Tariff Squeeze Hits Bharti's Profits

Hit by India's ongoing mobile tariff war and foreign exchange losses, Bharti Airtel Ltd. (Mumbai: BHARTIARTL) reported a 32 percent drop in net profit to US$361 million for the first quarter (April-June) of the current financial year. (See Bhart Airtel Reports Q1.)

The company, India's largest mobile operator, lost $46 million due to currency fluctuations, compared with a $60 million gain a year ago. (See India Adds 18M Subs in June.)

But the carrier's revenues, which included sales from its recently acquired African operations for the first time, grew 17.4 percent to $2.63 billion.

Of those revenues, $2.42 billion is from India and South Asia. The remainder is from the 23 days of African operations that fell into the quarter. Bharti completed the acquisition of Zain's African division during the quarter to emerge as the world's fifth-biggest mobile operator. (See Bharti Takes Its Smarts to Africa, Bharti Secures $10.7B African Acquisition, and Airtel Completes ZAIN Deal.)

Besides paying for the Zain acquisition, the company also shelled out for its 3G and BWA (broadband wireless access) spectrum during the quarter. Bharti won 3G licenses in 13 circles and BWA licenses in four circles in India at a cost of $3.35 billion. (See India's 3G Players Ready for Swift Launch and India 3G: Bidding for Glory.)

An encouraging feature of the company's results is the not-so-steep fall in ARPU (average revenue per user), which fell by just 2 percent from $4.70 during the three months to the end of March to $4.60 during the fiscal first quarter. Indian service providers have been recording a consistent fall in ARPU over the last few quarters. (See Bharti Airtel Reports Q4 and Bharti Needs More Data Drive)

There was an increase in the minutes of usage per subscriber, which went up from 468 in March 2010 to 480 by the end of June 2010.

The impact of the recent controversy surrounding delay in security clearance was visible in Bharti's balance sheet, with capex spend of just $394 million in the quarter, much lower than usual. Citing security reasons, the Indian government has not been clearing the orders for telecom equipment, especially the ones owned by the Chinese vendors. (See Huawei Confident of Indian Import Resolution and No Respite for Chinese Vendors.)

Bharti's customer base increased by 71.3 percent compared with a year earlier. In total it had 183,372 customers (mobile, fixed, and pay TV) at the end of June. The customer base in June 2009 was 105,196.

— Gagandeep Kaur, India Editor, Light Reading

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