New Delhi: India’s top mobile operator, Bharti Airtel, is expected to report quarterly profit rose by a fifth as it benefits from a strategy of keeping tariffs steady, while rivals cut prices to boost market share.
Cheaper call tariffs and expanding networks have helped mobile operators add subscribers at a furious pace, making India the world’s fastest-growing wireless market.
The country added a record 44.5 million subscribers in January-March, boosting the total to 392 million, after the No. 2 player Reliance Communications expanded its GSM network and rivals such as Vodafone Essar and Idea Cellular also expanded.
In contrast, China’s mobile phone industry is slowing.
China Mobile, the world’s largest mobile carrier with about 480 million subscribers, said last week its first-quarter net profit growth slowed to 5%, despite a near double-digit rise in revenue.
Consultancy Gartner expects the number of India’s mobile phone subscribers to nearly double to 737 million by 2012, but years of cut-rate competition is beginning to affect some players.
“As the companies are getting majority of the new users from rural areas, net profit margins already under pressure are going to be further hit,” said RK Gupta, a fund manager at Taurus Asset Management, who oversees about $40 million in stocks and owns shares in Reliance Communications and Idea.
“High competition in the sector will ensure their administrative cost, marketing cost will go up.”
As companies expand to small towns and hinterlands, average revenue per user and minutes of usage, two key measurements of performance, have been under pressure as users in rural areas talk less on phones and some use phones only to answer calls.
In India, Bharti, about 31% owned by Southeast Asia’s top phone firm SingTel, has a market share of about 24%, followed by Reliance with about 18%.
Risks facing the sector include companies having to pay high prices in a coming global auction of radio waves for advanced third-generation services, and the possibility that users will hop service providers at a faster clip when mobile number portability is introduced this year.