Saturday, April 27, 2013

Moving towards a turnaround mode

The telecom sector in India is passing through a rough patch as the industry grapples with cost and regulatory issues. Amidst the plethora of problems facing the industry, Bharti Airtel is looking to drive growth by tapping into the demand for data and premium services.

The Indian telecom juggernaut, which had chugged along at a fast pace in recent years, is now facing strong headwinds from several quarters. Between 1998 and 2010, when the industry scorched gangbuster growth rates – witnessing an unprecedented boom of more than 700% in subscriber base, from just 1 million subscribers to over 750 million – the idea of any imminent slowdown would have been laughed out of court. But intense competition in the sector over the past few years has dented the profitability of operators and affected their earnings. From just 3-4 operators competing in any particular service area till a few years ago, there are now many more competing for the pie in any given circle now. Not surprising that the industry could generate revenues of just Rs.1131.8 billion in FY12 compared to Rs.1141.3 billion a year ago, dragging it back some 0.83%. Although the results were in line with the trend of decelerating growth in the sector since 2010, the industry never expected the top line to slide into negative territory.

If the market has been morose, the industry has also been at the sharp end of regulatory uncertainty over the past few months. This has led to depressed investor sentiment for the sector. In February this year, the Supreme Court struck down licences of 122 telecom operators, dealing a body blow to the sector’s prospects for the future. Another shocker followed soon after when the Telecom Regulatory Authority of India set a stratospheric reserve price for the auction of 2G spectrum – at almost twice that 3G’s. Even global investor rating agency Fitch noted recently that regulatory risks such as such as an one-time charge for excess spectrum, spectrum re-farming and imposition of high spectrum renewal fees are high for the Indian telecom industry compared with other markets in Asia-Pacific.

But while the industry scenario is hardly inspiring, the number of mobile subscribers in the country has continued to grow at a healthy clip. According to the latest data from industry regulator TRAI, the number of mobile subscribers stood at 952.9 mil

lion as on June this year. Bharti Airtel, India’s largest telecom operator by both revenue and subscriber base, which is ranked 13th on this years B&E’s list of Most Profitable Companies, commands a market share of 27.34%, and has a total subscriber base of 185.30 million, as per the latest data given out by the Cellular Operators Association of India. For the month of May alone, Airtel added 2.01 million new users to its bulging subscriber base.

However things are not as rosy as they look. The company is bleeding, both in its domestic and international operations, and in most of its business areas. In May this year, the company reported its ninth straight quarterly profit decline, hit by higher amortization and interest costs on its 3G network investments, as well currency fluctuations and higher tax provisions. For the fourth quarter of the last fiscal consolidated net profit fell to Rs.10.06 billion from Rs.14 billion a year earlier.

The company reported foreign exchange losses of Rs. 1.82 billion in the quarter. However, the results also offered a glimmer of silver lining. Despite the burden of high costs, the company’s total revenue was up 15% to Rs.187.29 billion. The company also reported improvement in key performance indicators, including minutes of usage, subscriber additions, average revenue per minute and average revenue per user.


Source : IIPM Editorial, 2013.
An Initiative of IIPM, Malay Chaudhuri
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