Telcos likely to report muted profits

Telcos likely to report muted profits
Comment E-mail Print Share
First Published: Mon, Oct 19 2009. 10 10 PM IST

Looking down: Factors such as higher taxes and impact of the monsoon rains are expected to cause a muted performance in the September quarter for India’s telecom companies, say brokerages. Rajkumar/Mi
Looking down: Factors such as higher taxes and impact of the monsoon rains are expected to cause a muted performance in the September quarter for India’s telecom companies, say brokerages. Rajkumar/Mi
Updated: Mon, Oct 19 2009. 10 10 PM IST
New Delhi: Increased competition from new mobile phone operators launching services across India and a drop in tariffs have analysts expecting telecom operators to post flat or marginal increase in revenue and profits for the quarter ended 30 September.
The second quarter of the fiscal that began on 1 April saw aggressive rollouts by Tata Teleservices Ltd, with their GSM services branded Tata DoCoMo, and Sistema Shyam Teleservices Ltd with their CDMA services branded MTS.
GSM, short for global system for mobile communications, is a technology platform. CDMA, or code division multiple access, is a rival standard.
The new operators have entered the market with aggressive billing plans such as charging on number of seconds rather than minutes, and a million minutes of free talk time, albeit on the same network. Tariffs from most operators have dropped to 50-60 paise per minute, from the earlier average of Re1 per minute.
Other factors such as higher taxes and impact of the monsoon rains are expected to cause a muted performance in the September quarter for India’s telecom companies, according to five brokerages polled by Mint. Many sectors, including telecom, typically post muted earnings due to the monsoons.
A report published by Nishna Biyani, telecom research analyst for Mumbai-based brokerage Prabhudas Lilladher Pvt. Ltd, said that while net subscriber additions were buoyant in the quarter, they were a result of Tata launching its GSM services with aggressive tariffs.
This rise in net addition has resulted in increase of dual-SIM subscribers and may result in flight of paid minutes from incumbents such as Bharti Airtel Ltd, Vodafone Essar Ltd and Idea Cellular Ltd to the freebies offered by new entrants, the report said.
A SIM, or subscriber identity module, card is used to identify a subscriber on mobile telephony devices such as computers and mobile phones.
“We expect the MOU (minutes of usage) for operators to be under pressure considering seasonally Q2 has the monsoon impact,” the report added.
Looking down: Factors such as higher taxes and impact of the monsoon rains are expected to cause a muted performance in the September quarter for India’s telecom companies, say brokerages. Rajkumar/Mint
Besides the beginnings of a tariff war, other key events in the quarter include the breakdown in talks for a $23 billion (Rs1.06 trillion) deal between Bharti Airtel and South Africa’s MTN Group Ltd, which would have seen the creation of the third largest telecom firm in the world with at least 200 million subscribers and $20 billion in revenues.
On regulations, the government finalized the so-called third generation, or 3G, policy, but auctions for radio waves required for such services is likely to get postponed by a month to January 2010.
Auctions of 3G telecom licences will allow phone companies to offer high-speed Internet and video downloads on handsets. The thinking behind the postponement is that bids might be low if the auction is held around Christmas. But, according to DoT officials, the auction cannot be held later than January as the finance ministry wants the money accruing from the auction to come in within this fiscal that ends on 31 March. The officials declined to be named given the sensitive nature of the issue.
Bharti Airtel and Reliance Communications Ltd are expected to post a fall in the growth of net profits in the second quarter due to higher tax rates.
A report by IDFC-SSKI Securities Ltd on the earnings expectations of the telecom sector predicted that there would be an approximately 3.5% drop in mobile revenue per minute in the three months ended September, compared with the same quarter last year.
This which would lead to a 3.7-4.4% drop in average revenue per user (Arpu) in the quarter compared with the year-ago period.
The second quarter is also likely to be muted for the Indian telecom sector despite buoyant subscriber additions as subscriber duplication would put pressure on Arpu and MOU, Shobhit Khare, telecom analyst with Motilal Oswal Securities Ltd, said in a 25 September report.
Khare said he expected a significant fall in net profits in comparison with the first quarter of the current fiscal due to a difference in the gains in foreign exchange in the three months ended June.
There were significant foreign exchange gains in the first quarter of the fiscal as the rupee strengthened against the dollar, whereas such fluctuations were virtually absent in the second quarter, he said.
Comment E-mail Print Share
First Published: Mon, Oct 19 2009. 10 10 PM IST
More Topics: Telecom | Q2 | Earnings | Tata Teleservices | GSM |