×
Home Companies Industry Politics Money Opinion LoungeMultimedia Science Education Sports TechnologyConsumerSpecialsMint on Sunday
×

Bruised mobile firms rally on tariff hike prospects

Bruised mobile firms rally on tariff hike prospects
Comment E-mail Print Share
First Published: Mon, Jul 25 2011. 03 26 PM IST
Updated: Mon, Jul 25 2011. 03 26 PM IST
New Delhi/Mumbai: India’s top cellular carrier Bharti Airtel’s move to increase call prices in some regions could mark a turning point for the world’s fastest growing market battered by a vicious price war over the last two years.
Expectations of improved profitability sparked a sector-wide rally and shares in leading companies jumped between 5 and 16% on Monday, making them the day’s top performers.
Bharti’s rivals such as Vodafone Essar and Idea Cellular are also expected to increase some call prices, analysts say, although smaller players might steer clear of price rises to hold onto market share in the cut-rate sector.
With more than 850 million subscribers, India’s mobile phone sector has been the world’s fastest-growing, but operators have traditionally sacrificed profits to chase growth, resulting in wafer-thin margins for companies operating in the 15-player market.
“Tariff war is finally over and it’s positive news for all the players in the sector because these low levels of tariffs are not sustainable at all,” said Taina Erajuuri, a Helsinki-based portfolio manager with FIM India, which owns Bharti stock.
Call charges have slumped to as low as 10 paisa (less than 1/4th of a US cent) for a minute of local calls after smaller companies triggered a price war in late 2009.
Call rates have steadied since, but Bharti’s move to raise prices last week is the first by an incumbent in at least two years and follows smaller rival Tata Teleservices’ increase in some call prices last month.
“While there have been other sporadic attempts from weaker players, we see the tariff increase by the market leader Bharti as a fundamental change in the sector and it addresses our concerns on material pricing lift for the industry,” Religare analysts wrote in a note.
The brokerage upgraded its rating on Bharti and Idea to “buy” from “hold” and raised its outlook for the Indian telecoms sector to “overweight” from “neutral”.
Bharti shares rose as much as 6.7% on the Bombay Stock Exchange to their highest level since October 2009. The stock is up nearly 20% this year in a falling market, making it the top performer in the index.
With about 170 million mobile customers in India, Bharti accounts for nearly a fifth of the market.
“While the near-term impact on financials would be limited, we believe the hikes mark an earlier-than-expected revival in wireless tariffs and are a long-term positive for earnings,” Yogesh Kirve, analyst at brokerage Anand Rathi wrote in a note.
Shares in No.2 mobile carrier Reliance Communications jumped more than 16%, while fourth-ranked Idea surged as much as 10.5% on hopes for tariff increases.
Regulatory uncertainty over licences has also engulfed the Indian mobile sector as a probe into a massive scandal in the grant of telecoms licences and radio airwaves in 2007-08 is on, but it mostly involves the smaller firms.
Passing on costs to customers
Bharti, which has reported a decline in quarterly net profit for five consecutive quarters to March, said in a statement on Friday it had “little choice but to make some price corrections”, citing factors including declining margins and high costs of radio airwaves it bought in an auction last year.
The company did not give details of the price increase, but sources with knowledge of the matter said Bharti had increased prepaid call prices by about a fifth in six of India’s 22 telecoms zones.
Companies including Bharti spent a total $24 billion, far more than expected, in a state auction last year to buy radio airwaves for third-generation (3G) and broadband services, with most of it funded by debt.
“The operators will have to pass on some costs to customers because their balance sheets are quite stretched now due to the significant investments they have to make for 3G rollout,” said Erajuuri of FIM India.
In the past few months, companies in India have rolled out 3G networks and are betting on the growth of high-margin data services, but voice calls are expected to remain their mainstay over the next few years.
Currently, voice calls are estimated to account for about 85 percent of the sector’s revenue.
Bharti last year acquired mobile operations in 15 African countries from Kuwait’s Zain in a $9 billion deal that made it the world’s fifth-biggest mobile carrier by subscribers but has so far weighed on its earnings.
Comment E-mail Print Share
First Published: Mon, Jul 25 2011. 03 26 PM IST
More Topics: Telecom | Bharti | Shares | Tarriff Wars | Idea |