The latest earnings reports from India's operators make uncomfortable reading for investors already worried about the impact of Reliance Jio, a new entrant to the mobile market that launched commercial 4G services last September.
Bharti Airtel, India's biggest operator, saw profits fall as much as 72% over the first three months of the year, while Idea Cellular, the number-three player, recorded a net loss of about 3.28 billion Indian rupees ($51.1 million). Revenues at Vodafone India, the country's second-largest telco, were down 7%.
By offering free voice services for life, and free data services over an initial three-month period (later extended by another three months), Reliance Jio triggered a price war that has affected all of India's players. That, in turn, has fueled consolidation in the Indian mobile market, spurring a mega merger between Vodafone India and Idea. Pending clearance from Indian authorities, that tie-up will overtake Bharti Airtel Ltd. (Mumbai: BHARTIARTL) to become a new market leader.
Airtel has taken a big hit, its first-quarter net profit falling to just $56 million, from $195 million in the year-earlier period. Like the other existing operators, Airtel was forced to reduce the prices of data and voice services to prevent customer churn. On a more positive note, following these pricing adjustments, its base of data customers grew by 4.5%, with data usage up 37%.
Earnings reports also show drops in average revenue per user (ARPU) across all players. Airtel's monthly ARPU has fallen from INR194 ($2.9) a year ago to INR158 ($2.4) in the most recent quarter. Idea's is down from INR179 ($2.7) to INR142 ($2.1) over the same period.
"The sustained predatory pricing by the new operator has led to a decline in revenue growth for the second quarter in a row," said Gopal Vittal, Airtel's CEO, in a statement. "The telecom industry as a whole also witnessed a revenue decline for the first time ever on a full year basis."
Even so, while all of India's telcos have recorded a fall in revenues, Airtel reckons the current levels of churn give it an opportunity to grow its market share.
"I think that in the next 12 to 15 months, it is very important that, at a time when the industry is consolidating, at a time when the industry is in churn and there is a lot of uncertainty, this we believe is a once-in-a-lifetime opportunity to accelerate our market share," said Vittal during an earnings call about results. "I think we want to grab it, we want to make sure that we get that right."
Significantly, both Airtel and Vodafone managed to sign up a decent number of new customers in the first quarter. Vodafone picked up another 4.4 million subscribers, while Airtel gained as many as 7.7 million. Idea, by contrast, lost 6.4 million customers in the same quarter.
One hope is that pricing pressure might ease in the next few quarters simply because RJio has begun charging customers for its services. "With the new entrant starting to charge for its services, albeit very slowly, the sector is expected to return to growth in the next financial year," commented Idea Cellular Ltd. in a recent statement.
That said, RJio's rates are extremely low.
— Gagandeep Kaur, contributing editor, special to Light Reading