India’s market leader Bharti Airtel has reported a 10th straight decline in quarterly profits. Overcrowding has forced prices to rock bottom, and an uncertain regulatory environment is preventing consolidation.
Even Bharti, a stalwart of India’s telecoms growth story, is suffering from cut-throat competition and the hugely volatile regulatory environment. Bharti, controlled by billionaire Sunil Mittal and nearly a third owned by Singapore’s SingTel, saw domestic volume growth of just 3.9 percent while pricing fell 2.6 percent over the last quarter. That led to a 37 percent drop in consolidated net profit. Though Bharti added more subscribers than its rivals over the past three months, average monthly revenue per user fell 2 percent to $3.36. It was over $9 in 2006.
While the top Indian firms continue to turn a profit, the trend since 2008 has been steady decline. Consumers are highly price sensitive. Bharti has had to wear narrower margins after customers pushed back on recent attempts to hike prices. And it is not clear that even cutting the market from 15 players to say even six or seven will have a dramatic effect on firms’ ability to raise tariffs. Regardless of whether expected consolidation takes place at the smaller end of the sector, competition will remain stiff and returns dampened.
The way forward is to boost data usage. At present, revenue from voice makes up almost 95 percent of the sector’s revenue. Advanced markets tend to see more than one third of their revenue from data. As per-capita incomes rise in India, increasing higher value-added services is the most likely way of reversing the decline.
But in order for firms to invest in new platforms and market new products the regulatory environment needs to become more predictable. The government is seeking to further delay plans to re-auction cancelled second-generation mobile phone licences, and the price of spectrum continues to remain unpredictable with the government toing and froing between various reserve prices for its next auction. The sector needs a period of stability in order to develop new business models that will raise revenue and reverse the downward spiral in profit.
More data usage will be a boon. Healthier telcos will make a healthier economy too.