updated as of AUGUST, 2012 Idea Cellular COMPANY BACKGROUND Idea Cellular Limited (Idea) is the fastest growing telecom service engaged in an initial public offering to raise the capital necessary to provider in India. The company’s origins extend back to 1995, and it support a network expansion. The Aditya Birla Group (Birla) now owns started its commercial operations in 1997 in Maharashtra and Gujarat 57% of Idea. Private equity investors Providence Equity Partners, Inc. states. Idea expanded into other service areas through a combination and Citigroup Global Markets (Mauritius) hold a combined 17.7%. of organic growth and acquisitions. The remaining 24.6% is held by approximately 350,000 individual shareholders. In late 2006, the Aditya Birla Group consolidated majority ownership over Idea and assumed management control. In February 2007, Idea IDEA CELLULAR’S INCLUSIVE BUSINESS MODEL When Aditya Birla Group took over, Idea’s new management reoriented projects around the world. Central to the model is a grassroots-level part- the company’s strategy to focus network expansion mostly in India’s nership, originally brokered by IFC, with India’s Self-Employed Women’s remote areas where demand is both high and underserved. The company Association (SEWA). With limited financial support from IFC, SEWA fulfills also built a distribution network of 1,520 branded service centers and critical project functions, namely: more than 700,000 multi-brand retail outlets around the country as of •• Providing access to the information and relationships March, 2009. These investments have enabled Idea to serve customers at required to partner with rural micro-entrepreneurs the base of the economic pyramid by bringing coverage to rural areas and •• Financing micro-entrepreneurs to purchase and operate achieving economies of scale that help keep prices low. PPCO equipment •• Training and building the capacity of PPCO operators Idea’s approach has also included a suite of products and services custom- ized to meet the needs of rural and low-income consumers. For example, While Idea provides overall management for the project and ensures Idea has launched small recharge sachets in denominations as low as regulatory compliance, SEWA is responsible for identifying and screen- $0.20. The company provides value-added services such as “music on ing PPCO operators and providing them with training in their local lan- demand,” which has been particularly successful in rural areas where FM guages. SEWA gives PPCO operators the financing to purchase PPCO radio does not reach. Idea’s media and advertisement campaigns are also equipment—including a handset, shared phone software, SIM card, and conducted primarily in local languages to reach out to rural users. airtime for about $35, or just a SIM card for about $11 for operators who already own their own phones. This financing, in turn, provides the Most recently, Idea has been working to extend its reach specifically to organization with interest income. SEWA also provides PPCO operators consumers who cannot afford their own phones through a Pocket Public with technical support and collects data for monitoring and evaluation Calling Offices (PPCO) project. PPCO is at once a product of Idea’s expan- purposes. sion efforts and a part of its strategy for further growth. The company considers PPCO a commercial project, and as such it was developed via PPCO operators are responsible for maintaining PPCO equipment, pro- Idea’s standard business development process: concept documentation, moting their businesses, and maintaining accurate call records. PPCO management approval, product configuration, testing, and full commer- operators generate income by selling airtime to their communities, for cial launch. which Idea pays a 20–47% commission depending on the volume of airtime an operator sells each month. Operators may also have additional PPCO is a shared access model in which a mobile phone is used as a revenue streams such as phone recharging and sales of prepaid cards to public phone operated by a micro-entrepreneur. To develop the model, customers who own their own phones. Idea partnered with IFC to leverage its experience with shared phone 32 Inclusive Business Models — Guide to the Inclusive Business Models in IFC’s Portfolio CASE STUDY Idea Cellular DRIVERS FOR IDEA CELLULAR’S INCLUSIVE BUSINESS MODEL •• To increase the number of Idea customers •• To increase the number of transactions per consumer •• To increase brand awareness, remain competitive, and increase market share •• To maintain Aditya Birla Group’s reputation as a socially responsible company by expanding access to telecommunications services and economic opportunities The primary driver for Idea’s inclusive busi- to 50 million new rural customers via 300,000 ness model was significant pent-up demand operators within three years. throughout India, especially in semi-urban and An additional driver was the Aditya Birla Group’s rural areas where 2008 telephone penetration commitment to commercially sustainable, pro- or “teledensity” averaged approximately 6%. poor approaches. The company’s efforts have This compares with 40% teledensity for India been enabled by measures by the Government as a whole, still less than half the average for of India to liberalize the telecommunications Asia. The specific objectives of Idea’s PPCO sector and introduce pro-competitive policies. project were to extend the company’s services IFC’S ROLE AND VALUE-ADD For Idea, IFC’s value-add has been the combination of large-scale debt financing for network expan- sion and advisory services to help bring the benefits of network expansion even closer to the base of RESULTS OF IDEA CELLULAR’S INCLUSIVE BUSINESS MODEL the pyramid through the PPCO project. •• 185% increase in subscribers to 60 million since 2007, approximately 40% of these in With respect to the PPCO project, IFC brought rural areas two distinct benefits. First, IFC offered exper- •• 2% increase in market share since 2007, from 9 to 11% tise in the planning and management of shared •• 31% increase in revenues and 8% increase in EBITDA phone models. Drawing on its experience with •• Increased access to telephony among rural and other previously underserved such models in multiple African countries, IFC was populations well-positioned to advise Idea and its implement- •• 1,228 PPCO operators in business in the pilot phase, earning 20–47% commissions ing partner, SEWA, on appropriate business and •• Income and employment generation in the retail sector operating models. Second, IFC’s long-standing Idea’s overall inclusive business model, in which telecommunications. PPCO has also created relationship with SEWA and its experience linking network expansion brings coverage to rural business opportunities for 1,228 PPCO op- large corporations with micro, small, and medium areas and economies of scale help keep prices erators in the pilot phase alone, each of whom enterprises allowed IFC to play a critical role broker- low, has enabled the company to increase earns between 20–47% on sales. ing and facilitating the partnerships involved. subscribers by 185% to 60 million since the Idea’s growth has also contributed to overall network expansion began. Approximately 40% growth in the telecommunications sector, of these are in rural areas. During the same where increasing penetration has fueled period, the company gained two percentage competition and helped maintain affordability. points of market share, reaching 11% percent. Studies have shown that increasing penetration Idea’s revenues increased by 31% from 2008 to is also associated with GDP growth and poverty 2009 to $2.15 billion. reduction. It is estimated, for instance, that a The PPCO project has helped facilitate customer 10% increase in mobile phone density leads to acquisition in more rural, lower-income seg- a 0.6% increase in per capita GDP.4 ments that previously had little access to mobile IFC’s Investment: $100 million in long-term debt financing 4 Waverman et al. 2005. Inclusive Business Models — Guide to the Inclusive Business Models in IFC’s Portfolio 33