The cut in termination charges by 10 paise is estimated to impact the revenues of telecom companies by 4-5% in the first quarter of the financial year 2009-10. Termination charges are paid by one operator to another on whosever?s network the call terminates.
While the new entrants were demanding a complete phase-out of the interconnect user charge (IUC) regime, the existing GSM incumbents were against the review of termination charges, citing any revision of IUC would hit the rural infrastructure development.
While this move is said to curtail the expenses of the new entrants, incumbents like Bharti Airtel are expected to take a hit on their revenues. Reduction in the termination charges is likely to improve the EBITDA margins by more than 1%.
For an operator, termination charges contribute to 13-14% of revenues. As per analysts, without the 33% cut in the termination charges from 30 paise to 20 paise, the sector would have seen a top-line growth of about 7-8% on a quarterly basis which is now expected to deliver less than that.
Despite this, the telecom sector is expected to put up a top-line growth of about 3-5% on a quarterly basis for 1Q FY2009-10. Also, the quarter is expected to see a robust increase in the subscriber net additions. Where Reliance Communications (RComm) attracted subscribers by launching its GSM service in 14 circles, Bharti Airtel and Vodafone clutched strong net additions by foraying deeper into semi-urban and rural areas. ?However, this rise in net addition has resulted in increase of dual SIM subscribers and may result in flight of paid minutes from incumbents like Bharti, Vodafone and Idea Cellular (Idea) to the freebies offered by new entrants,? said Nishna Biyani, telecom analyst, Prabhudas Lilladher.
Average revenue per user per month (ARPUs) for the operators continues to decline by almost 3% on a Q-o-Q basis. The constant decline in the ARPU is a result of the telecom operators focusing towards the rural segments of the country and going further deep into these regions. Also some other factors that would pull down ARPU are increasing usage of multiple SIM cards and low usage among customers in net adds. CRISIL Research expects ARPU decline and rising costs, especially network operating expenses and selling costs, to result in a margin contraction to the tune of 75-125 basis points (bps) during the April-June 2009 quarter.
?We expect Bharti Airtel, RComm and Idea Cellular to witness significant margin pressures this quarter, and estimate a combined 368bp yoy fall in EBITDA margins in Q1 FY2010 (38bp fall qoq). This is mainly on the back of higher network expansion costs and secular decline in tariffs (revenues per minute) due to intensifying competition,? said Angel Broking in its recent report.