Proposed 20p ceiling may stretch margins of mobile firms further

Proposed 20p ceiling may stretch margins of mobile firms further
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First Published: Thu, Mar 12 2009. 11 44 PM IST

Trouble ahead: Customers at a mobile phone shop. Analysts have predicted a fall in the key performance indicators of telecom firms. Discounts being offered by phone firms are expected to lead to a sha
Trouble ahead: Customers at a mobile phone shop. Analysts have predicted a fall in the key performance indicators of telecom firms. Discounts being offered by phone firms are expected to lead to a sha
Updated: Thu, Mar 12 2009. 11 44 PM IST
New Delhi: Arecommendation by the Telecom Regulatory Authority of India (Trai) to restructure charges on calls between phone networks, if accepted by the government, will add pressure in the coming quarters on customer billings and operating profit margins at mobile phone service firms, already bruised in a tariff war that promises to escalate.
Trouble ahead: Customers at a mobile phone shop. Analysts have predicted a fall in the key performance indicators of telecom firms. Discounts being offered by phone firms are expected to lead to a sharp fall in average revenues per minute and result in lower customer billings measured by average revenue per user. Madhu Kapparath / Mint
Trai proposed on Monday to reduce ceilings on so-called termination charges on a call by one-third to 30 paise. This suggestion needs to be made law by the government’s department of telecommunications, which in the past has accepted most of the regulator’s recommendations, and is subject to a related case before a telecom disputes tribunal.
Still, analysts expect the new regime to kick in the April-June quarter as against the second half of fiscal 2010. Trai has asked for the implementation to kick in on 1 April.
Termination charge refers to what one operator pays another for completing a phone call between networks; the operator from whose network a phone call emanates gets to keep an originating charge.
Firms such as Bharti Airtel Ltd and Idea Cellular Ltd, both of which use GSM (global system for mobile communications) networks, will bear the impact of change of termination charges more than rivals such as Reliance Communications Ltd (RCom) that run on the rival CDMA (code division multiple access) protocol.
“If the industry tariffs are cut to the extent of passing on 50% of the benefit of lower termination (that is, by 5 paise) from day one when the new rates go live (that is 1 April ), then the impact on (estimated fiscal year 2010) Ebitda and PBT (using Bharti as an example) could be 8% and 13%, respectively,” Rahul Singh and two co-analysts at Citigroup Global Markets India Pvt. Ltd wrote in a report published on Wednesday.
Ebitda is a measure of operating profits and stands for earnings before interest, tax, depreciation and amortization, while PBT is profit before taxes.
Already, analysts predict a fall in the key performance indicators of the telecom firms. Discounts being offered by phone firms—triggered by RCom’s entry into GSM services with prepaid tariff packages starting at Rs49—are expected to lead to a sharp fall in average revenues per minute, also called realization, and result in lower customer billings measured by average revenue per user, or Arpu, in this quarter.
Singh predicted “an accelerated decline” on account of lower termination charges over Citigroup’s 10% per annum assumption in estimated Arpu for fiscal 2010 and fiscal 2011.
Such a contraction in Arpu comes on top of billings that have been sliding. Arpu at RCom fell 7.4% to Rs251 in the quarter to 31 December from the preceding three months. Market leader Bharti Airtel posted a fall of 2% to Rs324 in the December quarter from the previous one.
To be sure, Arpus have been on a downslide for years but the current quarters (including the one gone by) are witness to the slide despite marginally better per minute realization at companies such as Bharti Airtel, Idea Cellular and Vodafone Essar Ltd.
In a recent interview, Manoj Kohli, chief executive and joint managing director of Bharti Airtel, said his firm has in recent months “pulled back including free minutes, subsidized minutes, some irrational packages here and there”.
Bharti Airtel announced a Lifetime 99 plan on 12 January where a subscriber gets connection with lifetime validity and Rs10 calling value. Idea Cellular also has a lifetime validity plan for Rs99 with all local calls at 60 paise a minute and domestic long distance calls at Re1.
RCom allows night calls between one phone to another on its GSM and CDMA networks at zero tariffs on a Rs15 recharge.
State-run Bharat Sanchar Nigam Ltd last month announced a new Golden Fifty plan where customers can call mobile phones on any network anywhere in India for 50 paise a minute.
A rise in minutes of usage will probably buffer the situation.
“We have seen the (minutes of usage) rising steadily over the past eight quarters and there is no reason for them to fall this quarter,” said Nishna Biyani, an analyst tracking telecom stocks at with Prabhudas Lilladher Pvt. Ltd.
The total number of mobile customers in India at the end of January stood at 362 million reflecting a rise of 15.41 million, or 4.5%. In February, GSM operators grew their customer base by 3.43% to 277 million, according an industry body representing them.
The data for CDMA firms such as RCom and Tata Teleservices Ltd have not been released yet.
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First Published: Thu, Mar 12 2009. 11 44 PM IST
More Topics: GSM operators | Mobile firms | Ceiling | GSM | Trai |