Mumbai: Anil Ambani-promoted Reliance Communications Ltd (RCom), India’s second largest mobile firm by subscribers, posted a better-than-expected 8.3% increase in net profits to Rs1,637 crore for the quarter ended 30 June, bolstered by a threefold rise in other income and additions to its customer base.
This is at least the third straight quarter when an unusually high level of other income has propped up the firm’s profits. Other income is essentially earnings from activities that are not undertaken in the ordinary course of an entity’s business.
RCom’s revenues expanded by 15.5% to Rs6,145 crore for the quarter, up from Rs5,322 crore in the corresponding period last year, beating street expectations. A Mint poll of estimates by six brokerages had projected a net profit of Rs1,188.30 crore on a revenue of Rs6,390.82 crore.
RCom reported other income of Rs302.22 crore, up from Rs92.67 crore in the year-ago period. An RCom spokesperson said this was on account of revenue from interest, foreign exchange, Big DTH (direct-to-home) television operations and RelianceWebWorld stores.
The company also had an inflow from finance charges of Rs620.51 crore this quarter against Rs234 crore last year, as it switched to a new accounting standard called AS11, creating a notional gain in net profits.
RCom said it added around seven million subscribers. Its customer base has increased to 79.62 million, second only to Bharti Airtel Ltd, which had 102.36 mobile phone subscribers at the end of the June quarter. India had 427.29 million cellphone subscribers on 31 June, according to the Telecom Regulatory Authority of India.
Earnings also steadied at the firm as many free talk-time minutes have been converted into paid minutes, it said. RCom had launched its services based on the global system for mobile communications (GSM) technology platform in December in 14 of the country’s 22 telecom areas. It is the only national operator that offers both services based on GSM and a rival platform known as code division multiple access (CDMA).
As part of its aggressive launch schemes, RCom offered new connections for as little as Rs25 and free talk time of Rs900 for 90 days. That period has now expired, allowing for revenue generating usage.
However, average revenue per user (Arpu) for the June quarter fell to Rs210 a month against Rs282 in the corresponding period last year. Consumers also spoke for 365 minutes on average, down from 424 minutes, a decline seen by other operators including Bharti Airtel and Idea Cellular Ltd.
Part of the drop in Arpu is due to the lowering in April of termination charges by the sector regulator to 20 paise a minute from 30 paise, and firms moving from big cities to smaller urban and rural markets that typically earn lower revenue. Termination charges are what one cellphone firm charges another for completing a call between networks.
Sector analysts have pointed out two developments that will shape the Indian telecom industry’s prospects.
Shobhit Khare, an analyst with Mumbai-based Motilal Oswal Securities Ltd in a 26 June report wrote that though “aggressive bidding (was) unlikely” for the 3G (third generation) auctions due in the second half of 2009, he expected “winning bidders...to launch 3G services in FY11” on account of a “lead time of six-nine months for roll-outs”. 3G services will allow voice, data and video to be transmitted at high?speeds?to?wireless?devices.
The second development, according to analysts, is mobile number portability, which will allow customers to switch service providers without having to change their phone number.