Ronnie05's Blog

Indian Telecom Story (Part XV): Net Operating margins at risk!

Posted in Industry updates by Manas Ganguly on July 25, 2009

An extension of an earlier post, which has discussed the problem of reducing operating margins for Telecom Operators in India in the of falling ARPUs and high operating expenditures; this post profiles the predicament for Airtel. If Airtel being such an established player in the market is facing a crunch in its operating margins, the performances of other marginal players and new comers could be under serious doubt!

 Airtel II

Airtel registered a 17% YOY revenue increase. However, its quarterly sequential revenue growth seems to be tapping out at 1.19%. Thus the revenue growth is slowing down. Net profit is up 26% but that is mainly because of lower financial costs and spends. Operating profit margins are reduced from 30% in last year to 27% this year.

 The concern for Airtel is that the growth in number of subscribers is hitting a plateau. With more competitors, the subscriber figures growth may actually dip. The ARPU has decreased 20.6% YOY. With both these numbers going south, it would be difficult for Airtel to keep up its performance in the next few quarters.

 Applying the same analogy to other operators and the new comers, one would expect some congruence in the statuses. The overall market situation is same in all cases and thus the performances would not be very different for other operators. It is in this context one needs to evaluate the price discounting options that the new operators are resorting to. It may be a short cut to establishing a quick base but sustainability and profitability are very big questions. Couple that with the high initial spends of getting a toe hold in the market, the break even seems to be distant. Ask Virgin Mobile for validation.

6 Responses

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  1. […] PDRTJS_settings_71636_post_1088 = { "id" : "71636", "unique_id" : "wp-post-1088", "title" : "Indian+Telecom+Story+%28Part+XVIII%29%3A+Eroding+profits+for+higher+acquisitions", "item_id" : "_post_1088", "permalink" : "" } I have discussed many and most of the times, that Pricing cannot and shouldnot be a differentiator of Telecom services in India. Instead branded services should be sought to differentiate telecom airtime. For long Indian telecom operators have been happy to reduce costs to entice more customers. While reducing the operating expenses may be a manna for consumers, it does not spell right for the telecom operators. Erosion of margins may get eclipsed by the huge subscriber add ons, but in 2-3 year time, when growth flattens, the slim margins will squeeze the profits. An earlier blog post posses the challenge in terms of Telco net operating profits at risk. […]

  2. […] toll on the stock prices of telecom companies. Analysts expect the new tariff plans are sure to dent the revenues of the telecom majors by 10-15% annually although the companies themselves maintain it would take 45-60 days to come back to the current […]

  3. […] Indian Telecom Story (Part XV): Net Operating margins at risk! […]

  4. TalkFree DN said, on November 6, 2009 at 12:07 am

    Working in the International VoIP sector of Telecom, where our # 1 destination/termination is India/India Mobile, we have seen our minutes fluctuate and profits fall more than ever. This is mainly due to unchecked gray routes, leaky PBXs and every Tom, Dick and Harry … in this casr Raj, Vijay and Aneesh … wanting to jump into the softswitch business and selling at RIDICULOUSLY low rates. Then what typically happens is, they cannot sustain the growth, or they hit their platform invisible capacity sealing, QoS falls, customers leave, they fold. Then another pops up. At this point, India Telcos should just start offering Unlimited INdia Packages … a-la Vonage in the USA. Not that Vonage is the best model or most profitable. I am fearful and intrigued at the same time by this train and its imminent derailment. On the Bright Side, the future of telecom and teclo development is undoubtedly in Africa. But that’s a whole different discussion all together. To be Continued …

    Good article

  5. […] bloodying it out for market shares in a hyper-competitive market with .5 paise per second plans was always an unsustainable strategy. I have blogged about the fruitlessness of cost based competition except for ruining the Profit and […]

  6. […] bloodying it out for market shares in a hyper-competitive market with .5 paise per second plans was always an unsustainable strategy. I have blogged about the fruitlessness of cost based competition except for ruining the Profit and […]

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