Bharti to slip into the red, Idea’s losses to double in Q1

Migration by low-value customers set to hit telecom firms

Despite gaining subscribers due to the exit of small operators and consolidation in the sector, listed telecom operators Bharti Airtel and Idea Cellular are expected to report losses to the tune of over ~20 billion in the AprilJune quarter. While Bharti Airtel will gain on the revenue front due to its merger with Telenor India, it is expected to report a loss of over ~5 billion in the June quarter. This will be the first operational loss for the company in many quarters; it had made a consolidated profit of ~3.67 billion in the year-ago quarter.

Idea Cellular's losses are pegged at ~16 billion, double of what the company reported a year ago. Competitive tariffs and the sale of towers to ATC will put pressure on revenues. The 30 per cent drop in average revenue per user (ARPU) for Idea, which has a higher share of rural subscribers, will translate to a 56 per cent year- on-year fall in operating profit, according to analyst estimates. For the first time since the tariff war kicked off, Idea could well post its first sub-~100 ARPU, with the June- quarter number pegged at ~99.

For Bharti, the ARPU is estimated to fall 31 per cent year-on-year to ~107, due to pricing pressure and the low ARPU customer base of Telenor. The impact on the operating profit of its India wireless business is expected to be equally big, as this metric is seen falling by 39 per cent. At the consolidated level, however, the impact on the operating level will be lesser with profit seen falling by 15 per cent, year on year given the improved situation of the Africa business (highest operating profit in at least five quarters) and stable show in other segments, including towers, enterprise, direct-tohome and broadband services.

Both Bharti and Idea would be hit by the full-quarter impact of a cut in the interconnect usage charge (IUC), which came into effect in February 2018. The other impact will be the pressure on post-paid ARPUs following the entry of Reliance Jio, which launched attractive plans in May.

According to analysts at Kotak Institutional Equities, while recovery is nowhere in sight, the pace of decline of ARPUs is likely to moderate. "Downtrading to the most competitive bundled plan continues on the back of increasing smartphone adoption, though the pace of downgrading is moderating. While the positive is that there is uptrading as people move to higherpriced bundled plans, the upward movement is not enough to mitigate the downtrading impact." Downtrading is the practice of a consumer switching from expensive brands to cheaper alternatives.