Is TRAI’s Guideline Responsible For Airtel’s Profit Decline In Q1 Ended June?

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Undoubtedly, there’s a hyper-competition in Indian telecom sectors. In addition to this, there are lots of restrictions for telecom vendors in the country. India’s largest telecom vendor—Bharti Airtel—has reported profit decline in its 10th straight quarter. The telecommunication company reported consolidated net profit of INR 762 crore ($138 million) for the quarter ended June of this year, down from INR 1215 crore a year back. However, total revenue of the telecom giant surged by 14% to RS 19,350 crore in the quarter ended June of this year compare to INR 16,975 crore in the same quarter of the prior year. Thanks to its growth (31.5%) in Africa and 44.2% increase in mobile data revenues from India.

Bharti Airtel’s Chairman and Managing Director–Sunil Mittal–said “Telecom revenue in India have been depressed due to hyper-competition and  recent regulatory and tax developments. Despite these adverse developments, Airtel has kept its focus on network expansion, market investment, superior customer experiences and new product innovations.”

Reasons Behind Profit Decline

However, the telecom giant has number of reasons but it pointed out the main reasons; first, the TRAI guidelines (around processing fees) restricted the sales of “Combo Packs” and second, an increasing of service tax from 10.3% to 12.36% (effective from April 1, 2012).

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Besides, issues related to the ‘economy and currency’ headwinds (due to the euroZone crisis), lower aid and grants, political interventions and rising inflation are also considered as some of the reasons for the Airtel’s profit decline. At present, the company is quite aggressive about its market operations, networks roll out, growth of 3G and 4G networks, Airtel Money (open wallet service) and advertisements. The Indian telecommunication company has currently 260.71 million subscribers base at the end of June of this year across India, South Asia and Africa including mobile, digital TV and more.

Challenges Ahead

If we consider about the subscribers addition, last three months were highly lucrative for the company. It’s well-known that the Supreme Court of India cancelled all the 2G licenses  at the beginning of this year. Moreover, the proposal offered by the telecom regulators for the renewal of 2G licenses is annoying to telecom operators due to overprice; the price (proposed by TRAI) is even higher than 3G spectrum (price set in 2010).

In India, users are quite sensitive about the price and that’s why, 3G vendors are still struggling to entice a significant number of users. Here, the quality of the service is secondary thing. If the price proposed by TRAI is implemented, then obviously, it would result a rise in the call tariff. Indeed, the competition will be more intensified after 2G license renewal.

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