Sluggish numbers – Telecom Services

The Indian telecom sector has witnessed fierce price competition in the past nine months, with a flood of new launches across service areas. Lower tariffs coupled with higher channel payout by new competition and increased incidence of multiple SIM ownership have led to all-time high reported subscriber net additions. A total of 53.42 million subscribers have been added during the quarter ended December 2009 with the total wireless subscriber base reaching 525.15 million. BhartiAirtel added 8.35 million subscribers, representing 15.6% of total wireless net adds, in the quarter. RCom and Idea Cellular added 7.68 and 6.15 million subscribers, representing 14.4% and 11.5% of total wireless net adds in the quarter.

However, multiple SIM ownership has made conventional subscriber market share and subscriber ARPU metrics less meaningful. Of incumbent service providers feel that current difficult phase of market overcapacity and hyper-competition is there to stay for sometime. The ongoing tariff war in the sector is expected to go beyond the prepaid segment to postpaid segment.

The heavy reduction in tariffs in the telecom sector has resulted in drop in average revenue per user (ARPU) as though the usage has increased but not enough. The wireless ARPU of Bharti Airtel for Q3 of fiscal ended March 2010 (FY 2010) dipped 9% to Rs 230 (Rs 252).

The wireless ARPU of RCom for the quarter dropped by 7.4% to Rs 149 (as against Rs 161 in Q2 FY20 10), while MoUs declined 3% to 330 minutes.
For Idea Cellular the standalone ARPU dipped 4.3% to Rs 200 (from Rs 209), while the ARPM slipped by 5 paisa (9%) to Rs.0.51 sequentially.

Aggregate standalone revenue of the 12 listed telecom service providers was sluggish, with a 1% drop in revenue to Rs 17928 crore for Q3 of FY 2010 over Q3 of FY 2009. Aggregate revenue was flat as against Rs 17872 crore in Q2 of FY 2010. OPM was down at 20.5% as against 30.3% in the corresponding previous quarter and 28.8% in Q2 of FY 2010. It is quite a cause of concern as OPM slashed by 840 bps sequentially, leading to OP at Rs 3672 crore 29% lower over Q2 of FY 2010 and 33% lower over Q3 of FY 2009. Net profit was down 22% sequentially.

Outlook
Urban circles are reaching near saturation and the MoUs are not expected to increase astronautically from the incremental subscriber addition coming from rural areas going forward. Thus, the pressure on ARPUs and consequentially on the financial performance will continue in the short to medium term. Delay in 3G auction has caused the condition of the to sector worsen for the time being, while delay in mobile number portability (MNP) implementation has only saved the incumbents from a fresh round of price war for the time being.

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