Delhi Cellphone Cos Break Even

Even as the rest of the cellular industry is making cash losses of about Rs 400 crore per month, Delhi cellular operators Bharti Cellular and Sterling Cellular have broken even. Both the companies have started making cash profits (net earnings plus depreciation) and expect to make net profits next financial year.

Mumbai cellular companies Hutchison Max and BPL Mobile expect to become cash positive early next financial year. Both the operators, until some weeks back, were lagging behind their Delhi counterparts in terms of subscriber base. The cellular operators in Calcutta and Chennai may also break even late next financial year, sources predicted.

Bharti Cellular (which offers its service under the Airtel brand) and Sterling Cellular (which uses the Essar Cellphone brand) have been making between Rs 10 crore and 12 crore monthly revenues. Although the subscriber-base is lower in Mumbai, Hutchison Max and BPL Mobile have the advantage of higher airtime usage and have revenues close to that recorded by the Delhi operators.

The break-even point of a cellular project is a critical indicator of financial health of the operator. It represents the stage when the project attains a degree of financial stability and is just short of generating net profits.

The break-even stage is often referred to as a precursor to rewarding shareholders for their investments.

The break-even stage of most cellular projects is predicted at between the third and sixth year of operations. For instance, the operations of Birla-AT&T the cellular licensee in Gujarat and Maharashtra are expected to break even between the fourth and fifth years.

Clearly, the metro cellular companies have managed to break even so early because they dont have the burden of licence fees. In the first round of bidding for provision of cellular services in the metros, the department of telecommunications (DoT) did not go in for an auction and instead mandated low, flat licence fees. Delhi, for example, was given away at just Rs 2 crore, Rs 4 crore and Rs 8 crore in the first three years of operation. The licence fee set for Mumbai was Rs 3 crore, Rs 6 crore and Rs 12 crore in the same period. This is expected to go up to an annual licence payout of Rs 5,000 per subscriber by the fourth year of operations.

The Rs 5,000 a year licence fee translates into Rs 416 per subscriber a month. This is significantly more than the current licence fee per subscriber. At the Rs 8 crore a year licence fee in Delhi, the monthly levy per subscriber on Bharti Cellulars (with 110,000 cellphone users) network is: a low Rs 67.

Says Sunil Mittal, chairman and managing director of Bharti Cellular: Once the Rs 5,000 licence fee comes into effect (this September), we will feel the crunch; its amounts to over Rs 55 crore a year. After that, we will operate at wafer-thin margins. Bharti expects to wipe off its accumulated losses of some Rs 40 crore by September.