Airtel’s Q3 FY18 results hint price war with Jio is far from over

In another devastating blow to the largest telecom operator in India, Bharti Airtel reported a 39% fall in net profit in the three months ending December 31, 2017.

Net profit of the company stood at Rs 306 crore in Q3 FY18 as compared with Rs 671 crore in Q3 FY17.

A dramatic decline of earnings before interest and tax has been recorded for Airtel’s India business as this was its seventh straight quarterly decline.

Price wars on account of Reliance Jio have been rampant. During the quarter, Airtel launched its data rollover scheme for postpaid subscribers. It also launched a host of bundled handset data plans to counter the impact of JioPhone.

Airtel Online Store also began offering cashback to the tune of Rs 10,000 on the purchase of the recently released Apple iPhone X.

However, it was not only on the back of extensive price wars that Airtel’s profit slumped.

In fact, Gopal Vittal, Bharti Airtel`s chief executive for India and South Asia, predicted the turnout of Airtel’s third quarter result after telecom regulator TRAI cut interconnection usage charges to 6 paise per minute.

"The financial stress in the industry continues due to double digit revenue decline and will be further accentuated by the reduction in IUC rates in the next quarter," Vittal said in a company statement in October 2017.

Airtel’s second quarter net profit of Rs 343 crore was its smallest profit in 19 quarters.

“Regulatory fiat in the form of a cut in domestic IUC rates has exacerbated the industry ARPU decline in Q3’18. The recent announcement of reduction in International termination rates will further accentuate this decline and benefit foreign operators with no commensurate benefit to customers,” Vittal said in a statement accompanying Airtel’s Q3 results.

The operator claimed to have added 81 lakh subscribers during the quarter. Yet its average revenue per user was still lower.

Arpu fell last quarter to Rs 123 from Rs 145 in the September quarter.

Consolidated net debt of Airtel went up 0.3% sequentially to Rs 91,714 crore.

On the data front, Airtel said that mobile data traffic grew to 1,178 billion MBs in the quarter.

Going forward, the company continues to keep investing in data capacities.

“Continued investments in data capacities, strategic partnerships with content and handset providers and focus on customer friendly innovations like data rollover has led to healthy customer additions of 8.1 Mn during the quarter. Q3’18 has also seen the highest ever broadband site deployment of 32K in any quarter, complementing the robust data and voice traffic growth of 544% and 50% respectively on a Y-o-Y basis. We are committed to remaining the operator of choice for all customers in this rapidly consolidating industry,” Vittal added.

What’s next from Jio

Reliance Jio, a subsidiary of Reliance Industries Ltd (RIL) backed by billionaire Mukesh Ambani, has come to be known as ‘the disruptor’ in the telecom sector. RIL that will announce its results today may shed light on Jio’s earnings.

Jio is expected to report a profit in its Q3 FY18 earnings. Its subscriber base has touched 16 crore, still marking it as the fourth largest telecom player in the country.

Over the course of three to four years, Jio is estimated to pump $23 billion in the company’s operations ‘beyond wireless services’, a report by TelecomTalk said.

The 4G entrant is planning to launch enterprise services like unified communications, Multiprotocol Label Switching (a protocol for high-speed telecom traffic) networks, Internet Protocol-Virtual Private Networks, cloud services, and managed video-conferencing, among others.