Telcos' books to look grim in Q3

Online, January 17, 2010 (Newswire.com) - As reported by andhrabusiness.com

Most telecom companies in the country are bracing themselves for a balance sheet with lots of red marks for the quarter ended December 2009.

The financial impact of the per-second tariff announced by almost all telecom operators last October is expected to have an impact in the third quarter financial performance of the companies, despite a growth in the number of subscribers in the period.

Aircel Cellular, with a subscriber base of 31 million, has already announced that these tariffs are not sustainable. The company's Chief Operating Officer, Gurdeep Singh, said in Mumbai last Thursday that per second billing was unsustainable and would affect EBIDTA margins.

"Margins for current year are expected to dip by 10-12 per cent resulting in a fall in revenues of telecom companies. There could be some increase in usage levels due to the per second billing. But it would too less to compensate the loss arising out of per-second billing," said Romal Shetty, Head-Telecom, KPMG, to AndhraBusiness.com.

There are about 12-13 telecom operators in India now and the rate could be sustainable only for 5-6 operators who have their systems and technology in place, according to him.

The mobile tariff war in India intensified in October 2009, when Tata Teleservices launched its GSM services under the brand name Tata Docomo announcing a per second tariff, which meant that the phone usage time would be calculated in seconds as against minutes earlier.

As with most mobile tariff wars, this time too all major service providers like Airtel, Vodafone, Idea, BSNL and Reliance jumped in line and launched per second billing plans.

With the per-second billing plan, service providers lose the advantage of rounding off the minutes. Hence the Average Revenue Per Minute (ARPM) for telecom operators is expected to fall by 17-20 per cent, according to Anand Rathi Securities' telecom analysts.

Mobile tariffs in India are one of the lowest in the world and for the past 15 years, since the launch of mobile services in India, there has only been a downward movement in prices.

With mobile rates falling to such lows affecting margins, is a price rise in the near term expected? "With new operators like Uninor, Swan and Videocon entering the mobile service space, price is the only differentiators between one operator and another.

So no hike in prices is expected. But after 18-24 months we expect some consolidation to happen in the sector bringing down the total number of operators to 5 or 6. We can expect some price increase then," Mr Shetty said.