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Bharti Airtel: Nervousness all around

Dec 4, 2009

Uninor is the latest telecom operator to launch services in the already overcrowded Indian telecom market. As such, competition has just gotten more intense. Uninor is a service launched by Unitech Wireless. The latter is a company floated by realty major, Unitech. Norway's Telenor, the world's sixth largest mobile operator holds nearly 67% in Unitech Wireless. Now, with it being the latest telecom service provider, it had to come out with a competitive plan to intrigue potential customers. It must be noted that India currently has amongst the world's lowest telecom tariffs ranging from about 0.5 to 1 paisa for a per second tariff plan and a Rs 0.5 per minute for a per minute pulse plan.

Uninor has now taken competition to the next level. It has launched a plan wherein customers will be charged Rs 0.29 per minute for local calls. STD rates on the other hand will be Rs 0.49 per minute. However, it has not launched any per second tariff as against to what the latest fad is in the telecom industry.

Telecom tariffs have been following the laws of gravity in recent times. One can never know what would be the next best rate. Or in other words, to what extent the telecom operators would be ready to grab a share of the world's fastest growing telecom market. And with a few telecom companies still looking to launch services in India, one can only wonder what's next. However, the reason telcos are going all out is quite clear. It is the huge opportunity. With the tele density level still at a low 50%, the opportunities are abundant.

In terms of market shares, it seems that the larger and established players are facing some difficult times. They are of the belief that the current tariff rates are so low that it makes businesses unviable. On the other hand, the newer players beg to differ. Let us take Uninor for instance. Its management believes that after working out all the calculations, the company is looking at achieving an EBITDA break-even in three years and possibly also a the positive operating cash flow within five years of launch.

A leading business daily has indicated that India's largest telecom operator Bharti Airtel has expressed its concerns over the falling tariffs. The company has supposedly approached TRAI, asking it to look into the business models of some its peer group companies. The business daily has rightly termed this move as a "rare display of nervousness" by the company. Terming it as 'predatory pricing', Bharti's management believes that the current tariff structure is lower than the cost structure of operators.

The fact that the fundamentals and the dynamics of the industry are changing is well known. Key parameters such as ARPUs, ARPMs and MOUs have been on steady decline. While these concerns are true for the whole industry, the situation of established players is no different.

However, it seems as if Bharti is feeling the heat the most. Being the driving force behind the telecom revolution in India and also the fact that it is currently the market leader and the most experienced player in the industry, one cannot blame the management for feeling this way. As compared to the 'good times' which it saw over the past few years, and also the fact that it took so long to reach its current stature, such issues will definitely be looming on the minds of its management.

Source: Company, COAI, Equitymaster research; * GSM subscribers only

Apart from concerns over operating the business, the company also must be nervous about the incremental subscriber additions. Bharti is still way ahead of competition in terms of subscriber base. However, on the back of increasing competition, its monthly additions have been seeing some pressure. It is not that the company has not been adding new subscribers. But the number of subscriber additions has reduced over the past few months.

During the period between January and August 2009, the company added nearly 2.8 m subscribers every month. This figure has come down to 2.5 and 2.7 m in the September and October respectively. As such, its share in the total subscriber additions has been falling since January this year. During CY08, the company had a share of nearly 36% in the total subscriber additions. For the month of December 2008, the share stood at about 32%. This has fallen to 26% during October 2009.

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11 Responses to "Bharti Airtel: Nervousness all around"

umesh hegde

Dec 6, 2009

The article is good. Do you still recommand to buy Bharti Airtel?

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Equitymaster requests your view! Post a comment on "Bharti Airtel: Nervousness all around". Click here!

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