Bharti Q2 net seen up a fifth, price war a challenge | business | Hindustan Times
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Bharti Q2 net seen up a fifth, price war a challenge

Top Indian mobile operator Bharti Airtel's quarterly profit is seen growing by around a fifth, but a price war that is denting its market share and margins will make coming quarters more challenging.

business Updated: Oct 28, 2009 16:42 IST

Top Indian mobile operator Bharti Airtel's quarterly profit is seen growing by around a fifth, but a price war that is denting its market share and margins will make coming quarters more challenging.

Second-ranked Reliance Communications is expected to report quarterly net profit fall nearly a fifth from a year earlier as network expansion costs weigh, though some analysts expect income from financial investments to support its profit.

India's booming telecoms sector has suddenly gone out of favour, with Bharti falling more than a quarter and Reliance dropping a third so far in October in the face of a price war in an increasingly crowded market.

"Earnings growth will have to wait for a while," said Ved Prakash Chaturvedi, managing director at Tata Asset Management, which manages over $4 billion in assets and owns Bharti and Reliance Communications stock according to its website.

"Models of profitability will evolve in the longer term and it's a brilliant story. But in the short term, with advent of new players and competition increasing there will be volatility."

Four new firms are due to start operations this year in the world's second largest mobile market, including ventures of Telenor and Etisalat and established players are scrambling to sign up users before then.

Reliance Communications cut all call charges to 50 paise (U.S. 1 cent) a minute early this month, a move analysts saw disrupting the sector's growth. Bharti also cut some call charges in September, but only for calls on its own network.

As well, sixth-ranked Tata Teleservices, 26 percent owned by Japan's NTT DoCoMo, grabbed market share with per-second billing for its new GSM service. Tata added 9.7 million subscribers in the September quarter, better than Bharti's 8.1 million.

The industry has signed up a monthly average of nearly 14 million new customers this year, making India the world's fastest growing market. India has more than 470 million mobile users, second only to China's 720 million, and Gartner forecasts it will have 771 million by 2013.

But the majority of new users are coming from rural areas, where people use less call time than their urban counterparts and some use phones only to receive calls, which is free of cost, meaning firms are not gaining much in terms of revenue.

Other risks facing the sector include the possibility of high bids in a global auction in January of radio waves for advanced third-generation (3G) services. Analysts expect spectrum for all of India to cost between $1-1.5 billion.

During the quarter, talks for a tie-up between Bharti and South Africa's MTN failed for a second time, denying it access to vast markets and revenues streams in Africa and the Middle East.

Following are the September quarter forecasts based on a Reuters poll of 11 brokers for Bharti and 10 for Reliance.