The mobile telephony sector isn?t showing any signs of recovery in the short term with the country?s largest operator Bharti Airtel posting a more-than-expected 38% fall in its net profit to R1,027 crore for the July-September period. This is the seventh consecutive quarter in which the company has posted decline in profitability. Revenue also grew slower, up 13% at R17,270 crore.
Prior to Bharti, another mobile operator, Idea Cellular, had reported a 41% drop in its quarterly profit.
Bharti and Idea are the top two mobile firms that are listed and the best performers on all the metrics.
Though Bharti attributed the decline in profits to higher interest outgo, costs attributed to 3G roll out and forex losses arising out of the strengthening of the rupee against the dollar, what is apparent is that the next few quarters are also not likely to provide any respite. Bharti’s interest expenses during the quarter more than tripled from a year earlier to Rs 1,118 crore.
Currency fluctuations increased the cost of servicing foreign currency loans, leading to forex losses of Rs 239 crore during the quarter against a profit of Rs 249 crore during the same period last year.
The worrisome factor is that the marginal hike in tariffs during the last quarter does not seem to have yielded any positive result so far. Both the key operating metrics ? average revenue per user (Arpu) and average minutes of usage (MoU) saw a sequential drop of 4% and 5%, respectively.
Since the Indian model is of low cost and high volumes, the trend of declining Arpu as well as MOU does not bode well for the operators, and is a clear signal that going forward more tariff hikes would be required if they want to protect their bottom lines.
Operators have already cut costs and are fast reaching a point where further such cuts may not be feasible. Meanwhile, on the expense side, things are only going to get worse in the coming months. Though Bharti’s India and South Asia CEO Sanjay Kapoor welcomed the liberal merger-and-acquisition norms mooted by the Trai on Thursday, it isn’t going to provide any immediate relief by way of consolidation. Even the government’s new telecom policy, which is in the works, hardly has anything which is going to provide gains to the mobile firms in the immediate term. On the contrary, once roaming charges get abolished with the introduction of one-India licence as envisaged in the policy, the industry which earns around 7.5% from this would lose this revenue stream also. One-India licence will also take away the earnings from the national long-distance arms as this would become redundant. On top of it, the Trai has suggested a 50% cut in termination charge from January.
The bad news for the industry is that the regulator has stuck to its 2G spectrum pricing recommendation by which incumbent operators would have to shell out around Rs 17,000 crore for the excess spectrum they hold beyond 6.2 Mhz. All these means industry will have no option but to raise tariffs which will, in turn, hit subscriber additions.
As far as opening of new revenue streams are concerned, one of the biggest hopes ? the 3G services ? for which the industry had paid through its nose hasn’t really taken off so far. All that Bharti vaguely disclosed is that it has some 7 million 3G subscribers. Revenues from non-voice services, barring SMS is also not rising much ? on a sequential basis in fact it dropped to 14.5% from 14.6% in the preceding quarter.
Commenting on the company’s performance during the quarter, chairman and managing director Sunil Mittal said, ?This year is progressing well for the company. India has achieved double-digit growth, fuelled by non-voice businesses. The arrest of continuously declining prices in India augurs well for the telecom industry.?