Mobile cos to earn more a min on tariff hikes

Written by Nikita Upadhyay | Nikita Upadhyay | Mumbai | Updated: Nov 26 2011, 07:38am hrs
A 20% hike in tariffs, effected in July, will bring some relief to the mobile telephony companies who have been hit hard by falling revenue per minute (RPM), say analysts.

The mobile telephony companies have reported an average 40% decline in their profits as they paid higher interest on loans borrowed from both Indian and foreign lenders as the rupee weakened against the dollar. Bharti Airtel, India's largest mobile telephony company by revenue and subscribers, improved its RPM to 43.2 paise in the second fiscal quarter ended September, from 42.8 paise in the preceding quarter. RPMs for its rival, Reliance Communications rose by one paisa to 45 from 44 and Idea Cellular to 42.7 paise from 41.

After the advent of new operators from 2000 onwards, tariffs (price per minute charged for an outgoing call) have declined from about R15.5 per minute in 1999 to about 50 paise per minute in 2010.

The third and fourth quarters could see RPMs improving anywhere between 1-2 paisa, say five analysts FE spoke to.

Even after adjusting for data contribution, underlying RPMs appear to have improved sequentially," analysts Sachin Gupta and Neeraja Natarajan at foreign brokerage Nomura Securities wrote in a report released on Nov 22.

"Average RPMs rose by 1 paisa, and telcos expect further uplift of 1-2 paisa in the next 1-2 quarters. Rise in RPMs will help telcos to improve their profits in the next few quarters, say analysts. 3G services and data should offer further growth opportunities in the coming quarters, but their impact will be negligible, say analysts. "Voice and SMS revenue should continue to dominate the 2012 revenue mix, while data should contribute only minimal revenue," said Nitin Soni, associate director, Fitch Ratings India.

"Although data is not yet a significant income source in the Indian market, active subscriber penetration is just 50.7%, and voice services will, therefore, continue to offer strong growth prospects."

Operationally, we think the landscape will improve, leading to improvement in earnings before interest, taxes, depreciation and amortisation or Ebitda margins," Soni from Fitch ratings wrote in a report released on November 16.

Ebitda margins are the health indicator of a company. Stable pricing environment in 2012 will offset lower subscriber growth, leading to higher growth in revenues than in 2011."Voice and SMS revenue should continue to dominate the 2012 revenue mix, while data should contribute only minimal revenues," they added.