Airtel Q3 profit dips 39% on tariff war

Bharti Airtel‘s profitability continued to be hammered due to the aggressive pricing by Reliance Jio, and analysts said that it may be “some more quarters” before the telco starts getting out of the woods.

The company’s net profit in the quarter ended December 31, 2017, stood at Rs 306 crore, down 39% year-on-year (Rs 504 crore), as hyper competition and cut in interconnection charges eroded margins.This is the lowest profit for Airtel over the last several quarters, and new price cuts by Jio — announced recently — may make a further dent in its numbers.

Revenue for the company in the October-December ’17-18 quarter slipped by 13% to Rs 20,319 crore even as the company added 8.1 million customers in the period.

“The tariff war is still not over. The telecom sector is in a mess,” a telecom sector analyst said, refusing to be named. “You have nearly irrational competition in the market. There is no concept of returns on investment.” Average revenue per user (ARPU), a key metric to measure profitability of telecom companies, was down 29% in the October-December quarter at Rs 123 against Rs 172 in the same quarter last year.

Gopal Vittal, the CEO of Airtel’s India and South Asia Operations, conceded that times continue to be tough. “Regulatory fiat in the form of a cut in domestic interconnect rates has exacerbated the industry ARPU decline in Q3-18. The recent announcement of reduction in international termination rates will accentuate this decline and benefit foreign operators with no commensurate benefit to customers,” Vittal said.

Jio earlier this month heightened competition further when it reduced tariffs on all its plans by Rs 50, while enhancing data benefits on certain plans. This has put new pressure on companies such as Airtel, Idea Cellular and Vodafone to match the competition.

Analysts at Bank of America Merill Lynch have said Jio is “doing better than expected” and there is adequate demand for the company’s service. “Jio’s coverage is adequate, the 4G technology is not a hindrance and consumers have demonstrated strong appetite for the service… While these are early days still, the behaviour suggests that demand for Jio’s offering is robust and that Jio might in fact have some degree of pricing power.”

The problem for Airtel is that its usage of voice and data is growing at a time when realisations from the services are going down. While voice usage has grown by 37%, data has grown by a breakneck speed of 450%.

Analysts said woes for mobile companies are likely to last for some more time before stabilisation returns.

Companies have been running huge debt on balance sheets and are seeking relief from the government in the form of tax cuts and other measures. Bharti Airtel’s debt is over Rs 90,000 crore at present.

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