A look at the financials of Bharti Tele-Ventures (mobility biz) and Hutch India (figures not available before the parents overseas IPO) suggests that big-sized telcos can now boast of higher marginal profitability, wherein each new subscriber adds increasingly more to revenues than to costs (see table).
For the six-month ended September, Bhartis cellular ARPU decreased by 12 per cent to Rs 509 in 2004 from Rs 580 in 2003 whereas its cellular AEPU (operating expenditure per user per month) came down 18.42% to Rs 336 in 2004 from Rs 412 in 2003. During the period, Bhartis operating expenditure as a percentage of sales has come down to 65.76% in 2004 from 70.78% in 2003.
Higher subscriber connections have resulted in telecom service providers like Bharti which have large upfront sunk and fixed costs reaping the benefits of economies of scale, says Vineet Nigam, assistant general manager, Icra Ltd.
Bhartis operating expenditure as a percentage of sales (OEPS) has been steadily declining: 67.85% in Q1 (user base: 6.5 million) and 65% in Q2 (7.67 million users) of calender year 2004 versus 73.65% in Q1 (3.44 million users) and 73.4% in Q2 (3.75 mn users) of calender year 2005.
However, in Q3 (July-September) of calender year 2004, Bhartis OEPS has increased to 66% (user base: 8.7 mn) from preceding quarter (April-June 04), primarily because of the launch of new mobile operations in telecom circles like Uttar Pradesh (east).
Hutch India too reflects a trend of AEPUs falling faster than ARPUs. Its operating expenditure as a percentage of revenues came down to 86.7% in January-June half 2004 (user base 5.8 million) versus 88.7% in the corresponding period in 2003 (2.6 mn users).
For the six month period-ended June 30, Hutch Indias ARPU (pre-paid and post-paid blended) has come down 22.8 per cent to HK$100 (Rs 590) in 2004 from HK$ 129.54 (Rs 764.28) in 2003. At the same time, AEPU (average operating expenditure per user per month) has declined faster at 24.45 per cent to HK$86.7 (Rs 511.53) in 2004 from HK$ 114.9 (Rs 677.91) in 2003.
Though Bharti reports on fiscal basis (March-ending), we have used its two quarters between January and June for comparision with Hutch Indias calendar first half-yearly operations.
For the half-year ending June 30, Hutch Indias revenues grew 64 per cent to HK$3202 mn (Rs 18892 mn) in 2004 from HK$ 1951 mn (Rs 11511 mn) in 2003 while Bhartis cellular revenues grew 64.31 per cent to Rs 20,884 mn in 2004 from Rs 12710 mn in 2003.
Hutch Indias blended ARPU data (pre-paid and post-paid combined) were not available, so to arrive at a blended ARPU we used the post-paid ARPU of HK$247 (Rs 1457.3) and revenue of HK$1772 (Rs 10454.8) and pre-paid ARPU of HK$57 (Rs 334) and revenue of HK$1418 mn (Rs 8366.2 mn) for January-June half 2004. A similar exercise was followed for corresponding figures.
Confirming the trend, TV Ramachandran, director geneal, Cellular Operators Organisation of India (Coai) said: Operating cost to serve per wireless customer per month (across countrys cellular territories) is around $4.5 currently down from $6 in 2003 and $7 in 2002.
At the same time the industry ARPU is currently around $8.5, which has declined from $10 in 2003 and $14 in 2002.
Mr Ramchandran added: In terms of cost of customer acquisition (COCA), there has been siginificant competitive pressures on telcos yet we expect COCA to be in the range of $16-$16.5 down from $18 in 2003 and $25 in 2002. the cost turns out to be lower for telcos with larger foot-print.
Improved profitability and a booming wireless telecom market are expected to see companies like Reliance Infocomm and Hutch India tapping the primary market in fiscal 2005-06 to raise funds for expansion.
Analysts believe that the countrys mobile telephony will continue to be in an expansion-intensive mode for many more years as telcos move to the next stage of customer recruitment where ARPUs will range below Rs 200 a month.
For the moment growth in overall expenditure or decline in ARPUs (due to telephony spreading to masses and hinterlands) are not a matter of concern as long as the market sees faster growth in subscriber base, overall revenues and operating profits.