Reliance Jio Free Offers Wreck Havoc on Airtel’s Profit As They Post Dismal Quarterly Numbers!


Airtel Mobile Prepaid New offers Plans-003

Airtel, India’s largest telecom company by subscribers and revenue may soon lose their numero-uno position, if we believe the trends and the facts.

Predatory and aggressive pricing (read free offers) by Jio, wherein calls and Internet are free for all users, has created havoc across Airtel’s financial sheets last quarter. As per recent numbers shared by them, they have reported a massive drop of 54% in their consolidated profits.

This is their first drop in consolidated profits in the last 4 years, and first year on year drop in profits since their IPO was launched.

And Jio is the sole culprit here.

Bharti Airtel MD and CEO for South Asia, Gopal Vittal minced no words while describing their disastrous financial results. Without naming Jio, he said, “The quarter has seen turbulence due to the continued predatory pricing by a new operator”, adding, “This has led to an unprecedented year-on-year revenue decline for the industry, pressure on margins and a serious impact on the financial health of the sector.”

For the period between October to December, 2016, Airtel reported consolidated profits of Rs 503.7 crore, which is 54% less than what he achieved during the same period last year when they posted profits of Rs 1108.1 crore.

And not only profits, but their revenue is also falling, albeit not at that alarming pace. During Q3 of 2016, Airtel achieved consolidated income of Rs 23,363.9 crore, down from Rs 24,103.4 crore during the same period last year.

Higher Termination cost for Airtel for all calls originating from Jio is one of the prominent reasons for drop in profits. As per Vittal, cost of 14 paisa as termination cost per call has “resulted in a tsunami of minutes terminating into our network.”

Interestingly, for the Q3 2016, Airtel ended up with 354 million customers all over the world, and 266 million customers in India, which enabled them to claim 33% revenue market share in India, which is their life-time high.

But, why low profits? And the answer is low ARPU (Average Revenue Per User)

Jio Hits Airtel Where It Matters The Most: ARPU

Average Revenue Per User or ARPU of Airtel during Q3 of 2016 decreased by 8.4%, compared to last quarter. This was plainly due to the fact that millions of Airtel’s previously paying customers turned over to Jio for their data and voice calling needs. Its free there, compared to paying Airtel for the same.

Voice ARPU dropped by 6.4%, while mobile data ARPU dropped by 13% during the same period. And to add to the disaster, Airtel has already dropped voice tariff by 9.3% and tariff for data was dropped by 10.5% during the same period.

And the results are quite apparent: mobile data now accounts for 22.8% of their overall revenue, which was 24.7% last year, in the same period. At the same time, users of Airtel’s data services dropped by 12.4% year on year, which resulted in low data usage by 3.5%.

By Tuesday evening, Airtel’s stock price dropped by 1% to reach Rs 316.20, even as Airtel’s board of directors urgently approved raising Rs 10,000 crore via private placement of non-convertible debentures. Rs 10,000 crore is the highest limit for raising funds via this route.

In October, Airtel’s consolidated profits were reduced by 5%, which has now increased to 54%. Where would the telecom war triggered by Jio take the industry from now?

Source: 1, 2, 3, 4

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