Telcos may face higher spend, lower margins
Jan. 19: India’s telecom majors, who are already struggling under a heavy debt burden, may see a further strain in their financials following the introduction of mobile number portability (MNP).
Most analysts feel that while too many customers may not end up shifting, margins of the established telecom firms will fall as their best customers will now be open to poaching. “We estimate that post-paid contributes about 15 per cent and 20 per cent to Bharti’s and Idea’s cellular revenues and believe five per cent to eight per cent of Bharti’s earnings may be at risk,” says Goldman Sachs, a leading brokerage house.
Apart from lower margins, companies will also have to spend more on improving services and on customer care, says Ambit Capital, noting that call drop rates in India are amongst the highest in the world.
Low tariffs are not a differentiating factor because other firms can easily match any new scheme brought out by a service provider. Number portability would also pave the way for consolidation as it will allow cancellation of a license of an existing player without hurting the subscribers. A major complaint of cellphone users is that companies offer the best rates and cheapest tariff plans to new customers, but these are rarely extended to old subscribers. Dropped calls, or calls that get terminated mid-way, are another sore spot for customers.
The reduced margins will cause more pain for these companies, many of whom have large oustanding debts. Bharti Airtel and Reliance Communications have a net debt of `60,100 crore and Rs 29,100 crore respectively, says rating agency Fitch.
In case of Bharti, the debt is almost three times the operating profit, while it is more than four times the operating profit of RCom.
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