Airtel bows to competition, joins tariff war4 min read . Updated: 31 Oct 2009, 11:11 AM IST
Airtel bows to competition, joins tariff war
Airtel bows to competition, joins tariff war
New Delhi: In a sign that the telecom price wars will intensify, India’s largest telecom firm has taken the battle into enemy territory.
Bharti Airtel Ltd on Thursday became the latest operator to bill customers for every second of usage. Under its newly launched Freedom Plan, the firm is offering its prepaid customers a tariff of 1 paise per second on local and intercity calls made to another user on its network and a tariff of 1.20 paise per second for calls made outside its Airtel network.
The move comes even as Bharti faces stiff competition from rivals such as Tata Teleservices Ltd that have signed on users and grown their market share with similar per-second billing offers.
The announcement, which came on a day when the company announced second quarter results for the current fiscal that were below analyst expectations, was surprising, as earlier during the day the firm had dismissed any plans of matching its competitors’ offers of per-second tariffs.
“We will be competitive, (but) there is no reason why we should always match the lowest common denominator," said Akhil Gupta, deputy CEO, Bharti Enterprises, during a media briefing on Friday to announce the results. He also added that the ongoing tariff war was not sustainable and would lead to operators with stronger balance sheets emerge stronger while smaller operators would face “irreparable damage."
Bharti director Rajan Bharti Mittal said on Wednesday that consolidation is inevitable because there are “too many" operators. The price war and one-off factors such as weak rural demand led to the worst profit growth for Bharti in nine consecutive quarters.
Net profit rose 13% to Rs2,320 crore for the September quarter, from Rs2,050 crore for the same period a year ago, but profits fell 8% on a sequential basis. Total revenue grew 9% to Rs9,850 crore ($2.1 billion) over the same period last year while revenues fell almost 1% from the first quarter of the current fiscal year.
“We believe a timely move by Bharti will prevent build of scale by new players and accelerate the consolidation process," observes Rajiv Sharma, analyst with HSBC Securities and Capital Markets (India) Pvt. Ltd.
In a poll of five analysts by Mint, Airtel’s revenues were estimated to be Rs10,250.4 crore, up 13.6% from the figure reported last year and 3.06% sequentially. Net profit was estimated at Rs2,411.72 crore up 12.7% over the year-ago period and down 4.34% over the first quarter of this fiscal.
The Bharti scrip fell more than 6% on the Bombay Stock Exchange to Rs292.15 on Friday, its lowest since 20 March. The Bombay Stock Exchange was down 0.97%. Investors have sold telecom stocks in recent months on profit concerns.
“The second quarter is traditionally the weakest quarter," said Sanjay Kapoor, deputy CEO, Bharti Airtel. A weak monsoon has also crimped rural spending, he added. Around 62% of Bharti’s subscribers come from rural areas of the country.
Kohli said the company will continue to enhance and focus on revenue market share leadership. “We will continue making our business model leaner and meaner with more economies of scale, outsourcing and increasing manpower efficiency," he added. The firm is banking on non-telecom businesses and expanding its product portfolio to include businesses that are related to telecom and expand the Airtel brand, Kohli said. Currently, 35% of the firm’s earnings before interest, taxes, depreciation and amortization, a measure of operating profits, is from non-mobile businesses.
The Friday evening announcement of the pay-per-second plan comes in the wake of several other operators revving up their marketing strategy to capture a bigger slice of the subscriber pie. Recently, the sixth largest telecom company in the country, Tata Teleservices, launched tariff plan of 1 paisa a second for its GSM network-based brand Tata DoCoMo and another Re1 per call plan for its CDMA-based Tata Indicom brand. The per-second plan was followed by a number of other operators, leading to a nasty tariff war. Reliance CommunicationsLtd also cut all call charges to 50 paise a minute. The Airtel Advantage plan prices all calls within its network at 50 paise per minute.
“With this competitive intensity and irrational pricing in some pockets, it is possible in the short term we could see some impact on the growth," admitted Gupta.
At least four new firms, including ventures of Unitech Wireless Ltd (with Telenor called Uninor) and Etisalat DB Telecom India Pvt. Ltd (with DB group), are set to start operations this year. Mobile number portability (MNP) is expected to be allowed by December. MNP allows users to change their operators without changing their numbers.
“This has led to a scramble for subscribers by all existing operators by drastically dropping call charges," a Mumbai-based analyst with an international brokerage firm said on the condition of anonymity.
Bharti’s three-month-long $24 billion negotiations with South Africa-based MTN Group, to form the third largest telco in the world with more than 200 million subscribers, collapsed last month for a second time in the last two years. But the firm is still hopeful of other opportunities.
“We will look for and into any and every opportunity that comes our way," says Gupta. “There is nothing on the horizon right now," he added, denying that Airtel was in talks with Kuwait-based telecom firm Zain.
Bharti added 8.1 million mobile users in the quarter to reach a total of 110.5 million at end-September, or 23% of the total subscribers in India, 43% more than in the year-ago quarter. Interestingly, key metrics such as average revenue per user fell 24% to Rs252 from a year ago, as more than half of Bharti’s new users came from rural areas, where customers tend to spend less than in urban areas. Average minutes of usage fell 15% to 450 minutes. The Ebitda margin, a key gauge of profitability, was 42.1%, compared with 41% in the year-ago quarter.
Bloomberg contributed to this story.