice - instead of using its resources on voice customers.

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SSTL currently operates in nine circles - after all but one of its licenses were cancelled by the Supreme Court. These cancelled licences were part of the 122 licenses, issued during the tenure of former telecom minister A Raja, which were cancelled by the SC.

The company today announced a net loss of Rs 845 crore for the three months ended June against a net loss of Rs 1180 crore in the same quarter last year, an improvement of 28 percent. (Sistema’s fiscal year is January to December; the June quarter was second quarter for it). But revenue for the quarter fell 30 percent to Rs 291 crore from Rs 418 crore in the corresponding period of last year. SSTL halved its OIBDA (operating income before depreciation and amortisation) loss to Rs 219.3 crore from Rs 450.9 crore.

[caption id=“attachment_1061395” align=“alignleft” width=“380”]  Sistema is working on getting more data customers instead of using its resources on voice customers. [/caption]

CEO Dmitry Shukov pointed out that a 33 percentage point increase in margins during the June quarter (from -108% to -75%) became possible due to cost optimisation and operational efficiencies.

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First and foremost, scaling back operations to only nine circles meant loss making circles were off its map and this helped to bring down losses, with a 75 percent reduction in operational loss within the quarter. Second, headcount has also been slashed, from 2800-2900 employees earlier to 2000 now.

Shukov said the company made a one-time gain of Rs 400-500 crore by shutting down operations in unprofitable circles.

During the June quarter, forex loss to Sistema was a significant Rs 330 crore versus a Rs 50 crore profit in the previous quarter but an obvious fallout of Sistema reducing its footprint has been reduction in overall subscriber numbers which fell by 19% quarter on quarter to settle at 9.8 million as on June 30. And while minutes of usage improved to 328 against 295 in the previous quarter, non-voice revenues for both, data and mobile VAS, declined by 20% to Rs 100.1 crore.

Going forward, Sistema will focus on acquistion of data customers and Shukov said that the 35 percent of the company’s revenue coming from data now will cross the half way mark in one year.

Sergey Savchenko, CFO, said “never say no” when asked about any plans Sistema may have to increase its footprint by acquiring an existing Indian telco. But he said the market conditions were not conducive right now; nor were the M&A guidelines of the Government clear.

Meanwhile, even as SSTL won spectrum in 8 circles in March through an auction, the Government is yet to allocate the airwaves’ frequencies that it acquired. “We are waiting for third carrier (spectrum slot) for launch of Revision B network. The peak speed at this network is around 10 megabit per second. Even inside the room or building a user will get at least speed of 3 mbps,” SSTL’s Head for Strategy Ranjan Banerjee said.

Savechenko said the cost of dongle for revision B network will be less compared to current price. He said the company is talking to both Chinese and Indian handset vendors for smartphones that will support Revision B network.