The telecom industry’s losses, expectedly, expanded in the March quarter. Apart from continued erosion in tariffs, telecom companies were also hit by a cut in international termination rates.
Bharti Airtel Ltd’s India wireless operations slipped into the red on the Ebit (earnings before interest and tax) line, joining Idea Cellular Ltd, which has been running losses for four quarters now.
Airtel and Idea reported a loss before interest and tax of ₹ 480 and ₹ 1,080 crore, respectively, after adjusting for exceptional items.
The saving grace for the incumbents is that they have held their own in terms of voice and data traffic in the past two quarters.
At one point last year, it had seemed that capital expenditure constraints had begun to hurt Idea Cellular. But in the past two quarters, it has reported an increase in subscriber count and network usage, as well as a sharp drop in subscriber churn.
Of course, all this means that capital expenditure requirements remain at elevated levels.
With Jio promoting unlimited voice plans, bundled with large amounts of data, the name of the game is investing in building capacity. With high losses accompanied by high investments, it’s little wonder leverage is going from bad to worse.
What’s more, the erosion in Arpu (average revenue per user) is nowhere near done.
Reliance Jio Infocomm Ltd has just begun targeting the post-paid and international calling segments, and pricing pressure in those segments will result in lower price realizations and, hence, higher losses.
And with the company’s history of frequent disruptions, analysts fear what may be coming next.
Since the incumbents have demonstrated an ability to hold their own in terms of traffic and subscriber growth, it shouldn’t be surprising if Jio remains in disruption mode for some time to come.