Tariff hike, 3G revenue to boost bottom line

Written by Nikita Upadhyay | Nikita Upadhyay | Mumbai | Updated: Aug 16 2011, 08:34am hrs
Although the first quarter of the financial year 2011-12 did not prove to be a good start for telcos, the future looks promising, say industry experts.

The sector has started to look up, with 3G revenues to start adding from next quarter, LTE (long term evolution or 4G) coming in by next year, revision in tariffs and recent correction in channel commission, said Prashant Singhal, telecom head, Ernst & Young India.

After aggressive tariff wars by telecom players from 2009, Bharti Airtel finally hiked voice tariff rates by 20% for pre-paid customers in a few circles and other incumbents like Vodafone India, Idea Cellular and Tata Docomo followed suit.

Experts feel the impact of this price increase and 3G revenues on the top line will start showing from the third quarter.

The recent tariff hike also reinforces our view that the phase of price destruction by smaller players is largely behind us. Diminishing competitive intensity is a sure sign of the inability of smaller players to cause further price damage heralding the need for imminent consolidation, according to Crisil Ratings.

Bharti Airtel had reported 13% decline in its PAT to R1,215 crore from R1,400.7 crore in the March 2011 quarter. Idea Cellulars net profit slumped 35% in the quarter ended June 30 to R177.3 crore as compared with R274.5 crore in March 2011 quarter. RComs PAT for the June 2011 quarter stood at R157 crore as against R168.6 crore in the March 2011 quarter, down 6.5%.

However, industry veterans feels that the growing pressure on bottom line will also continue as despite increase in tariffs, average revenue per user is are trending downwards and data services continue to become cheaper. Meanwhile, top line has been growing uninterrupted but margins are skewed to a stagnant-decline range.

3G amortisations and interest costs have started showing up in the P&L accounts. The trick is to understand how telcos are performing at the operational and ebit level. As the initial 3G excitement settles and services start, we will see 3G revenues kicking-in, said Hemant Joshi, partner, Deloitte Haskin & Sells.