Why the latest quarter is a warning signal for telecom
With tariffs coming under further In a quarter when Reliance Jio managed to reach net profits in just 15 months flat, Bharti Airtel and Idea reported fairly disappointing results. Bharti Airtel still has the scale and the international spread to de-risk its business model and that is where Idea could become a lot more vulnerable. Here are 3 things that emerge from the Idea Cellular third quarter results.
Top-line and bottom-line
One thing that emerged clearly from the Idea quarterly results is that both the revenues and the profits of Idea are under severe pressure. The top-line faltered during the quarter largely due to pricing pressure. Of course, pricing was one side of the story as the company also took a hit due to the sharp cut in interconnect charges. The TRAI had recently cut the interconnect fees from 14 paisa per minute to just 6 paisa per minute. That meant a huge hit for companies like Bharti and Idea which used to benefit from interconnect fees when calls originating from other networks landed on their networks. That problem is likely to stay. The net loss for the third quarter was at Rs.1285 crore and the total losses for the 9 months have crossed Rs.3000 crore. With a massive debt burden on its books and falling price realizations, there is very little maneuvering room available for Idea. It will be hard for Idea to sustain current valuations with such huge losses and very limited business visibility!
Idea losing the ARPU game
The big worry for Idea is on the ARPU front. Average revenue per user (ARPU) is an amalgam of the voice and data business and tells you how much the company is earning per customer. For the 3rd quarter, Idea reported ARPUs of Rs.114, sharply lower than Rs.132 reported in the previous quarter. That is much lower than Bharti Airtel at Rs.123 and Reliance Jio at 154pressure, there appears to be limited visibility for telecom players like Idea to improve their ARPUs in the foreseeable future. And if ARPUs are getting compressed then business accretion becomes more of a liability than an asset for the business. That is the dilemma that Idea finds its business in right now!
Think out of the box
Idea probably needs to entirely think out of the box. Bharti has a strong international franchise to back itself up and Jio has the financial muscle to sink in $30 billion and can still sink in a few billions more. But the current ARPU game is not going to help Idea as at Rs.114 there is hardly any room left for Idea to fight on price. The merger with Vodafone will give Idea the requisite muscle to take on competition, but price wars may still not be the answer. For sheer survival, Idea must now think out of the box. That much is crystal clear from the Idea Q3 results! ©