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Telecom firms pare discounts to increase revenue, margin in 2013
[February 07, 2013]

Telecom firms pare discounts to increase revenue, margin in 2013

MUMBAI, Feb 07, 2013 (Mint - McClatchy-Tribune Information Services via COMTEX) -- Indian telecom operators are hoping to increase margins and profits in the coming quarters by cutting channel commissions and promotions rather than increasing headline tariffs or pulse-per-second rates.

The move, say analysts and telecom companies, will help the top telcom operators, or telcos such as Bharti Airtel Ltd, Idea Cellular Ltd, Vodafone India Ltd and Reliance Communications Ltd increase revenue per minute, or RPM, effectively adding to the realizable rate and margins.

The current average national RPM for operators is 41 paise, while the average headline tariff hovers in the 60-90 paise per minute range. A single paisa increase in RPM could add substantially to the revenue of telcos that generate billions of minutes daily.

Bharti Airtel, the country's largest telco, expects a "correction in realized tariff (RPM) from this quarter itself", Sanjay Kapoor, outgoing India and South Asia chief executive officer, said after the company declared results on Friday. Airtel's realized tariff is at about 42 paise per minute.

Gurdeep Singh, chief executive officer of the wireless business of Anil Ambani-owned Reliance Communications Ltd. (RCom), told analysts after announcing third quarter results in January, "Over the next two to three quarter, we see a two to four paise RPM improvement. Over 12-18 months, we see two to three opportunities for tariff hike." RCom's RPM remained unchanged at 44 paise in the third quarter ended 31 December even as it revised its headline tariffs by 25% from 1.2 paise a second to 1.5 paise a second in September.

Idea Cellular, too, reduced discounts in some circles in January and it intends to continue this initiative but has refrained from increasing headline tariffs. Its average RPM fell in the December quarter to 41.1 paise from 41.3 paise in the trailing quarter due to a decrease in the non-voice revenue contribution, the company said in a statement.

A research analyst, who did not want to be named, said "Pricing revival is there because of driving factors like costs. In fact, reduction in discounts can have a bigger impact than revising headline tariff as even along with tariff plans, people buy special tariff vouchers that hurts the actually revenue earned by companies." The second generation (2G) spectrum auctions to be held in March, regulatory interventions like the contested one-time spectrum licence fee demanded by the government and diesel price increases have increased the network costs of operators, prompting telcos to explore ways to pass on these increase in costs to consumers that could impact the minutes of usage (MoU) of telecom services.

While there might be a 1% downward impact on quarterly traffic (minutes of usage) growth, profitability will still improve, said G.V. Giri, research analyst at brokerage India Infoline Ltd. "We expect RPM of telecom operators to go up by 1-2% in the coming quarters," he added.

RCom's Singh said, "Minutes of usage as a barometer of business was good in the high-growth phase. When we enter a stable market, we should see a healthy balance of RPM and MoU." Telcos have gained greater pricing power after the exits of Tata Teleservices Ltd (TTSL), Videocon Telecommunications Ltd and Telenor Group from some network circles (regions).

The number of competing telecom companies has dropped to six from as much as 16 in most markets and down to eight elsewhere.

Some telcos, meanwhile, continue to reduce tariffs in specific circles to gain market share.

Aircel Ltd cut tariffs in the Mumbai circle in January. It has introduced unlimited free Aircel to Aircel local calls to try and boost its market share in Mumbai from 2.3% to 4% by the end of this calendar year. Its current RPM in Mumbai is 39 paise.

"We may also reduce discounts in some other segments but in this segment, we are focusing on growth. We cover 99% of Mumbai through our network but our network utilization is just 30%," said Harish Sharma, regional business head, west, Aircel.

For others, though, tariff hikes are imminent as Sunil Sood, chief operating officer of Vodafone, told Mint in an interview in December, "There is only one way to look at tariffs, they will go up. They have already hit rock bottom and can't go down any further." From the beginning of the year till date, Bharti Airtel has gained 4.47% on BSE Ltd, Idea Cellular 7.76% and RCom 10.09%, while the benchmark BSE Sensex has gained 1.82%.

___ (c)2013 the Mint (New Delhi) Visit the Mint (New Delhi) at Distributed by MCT Information Services

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