New Delhi: Intensifying competition in the Indian telecommunications sector, the world’s fastest growing in mobile sign ups, should kick off an industry consolidation in two years, a senior official at Reliance Communications Ltd (RCom) said.
Expanding services: RCom says it will use a portion of its Rs10,000 crore planned investment this fiscal to fund the roll-out of 3G services. Hemant Mishra / Mint
With four firms, including ventures of Norway’s Telenor SA and United Arab Emirates’ Etisalat set to start operations in India this year, existing players led by RCom and bigger rival Bharti Airtel Ltd have slashed call charges to lure users.
India, which has 11 mobile operators, has this year added an average 14 million mobile users a month. Analysts say still there is huge potential as only 40 people of every 100 own mobile phones from a population of over a billion.
Call rates in India have dropped to less than 1 US cent (around Re0.50) per minute, the world’s cheapest, squeezing profit margins of firms.
Satish Seth, group managing director at RCom’s parent, told analysts in a conference call on Monday the competitive activity will only increase in the near term.
“The overhang of these developments will accelerate the process of industry consolidation in the next 18-24 months,” he said.
RCom on Saturday reported its quarterly profit fell by half, on foreign exchange losses, network expansion costs and growing low-paying users.
Net profit fell 52% to Rs740 crore for the September quarter from the corresponding period last fiscal. It posted foreign exchange-related losses of Rs283 crore and a dip in wireless sales. Revenue rose by 1% to Rs5,703 crore, compared with Rs5,645 crore in the year-ago period.
Ebitda (earnings before interest, taxes, depreciation and amortization) margin, a key gauge of profitability, for the wireless business fell to 32.7% for the three months to September, from 38.6% in the preceding quarter.
In response to a question whether the company expects wireless Ebitda margin to improve in the December quarter, Seth said: “The outlook is positive.”
RCom, which had 86.1 million wireless users at end-September, saw key metrics such as average revenue per user falling to Rs161 for the September quarter, from Rs 210 in the preceding quarter and sharply off Rs244 for the fiscal year ended March.
RCom said on Monday that it will use a portion of its Rs10,000 crore planned investment this fiscal to fund the roll-out of so-called third generation (3G) services.
“We had given a capex (capital expenditure) guidance of Rs10,000 crore for the current fiscal and we will stick to it,” one RCom official said in the conference call on Monday.
“We have spent only Rs2,000 crore in the first two quarters. Now that 3G is round the corner, we will take care of that expenditure within this only,” said the official, one of five RCom executives who took part in the call and couldn’t immediately be identified.
Taking part in the call, apart from Seth, were president of value added services Mahesh Prasad, president of Reliance Infratel Inder Bajaj, president of enterprise solutions George Varghese and president of global business Punit Garg.
The government is to start in January the auction of 3G spectrum, which will enable high-speed Internet and video downloads on mobile phones.
Mint’s Bhuma Shrivastava in Mumbai contributed to this story.