New Delhi/Mumbai: The slide in revenue and profits for India’s telecom companies seen in the third quarter of this fiscal may just be the beginning of a trend that is likely to continue into the next fiscal.
The country’s listed telecom service providers—Bharti Airtel Ltd, Idea Cellular Ltd and Reliance Communications Ltd (RCom)—may have recorded their worst quarterly results due to tariff wars but analysts say there may be more bad news in the next quarter.
RCom’s group managing director Satish Seth told analysts in a conference call on Monday that the months gone by were the “most challenging period for the telecom sector” in India.
“I think this phase of hyper-competition will continue for a couple of quarters,” Manoj Kohli, outgoing chief executive of Bharti Airtel said at the time of announcing the results, adding that the competition was expected to stabilize in the second half of this year. “By next year, industry will see early signs of consolidation,” he said.
“This quarter was affected by tariff cuts but the entire impact will be seen in the next quarter as many subscribers have not yet migrated to the new tariff plans. Also, the war is not over as a couple of operators like Etisalat have yet to launch and they could launch with anything,” an analyst from a Mumbai-based brokerage firm said on condition of anonymity as he is not authorized to speak to the media.
Graphics: Yogesh Kumar / Mint
Additionally, operators such as Uninor and Aircel are expected to complete their nationwide launch in the coming months leading to wider impact of the tariff war.
“Despite the lowered tariffs, many of the new telcos have been unable to gain any market share,” the analyst added.
“One major factor is that the network utilization of the new telcos is low and for them to gain any significant revenues, they have to increase their market share. To do this they may have to lower tariffs further,” a Mumbai-based analyst with an international brokerage firm said but declined to be named.
Apart from the tariff war, the coming of mobile number portability (MNP) is also expected to lead to lower margins and increased competition. “Even without the actual implementation of MNP, many of the telcos are preparing for it, and therefore, getting more and more competitive,” the second analyst said.
The new regime, however, opens the gate both ways—telcos could gain subscribers from rivals or lose them to others.
The third quarter is typically stronger compared with the other quarters. The fourth and first quarters of a fiscal year are generally weaker as they have fewer number of days and festivals compared with the third quarter. Therefore, the impact will be more, the analyst pointed out.
Last week, India’s largest telco Bharti reported a 2% rise in net profit and a 6% drop in its Ebitda (earnings before interest, taxes, depreciation and amortization) margins.
The firm’s management said that this was largely due to the tariff war as well as a ban on prepaid mobile connections in Jammu and Kashmir—which has since been lifted—and on handsets without IMEI numbers.
Idea Cellular reported a fall in net profit of 23% compared with the same quarter last year, at Rs170 crore while revenue rose 15% to Rs3,150 crore compared with the year-ago period. The reasons: tariff war and an expansion into the rest of the country where India’s fifth largest operator was not present earlier.
Malayasia’s Axiata owns a 15% stake in Idea, which had 57.6 million subscribers at the end of December.
RCom, India’s second largest telecom company, reported a 21% drop in profits over the same quarter last year to Rs1,108 crore largely due to what it terms as “hyper-competitive tariff environment” in which it is one of the main aggressors.
But the firm saw a rise in net profit for the third quarter over the second quarter ending September by almost 50% to Rs1,108 crore. RCom’s revenue fell to Rs5,310 crore from Rs5,850 crore in the third quarter of the last fiscal year.
In a 7 January note to their clients, Macquarie Capital sector analysts Shubham Majumder and Nitin Mohta predicted that the sector is yet to hit bottom and it would get worse before it gets better. The note also said that they remained “bearish on Indian telcos, even after 15–37% corrections in stock prices in the past three months”.
So far, “most of the tariff action in the last six months has been focused on prepaid voice,” wrote Majumder and Mohta, but these were likely to spread to postpaid and corporate plans.
India, the second largest and fastest growing telecom market in the world by subscribers, added a record 19 million subscribers in December, taking the total number of telephone connections to 562.21 million—that includes 525.15 million mobile phone connections.