India’s biggest mobile phone operator, Bharti Airtel Ltd, has posted a 27% increase in fiscal second quarter profit on the back of record subscriber additions, but earnings growth slowed for a fifth consecutive quarter as it cut call rates and invested in expanding its network to boost market share. Closest rival Reliance Communications Ltd saw its profit rise 18%.

Bharti’s net profit rose to Rs2,046 crore in the quarter ended 30 September, from Rs1,613 crore a year earlier, Bharti said on Friday. The pace of growth slipped from 30% in the preceding quarter. Sales rose 42% to Rs9,002 crore, from Rs6,340 crore.

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Reliance Communications’ net profit rose to Rs1,530 crore in the quarter, from Rs1,300 crore a year ago. Sales increased 22% to Rs5,535 crore from Rs4,553 crore.

Both companies posted record profits, generating funds to expand their networks as the global credit crunch raises borrowing costs for rivals. They reduced call charges to as low as Re1 a minute to win customers before operators including Telenor ASA and Sistema JSFC start or expand in the country.

Bharti has 20 million more users than Reliance Communications and Vodafone Essar.

New Delhi-based Bharti’s profit was also hurt by a foreign exchange loss of Rs586 crore in the quarter while being helped by a deferred tax write-back of Rs301 crore. The cost of servicing overseas debt for Indian companies rose during a quarter in which the rupee fell 8.4% against the dollar.

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“It’s basically the net payout on borrowings that has increased due to the rupee’s depreciation," said Akhil Gupta, managing director at Bharti Enterprises, the holding company for Bharti Airtel. Call charge reductions and network expansion also contributed to slower profit growth, he said.

Bharti’s average revenue per user declined to Rs335 in the quarter from Rs366 a year ago, a reflection of the pressure on the phone firm to add more users before new competitors enter the market, said Harit Shah, an analyst at Mumbai-based Angel Broking Ltd.

The trend may continue as Bharti moves into rural areas with lower tariffs to attract new users. “Compared to previous years, they will have a tougher time for profitability," said Gunnar Pahlson, a portfolio manager who supervises investments of $500 million at Sweden’s Hagstromer and Qviberg AB. “There’s more cost pressures going forward and more competition."

While China, the world’s biggest mobile phone market, is dominated by three operators, second-ranked India has 13 companies and plans to allow at least five more.

“The Indian government is making a serious mistake," Pahlson said. “The only thing you will achieve is a market with too many players and too much competition and everybody losing money."

Bharti added 8.09 million customers in the quarter. Reliance Communications signed up 5.25 million customers.

Bharti’s profit missed the Rs2,150 crore median estimate of six analysts surveyed by Bloomberg. Reliance beat the Rs1,420 crore estimate for its profit. It is rolling out a second nationwide network, extending chairman Anil Ambani’s reach in the world’s fastest growing mobile phone market.

Bharti shares rose Rs37.30, or 6.05%, to Rs653.75 on the Bombay Stock Exchange. Reliance Communications shares gained Rs26.05, or 13.4%, to Rs219.95.

Saikat Chatterjee works with Bloomberg. Harichandan Arakali of Bloomberg and Reuters contributed to this story.