Fierce Competition Batters Airtel Profits Again
India's Bharti Airtel has suffered a 78% plunge in net profit for the quarter ending March 2018 due to intense competition in India's mobile market and adverse regulatory measures.
At just 830 million Indian rupees ($12.4 million), the operator's net profit was at its lowest level in 15 years. In the same period last year Bharti Airtel Ltd. (Mumbai: BHARTIARTL) made a net profit of INR3.73 billion ($55.9 million).
Airtel's woes date back to September 2016 when rival operator Reliance Jio first launched its operations. Led by Mukesh Ambani, India's richest person, RJio's relentless tariff war put the entire industry under stress. A number of smaller telcos, including Telenor, Videocon, Sistema Shyam and Tata Teleservices, were forced to merge or sell their assets to larger players.
Indian regulatory authorities have added to their pain. In December, they made dramatic reductions to interconnect usage charges in a move that seemed to favor RJio while hurting more established operators. Then, in February, authorities lowered international call termination charges from INR0.53 to just INR0.30 per minute.
In the recent quarter, Airtel's revenues dropped to INR196.3 billion ($2.9 billion) from INR219.3 billion ($3.2 billion) a year earlier, even though its number of data customers rose 50%. Airtel has now recorded a year-on-year fall in profits in each of the last six quarters.
"The telecom industry continues to witness below cost, artificially suppressed pricing," said Gopal Vittal, the managing director and CEO of Airtel's Indian and South Asian business, in a company statement. "Industry revenues were further adversely impacted this quarter due to the reduction in international termination rates."
Explaining the sales decline was a drop in average revenue per user, which fell to INR116 ($1.7) from INR158 ($2.3) a year earlier, even as minutes of usage went up. Data consumption by customers also rose. Yet Airtel has been forced to cut its prices to compete against RJio.
The story is very different in Africa, where Airtel maintains several subsidiaries. Sales were up 10% year-on-year, as data traffic and voice minutes grew 88% and 37% respectively.
Unfortunately, Airtel's woes in India are far from over, with pricing pressure likely to persist. RJio has promised to undercut any rival tariff by 20%, a policy that may continue to hurt its older competitors in coming quarters.
If all this weren't enough, Airtel's acquisition of Telenor's Indian operations appears to have run into a hurdle. Telenor India is exploring the option of filing for bankruptcy protection because of mounting losses, it emerged this week. While it awaits government approvals, its financial situation is worsening.
Announced in February 2017, the Airtel acquisition has not been completed, making it hard for Telenor India to survive. It is said to be losing about INR40 million ($590,000) every day.
— Gagandeep Kaur, contributing editor, special to Light Reading