Earnings reports

Mobile Growth Blooms in India

India's service providers added a total of 19.06 million new mobile subscribers in the second quarter, taking the country's total telecom base to 225.21 million.

That growth fueled strong double-digit revenue increases for five of India's private operators (financials haven't been released for state-run Bharat Sanchar Nigam Ltd. (BSNL) ), as shown below in Table 1.

Table 1: Revenue & Net Income Growth in Q2
Q2 2007 revenues (in billions of rupees) Year-on-year % increase Q2 2007 net income (in billions of rupees) Year-on-year % increase
Reliance 43.04 32 12.21 138
Bharti 59.1 53 15.1 100
IDEA Cellular 14.78 64 3.09 259
Spice 2.55 35 0.46 *
Hutchison Essar -- 50 -- --
Source: Company financials
* Spice reported a loss of INR115.52 million in the year-ago quarter
Information is incomplete for Hutchison Essar, which is now part of Vodafone

Profits soared at triple-digit rates, up 100 percent year on year at Bharti Airtel Ltd. (Mumbai: BHARTIARTL), 138 percent at Reliance Communications Ltd. (RCom) , and 259 percent at Idea Cellular Ltd. (See Bharti Profits Continue to Climb, Reliance Profit Soars, and IDEA Cellular Reports Q1.)

A recent report from Gartner Inc. projects Indian mobile revenues will climb at a compound annual growth rate of 18.4 percent to 2011, creating a $25.6 billion market. But it notes that as operators continue to expand into rural areas where the market remains untapped, they will see their annual average revenue per user fall -- from $82.10 last year to $59.50 by 2011.

That was borne out during the second quarter, with ARPU falling among the top operators, except for Reliance Communications, where it remained flat. (See Table 2.)

Table 2: EBITDA Margins & ARPU in Q2
Q2 2007 EBITDA margin Q2 2006 EBITDA margin Q2 2007 ARPU (in rupees) Q2 2006 ARPU (in rupees)
Reliance 42% 37% 375 375
Bharti 41.40% 38.90% 390 441
IDEA Cellular 34.70% 33.70% 320 362
Spice 28% 27% 333 400
Hutchison Essar -- 33% -- 433
Source: Company financials
Information is incomplete for Hutchison Essar, which is now part of Vodafone

Operators have primarily pointed to the massive increase in subscriber additions as more than offsetting the decline in revenues from individual users, but Gartner suggests that to remain successful operators will also need to take advantage of economies of scale to push up their profit margins.

Table 2 shows that EBITDA margins are on the up, with Reliance leading the pack. It managed to increase its margin by 5 percent year on year to 42 percent, while Bharti wasn't far behind at 41.4 percent.

One approach to cost saving that has been gaining momentum is infrastructure sharing, and several operators are separating out their mobile base station assets into separate business units. Those units will focus on handling tower sharing agreements with other operators so that they can expand their geographic network coverage without having to deploy more base stations.

It's also a quick way to raise some cash. Reliance recently sold a 5 percent stake in its tower unit to a group of international investors for $337.5 million, valuing the business at $6.7 billion. (See Reliance Sells Tower Stake.) Bharti, which has a larger network, quickly said it would be selling a stake in its new tower unit, too. And last week, IDEA Cellular's board approved the formation of a separate company for its network infrastructure.

— Nicole Willing, Reporter, Light Reading

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