Reliance Jio effect: Bharti Airtel posts Rs 9.4-bn loss in India operations

Total revenues were also down by 8.6 per cent to Rs 200 billion for the June 2018 quarter, compared to Rs 219 billion last year

Bruised by an intense tariff war in the telecom sector, Bharti Airtel has reported a net loss of Rs 9.4 billion in its India operations during the quarter ended June. The Sunil Bharti Mittal-led firm, set to be dethroned by Vodafone Idea as the country’s largest telecom operator, had reported a net profit of Rs 8.3 billion for India in the same period last year.

However, helped by an exceptional gain of Rs 5.15 billion, the telco has reported a consolidated net profit of Rs 970 million for the June quarter. Without this gain, Airtel would have reported a net loss on a consolidated basis. The exceptional gain relates largely to creation of deferred tax asset in Nigeria. This was partially offset by network refarming programme and costs pertaining to the business combinations completed during the quarter. The consolidated net profit was down 73.5 per cent for the reported period to touch Rs 970 million against Rs 3.67 billion last year.

Total revenues were also down by 8.6 per cent to Rs 200 billion for the June 2018 quarter, compared to Rs 219 billion last year. The net debt of rose to Rs 1.02 trillion at the end of June 30. Incumbent operators have maintained that Reliance Jio’s “predatory pricing” was responsible for their margins crashing.

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The high-decibel tariff war is not likely to end anytime soon as Jio continues to disrupt the market. Mukesh Ambani-owned Jio has touched a customer base of 200 million within two years of starting its commercial operations, making the company the fastest to achieve the milestone.

“Industry pricing continues to remain untenable,” said Gopal Vittal, managing director and chief executive officer, India & South Asia, Airtel. On an optimistic note, he said the company’s mobile data traffic surged 355 per cent in India on a year-on-year basis, led by successful bundles, content partnerships and handset upgrade plans.

“Q1 FY19 has seen our highest quarterly capex spends of Rs 78.87 billion. Our investments have led to some opex headwinds in this quarter, but we remain focused on structural cost containment through our war on waste programme,” Vittal said.

Low tariffs continue to take a toll and the company’s average revenue per user (ARPU) in India, a key metric to gauge the profitability of any telecom operator, decreased to Rs 105 a month. The ARPU for the March quarter was Rs 116. During the last quarter, Airtel completed the acquisition of Telenor because of which its customer base in the country rose to 344 million. The consolidated Ebitda margin fell to 34 per cent in the last quarter compared with 35.6 per cent in the corresponding quarter last year. Consolidated Ebit also dropped by 43.8 per cent year-on-year to Rs 16.80 billion.

Reliance to invest Rs 600 bn in Jio this year, may borrow Rs 1 trn more

Subscriber additions, while suppressing incumbent telecom operators, will continue to remain top priority, say analysts

Mukesh Ambani-led Reliance Industries Ltd (RIL) is likely to invest another Rs 600 billion this year in its telecom business Reliance Jio Infocomm with an emphasis on faster rollout of broadband services and wireless expansion, Livemint reported, quoting anonymous company sources.

The sources have also been quoted as saying that Reliance Jio might borrow up to Rs 1 trillion in addition to the above-mentioned investment. Jio and RIL spokespersons did not comment on queries about the investment.

“Management made it very clear that their focus in the near term is to retain and grow their subscriber base and they would respond to market pricing. Essentially the implication was that incumbents would need to raise tariffs, but this would effectively lead to loss of market share for incumbents as JIO would offer the best 'value' to subscribers and hence continue to see large subscriber additions,” noted JP Morgan in their recent report on RIL.

The report further stated that JIO is expected to launch its broadband business with a pricing strategy similar to that of its telecom arm, given its focus is on creating a new market.

While JIO’s average revenue per user (ARPU) fell to Rs 137 from Rs 154 in the last quarter of 2017-18, it still remains better than that of Airtel and Idea cellular. JIO also managed to add almost 9 million subscribers during the quarter.

“Jio is expected to remain aggressive to gain market share, which could keep industry revenue under pressure and return ratios of incumbents suppressed,” noted an India Equity Research in a report on Monday.

JioFiber, the wired broadband arm, has started offering what they claim to be 'ultra-high-speed' fibre to home (FTTH) broadband connections with 1.1 terabytes (TB) of free data at speeds of 100 megabits per second (mbps) in select markets in the country already. However, commercial services are likely to be rolled out in the second-half of the year.

The company currently claims more than 300,000 km of optical fibre network in the country and the company is expected to target over 100 million households across the country with the service.