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RCom’s rural expansion slows its profit growth

RCom’s rural expansion slows its profit growth
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First Published: Thu, Jul 31 2008. 11 25 PM IST

Going mobile: A farmer talking on a cellphone in Muzaffarnagar. The R-Adag company says it had covered 600,000 villages by end-March. (Photo: Rajeev Dabral/Mint)
Going mobile: A farmer talking on a cellphone in Muzaffarnagar. The R-Adag company says it had covered 600,000 villages by end-March. (Photo: Rajeev Dabral/Mint)
Updated: Thu, Jul 31 2008. 11 25 PM IST
Bangalore: The country’s second largest mobile phone operator, Reliance Communications Ltd, or RCom, reported the slowest profit growth in nine quarters after adding less profitable customers in rural areas.
Net income rose 24% to Rs1,510 crore in the three months ended June, Mumbai-based RCom said on Thursday. Profit missed the Rs1,550 crore median estimate of seven analysts surveyed by Bloomberg. Sales rose 24% to Rs5,320 crore.
Going mobile: A farmer talking on a cellphone in Muzaffarnagar. The R-Adag company says it had covered 600,000 villages by end-March. (Photo: Rajeev Dabral/Mint)
RCom, controlled by Anil Ambani, signed up customers at a slower pace than top-ranked Bharti Airtel Ltd and Vodafone Group Plc.’s Indian unit.
RCom and Bharti failed in separate bids to merge with South Africa-based MTN Group Ltd, forcing them to compete in India’s villages and towns to bolster profit growth.
“You are going into smaller towns and the villages, where obviously paying capacity as well as consuming capacity would be lower,” Romal Shetty, executive director for telecommunications at accounting and audit firm KPMG Llp.’s Indian unit, said before the earnings announcement.
RCom doubled the number of villages covered by its network to 600,000 in the nine months ended March, according to a statement on the company’s website.
RCom shares fell 0.47% to close at Rs500.05 in Mumbai trading before the earnings announcement on Thursday, a day when the benchmark Sensex index has risen 0.5% to 14,355.75 points. The RCom stock has declined 33% this year, compared with Bharti Airtel’s 20% loss and the Sensex’s 29% drop.
Bharti Airtel last week beat analyst estimates by reporting a 34% increase in first quarter profit to Rs2,030 crore.
Talks scrapped
Ambani’s global expansion plans were hampered after ending discussions with MTN, Africa’s largest wireless carrier, on 18 July.
Ambani, the world’s sixth richest man according to Forbes magazine, failed to resolve a dispute with older brother Mukesh Ambani, whose Reliance Industries Ltd claimed the first right of refusal in any stake sale by RCom.
RCom, which mainly offers code division multiple access, or CDMA, services, had 50.8 million subscribers at the end of June. Bharti Airtel had 69.4 million customers while Vodafone’s subsidiary had 49.2 million, all of them on the global system for mobile communications, or GSM, platform.
Anil Ambani is spending $6.5 billion (Rs27,625 crore) to build a nationwide GSM network to narrow Bharti’s lead.
New wireless providers, who are likely to start operations in nine months to a year, may undercut prices to gain market share leading to a “tremendous squeeze on margins” for existing operators, KPMG’s Shetty said.
AT&T Inc., the biggest US phone company, in March had said it will be “aggressive” in its plans to enter India’s mobile phone industry to add customers in the world’s second biggest market for wireless services.
Russian billionaire Vladimir Yevtushenkov’s AFK Sistema in January said its Shyam Telelink Ltd unit will pay $630 million for phone licences in 21 areas. Sistema plans to spend as much as $7 billion with partners to expand its wireless network in India.
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First Published: Thu, Jul 31 2008. 11 25 PM IST