Bharti to slip into the red, Idea's losses to double in June quarter

Analysts estimate Idea's ARPU to fall below Rs 100; down-trading and migration by low-value customers to impact all telcos

Despite the subscriber gains from exits of smaller operators and consolidation in the sector, listed telecom operators Bharti Airtel and Idea Cellular are expected to report losses to the tune of over Rs 20 billion for the June quarter. While Bharti Airtel will gain on the revenues front due to the consolidation of Telenor, it is expected to report a loss of over Rs 5 billion for the June quarter. That would be the first operational loss for the company in many quarters; the company had made a consolidated profit of Rs 3.67 billion in the year-ago quarter.

For Idea Cellular, the losses are pegged at Rs 16 billion, which is double the loss it reported in the year-ago period. While pressure due to competitive tariffs would impact the company’s revenues, the sale of its towers to ATC will also reduce the revenues. The sharp drop of 30 per cent in average revenue per user (ARPU) for Idea, which has a higher share of rural subscribers, would translate to a 56 per cent year-on-year fall in operating profit, estimate analysts. For the first time since the tariff war started, Idea could well post its first sub-Rs 100 ARPU as the June quarter number is pegged at Rs 99.

For Bharti, the ARPU is estimated to fall 31 per cent year-on-year to Rs 107, both 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 figure is lesser with profit seen to be falling 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 its other business segments such as towers, enterprise, direct-to-home and broadband services.

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

Analysts at Kotak Institutional Equities say while recovery is nowhere in sight, the pace of decline of ARPUs is expected to moderate. “Downtrading to the most competitive bundled plan continues on the back of increasing smartphone adoption. However, the pace of downgrading is moderating. While the positive is that there is up-trading as people move to higher priced bundled plans, the upward movement is not enough to mitigate the down-trading impact.”