IUC Cut, Pricing Pressure To Drag Telcos Earnings In Q3

Earnings of the two mobile carriers in the three months ended December may be "impacted by IUC cuts," which will lower the operating income of Bharti's India wireless business and Idea's by 6% and 8% on-quarter," respectively, brokerage Credit Suisse said.

Interconnect charges are paid by telcos generating calls to the networks that receive them. Bharti Airtel, Vodafone India and Idea Cellular will be the biggest revenue losers following the IUC reduction on October 1, 2017, because they have more than 60% of the country's mobile subscribers and most calls terminate on their networks.

The IUC decrease would "negatively impact" Bharti and Idea's mobile revenue by 7% and 10% on quarter, respectively, ICICI Securities said, adding that it will likely be exacerbated by lower average revenue per user (ARPU) with the growth in "adoption of bundled offers" of data and unlimited voice.

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The brokerage expects Airtel's monthly ARPU, a key performance metric, to decline 12.4% on-quarter to Rs 127 and predicts Idea's will slip almost 12% sequentially to Rs 116.

Telcos that made "their most aggressive bundled plans" available to all subscribers "would have seen ARPU-dilutive accelerated adoption" in the December quarter, Kotak Securities said. Such unlimited bundled plans, it said, were earlier restricted to 4G handsets.

Airtel and Idea are expected to report weak earnings numbers in the December quarter, analysts at IDFC said, although the negative impact on Idea's wireless revenue would be more pronounced as the No. 3 carrier is likely to trail the market leader in subscriber additions.

Airtel may report an almost 10% on-year decline in net profit from Rs 504 crore last year, according to a poll of five analysts. The poll estimates the Sunil Mittal-led company's profit will rise 33% from Rs 343 crore in the three months ended September 2017.

According to the poll, Kumar Mangalam Birla-led Idea's net loss may widen to about Rs 1,314 crore from Rs 383.9 crore a year earlier. This would be the fifth successive quarterly loss for Idea, which is merging with Vodafone India to create the country's biggest phone company.

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"Our estimates show operating cash-flow generation cannot meet its interest servicing, and rising capex would further put pressure on an already stretched balance sheet," ICICI Securities said about Idea in a note seen by ET.

Airtel's consolidated revenue in the third quarter is estimated to fall over 11% from Rs 23,336 crore a year earlier, while Idea's revenue may plunge about 24% from Rs 8,662.72 crore last year.

Analysts are awaiting the closure of the Idea-Vodafone merger and expect the resultant synergy will aid the merged entity amid the raging price war with Jio.

Credit Suisse said it would be interesting to see the impact of Idea's tariff aggression towards the close of the September quarter and the management's future strategy based on its experience.

Source : https://economictimes.indiatimes.com/markets/stocks/news/iuc-cut-pricing-pressure-to-drag-telcos-earnings-in-q3/articleshow/62361349.cms

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