1. Reliance Jio free data plan hits Bharti Airtel Q3 profit; Gopal Vittal tags new telco’s pricing ‘predatory’

Reliance Jio free data plan hits Bharti Airtel Q3 profit; Gopal Vittal tags new telco’s pricing ‘predatory’

CEO Gopal Vittal labels new entrant’s pricing ‘predatory’

By: | New Delhi | Updated: January 25, 2017 12:58 PM
(Source: IE) (Source: IE)

The country’s largest telecom operator, the Sunil Mittal-led Bharti Airtel, was hit hard on all fronts during the October-December quarter with the full-fledged commercial launch of Mukesh Ambani’s Reliance Jio Infocomm, which is offering free services to its consumers. Though RJio was launched in September 2016, this is the first quarter when the full impact of its launch is visible on the dominant incumbent operator, dragging its net to the lowest in the last four years.

Net profit saw a sharp decline of 65.50% on a sequential basis at Rs 504 crore, missing analysts estimates while total revenues were down 5.34% at Rs 23,336 crore. Ebitda was down 9.47% sequentially at Rs 8,570 crore while margin declined 170 basis points to 36.7%.

The company, which reported exceptional loss, lower revenue and weak operational performance, was candid enough to blame RJio’s free services for its woes. “The quarter has seen turbulence due to the continued predatory pricing by a new operator,” Gopal Vittal, MD and CEO, India & South Asia, said in a statement. “The present termination costs at 14 paise which are well below cost has resulted in a tsunami of minutes terminating into our network. This has led to an unprecedented year on year revenue decline for the industry, pressure on margins and a serious impact on the financial health of the sector,” Vittal added.

Bharti is already in the Telecom Disputes Settlement and Appellate Tribunal, where it has challenged TRAI’s passive approach towards RJio’s free services, which it contends is not allowed under regulations.

The case will be heard on February 1. Analysts said that the outcome of the case will be keenly watched as the continuance of Jio’s free services hinges on it. As is known, RJio has extended its free services beyond December 2016 to March 2017. With the launch of RJio’s free services, Bharti has adopted a strategy of offering more data at same price and bundling it with free voice in some packages, which has resulted in sharp decline in data realisation. It is quite apparent that its customers are not using its data with usage also coming down. During the quarter, data realisation per MB was down 10.5% sequentially, the highest so far. Data usage per customer, which had been witnessing slower rate of growth, declined 2.8% sequentially to 972 MB during the quarter. Average data realisation per user was down 13% at Rs 175.

The story is no different on the voice front where Arpu was down 6.4% sequentially at R123 while realisation was down 9.3% at 29.42 paise. For the past several quarters, the company was slowly but steadily improving its realisation by curbing freebies but that got changed during the October-December quarter.

While the minutes of usage increased 3.2% sequentially at 419 minutes and the total minutes on network also saw a 5.4% increase to 330,217 minutes, it is quite clear that these are not yielding revenue. Though it is still early days, there is surely a cause of concern as during the quarter, Bharti reported a 4.1% increase in monthly churn and its total data customers also declined 12.4% sequentially to 54 million. The 3G/4G customer base also shrank 8.8% quarter-on-quarter to 37 million. In this space, RJio has emerged the market leader with around 73 million subscribers.

Data as a percentage of mobile revenues, which had been growing for the past several quarters, during the quarter declined to 22.8% from 24.7% in the preceding quarter. The decline in all the parameters led to a 6.5% sequential decline in the company’s mobile revenues at Rs 13,564 crore.
While the India business faced turmoil, the company’s Africa business was stable during the quarter. Revenue increased 1% sequentially to Rs 5,355.9 crore while operating profit rose 5.7% to R1,294.5 crore and margin expanded 110 basis points at 24.2%.

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