Reliance Communications: Clogged calls

Lower volumes and network matrices had an impact on earnings, as did forex losses and interest costs.

The days of freebies in the telecom business have ended. But, the consequences of the earlier rate wars are bound to be felt. The June results of Reliance Communication bear scars of these wars.

The main reason for discontent has been the lower traffic volume of 94.4 billion minutes. Analysts estimated volume of 96-98 billion minutes, one per cent growth over the March quarter. The discontinuation of free minutes was behind this, said analysts. Peers like Bharti and Idea recorded over 10 per cent growth in traffic volumes over the period.

Wireless average revenues per user (Arpu) and minutes of usage were down around seven per cent. RCom’s wireless Arpu is almost 30 per cent below the sector average, point analysts. However, steady realisations (at around Rs 0.44 per minute) and lower operating expenses saw earnings before interest, tax, depreciation and amortisation (Ebitba) margins grew marginally by 40 basis points (sequentially) to 31.9 per cent. The company reported savings of around Rs 200 crore in network operations because of lower fuel costs, as most of its sites are now receiving power from state electricity boards. Net earnings fell 79 per cent sequentially to around Rs 250 crore on account of foreign exchange losses of Rs 550 crore and higher interest costs of around Rs 240 crore.

Analysts say the process of complying with subscriber verification norms could see a possible re-stating of the subscriber base for the entire industry. RCom may also see a reduced subscriber base, but so would other players. A more focused approach on quality of customers and their usage could start yielding results from the second half of FY11.

Profitability of the telecom sector may be restored with more sane and pragmatic structures. Till then, the calls remain clogged.