India’s largest telecom company, Bharti Airtel, which is run by Sunil Mittal’s family, posted 54.5% drop in net profits -- a result of an intense price war started by Reliance Jio’s free internet services.
The other reason for the fall in profits was due to demonetisation: the economic situation announced by prime minister Narendra Modi that weeded out 86% of the country’s currency in circulation, leading to the largest cash crunch India has ever faced.
Airtel posted net profits of Rs 504 crore for the three month period ending December 2016. In the same quarter the previous year, the company had posted Rs 1,108 crore of profits.
According to data from Thompson Reuters, analysts had expected profits to fall marginally to Rs 1,087. Airtel just made halfway through those expectations.
In September, Reliance Jio launched its fourth generation (4G) wireless internet services, that has led to a financially bleeding battle between telecom operators.
What Reliance Jio is offering, is “unfair competition”, Mittal had said at a conference in Delhi, while launching Airtel’s payments bank business.
He had further added, “If there is anything free in the market it impacts the whole industry. Of all the telecom operators in the market the impact is least on Airtel, but ‘free’ is a problem... The revenue and margins are impacted.”
Airtel has also approached the telecom tribunal TDSAT, and urged it to direct the Telecom Regulatory Authority of India to put an end to Mukesh Ambani-led Reliance Jio’s free services. Airtel in its affidavit called the telecom regulator a “mute spectator” for allowing Reliance Jio to continue offering free services beyond the stipulated 90-days period. TDSAT has asked the TRAI to come to conclusion on the matter in “reasonable time”, hearing of which is due on February 1.
Idea Cellular, too, has moved the telecom tribunal in a similar matter, HT had reported.
Airtel is the first company to announce its quarterly financial results. Idea Cellular’s results are due in the next one week. In the September ending quarter Idea Cellular had posted 88% drop in net profits, amid fierce competition. Things are only expected to spiral downwards from here.
Since Reliance Jio’s launch, Airtel has cut its data tariffs by 66%, fearing loss in market share. An executive of another telecom company said that most of the dole outs are to retain customers.
The price war has also resulted in drop in revenue for Airtel as Mittal had indicated. Revenue fell by 3% to Rs 3,336 crore.
(With inputs from Reuters)