Top mobile firms to see profits drop, focus on 3G

Top mobile firms to see profits drop, focus on 3G

New Delhi: Top Indian mobile operators are expected to post big drops in September quarter profits after being squeezed by a price war, but the outlook has improved as prices stabilise and carriers gear up to launch higher-margin advanced services.

After spending a combined $24 billion this year to grab licences in auctions of 3G and wireless broadband radio airwaves, telecoms firms are gearing up for the commercial rollout of 3G that would facilitate faster Internet browsing and premium services such as video calling.

“3G is going to be a huge business going forward, I have no doubt about it," said Gajendra Nagpal, chief executive at Unicon Financial Intermediaries in New Delhi.

“It’s difficult to say when it will pick up, but till the time it picks up, there will be plenty of people who would want to use these services," said Nagpal, who thinks telecoms stocks are good medium to long-term bets.

India is the world’s fastest-growing market by wireless user additions, with monthly sign-ups averaging about 18 million. However, nearly 90% of the carriers’ revenue is from voice services, which offer lower margins than data services.

A vicious price war that broke out last year amid stiff competition in the 15-player market sent call prices tumbling, hitting companies’ earnings. But there have been no significant price cuts in the last six months even though smaller players such as Telenor’s India unit have outpaced bigger rivals in subscriber sign-ups by offering discounted call tariffs.

“There is still excess capacity in the sector but the good thing is that call prices are not falling further," Nagpal said.

Bharti Focuses on Africa

Bharti Airtel, India’s largest mobile operator with its 143 million users in the country, is expected to post a 19% drop in profit for the fiscal second quarter, the first full quarter that includes its newly-acquired African operations. The results are not strictly comparable as the African operations were not part of last year’s reported figures.

Bharti in June acquired the African mobile assets of Kuwaiti telecom Zain in 15 countries for $9 billion, and has said that turning around the loss-making African operations would be its top priority.

India’s No. 2 mobile operator Reliance Communications is expected to report a 45% drop in September quarter profit, but a nearly two-thirds jump from its June quarter earnings when it reported its worst-ever profit fall.

Reliance Communication is still looking for a strategic buyer for an up to 26% stake to cut its bruising debt load. Its agreement to hive off its towers business into a venture with India’s GTL Infra, that would have cut more than half of its debt, fell apart last month.

Following are September quarter forecasts based on a Reuters poll of 12 brokerages for Bharti and Idea and 11 for Reliance Comm.