The December quarter results of telecom companies show that operating metrics of incumbent companies such as Bharti Airtel Ltd, Vodafone Essar Ltd and Idea Cellular Ltd continue to improve. While these companies were affected substantially with the onslaught of new competition soon after the launches by new operators, the impact has visibly come down. This is evident from the relatively low drop in average tariffs realized by incumbent operators. In Bharti’s case, average revenue per minute of traffic fell by just 0.6% last quarter sequentially, on the back of a 0.9% drop in the September quarter. In the preceding two quarters, revenue per minute had fallen by 4.6% and 9.1%, respectively. In Idea’s case, average revenue per minute fell 2% last quarter, much better than the drop of 3.4%, 6% and 9.3% in the preceding three quarters. Vodafone Essar doesn’t share details of revenue per minute, but the trend in its average revenue per user (Arpu) indicates a similar trend. Its Arpu fell by a mere 0.9% last quarter, compared with an average decline of 7% in the preceding six quarters. But the results also show that while the pressure on tariffs has abated, the cost of acquiring customers is inching up. Margins, therefore, continue to be under pressure. Also, the trend in volumes hasn’t been uniform. The total minutes carried on Idea’s mobile platform rose by over 10% sequentially last quarter; but for Vodafone it was lower at 5.5%, and even lower for Bharti at 4.4%. In fact, despite the overall reduction in competitive intensity, the performance of Bharti’s India mobile business came as a disappointment, primarily on account of subdued volume growth. The reported growth should be seen in the context that the December quarter is seasonally strong, while the September quarter represents a low base because it is a seasonally weak quarter.
What’s more, on the margins front, things should continue to be under pressure owing to the implementation of mobile number portability and the launch of 3G. The sector also faces regulatory risks such as the pending policy on the pricing of 2G spectrum. So while competitive intensity has reduced substantially, things are far from rosy for incumbent operators.
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