Telcos’ future positive, but near-term pressure on margin to stay

NEW DELHI (TIP): The latest quarterly performance of the three publicly-listed telecom companies — Bharti Airtel, Idea Cellular and Reliance Communications (RCOM) — shows early signs of a pick up in data-driven revenue, helped by higher number of subscribers using data. Besides, operators are in the process of consolidating voice-based business by reducing the number of accounts that do not meet regulatory requirements.

This has resulted in improved per user parameters. This, coupled with tariff hikes by telcos a few weeks ago, highlights a positive undertone about future revenue and profit growth. However, the nearterm pressure on margins is expected to continue as companies would strive to cut debt burdens, reduce interest outgo, and rationalise network operating costs.

The pressure on profitability was visible from the performance of operators in the December 2012 quarter. The three operators reported a drop of 30-70 basis points (bps) in margin at earnings before interest, tax, depreciation, and amortisation (EBITDA) margin level. This is despite a moderate revenue growth. For Bharti, though revenue remained flat sequentially, it rose by over 3% after adjusting for one-time gain recorded in the previous quarter.

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