Airtel Profits Decline Rapidly: What’s The Cause Of Distress?

Airtel seems to have succumbed to pressures of high loan repayments costs and competitive pressure in the Indian market. This coupled with low Average Revenue Per User (ARPU) has resulted in 22 per cent drop in its net profit. Country’s largest private telecom service provider, Airtel reported profits of Rs. 1,011 Crores. Meanwhile, its ARPU fell 16 per cent on year-on-year basis to Rs. 187. Interest expenses increased to Rs. 800 Crores. Owing to this bleak news, its Shares fell sharply by 6.6 percent & the script closed at Rs. 354 on BSE.

All’s not bleak for Airtel though. It’s African operations are witnessing a 26.7 per cent jump as against 19 per cent in the year-ago quarter. The company is well on its way to break-even with halving of operating loss to 260 Crores! If only it improves infrastructure, it could very start making profits from next quarter.

Is Airtel alone to blame for its loss? On one hand Govt. auctions the Spectrums that incidentally are not doing well. It then prevents players from sharing. Under these circumstances, how is a service provider to offer lower tariffs to keep its subscribers from migrating? The companies seem to be caught in a risky situation. If they increase prices to offset the heavy costs incurred to procure licenses, then they lose customers. If they keep tariffs low, they make huge losses like this. We will not even discuss the intricate Tax structure in India which prevents companies from soaring high!

How is a company to operate profitably & yet offer cheap & attractive tariffs? One possible solution that we can think of is to offer innovative ancillary services. Tata DoCoMo has already laid the path.

What are your views?

 


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