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Asia300

Bharti Airtel, Idea likely to post weak third-quarter earnings on interconnect fee cut

Reliance Jio may report profit

Bharti Airtel is likely to report yet another quarter of weak earnings   © Reuters

MUMBAI (NewsRise) -- Bharti Airtel, India's biggest mobile phone operator, and smaller rival Idea Cellular are likely to report yet another quarter of weak earnings as a cut in the fee carriers pay each other for calls made from one network to another crimps their revenue and profit.

India's telecommunications regulator more than halved the interconnection usage charge for mobile phone calls starting Oct. 1. While incoming calls are free for customers in India, cell phone companies from whose network a call originates pay the service provider who receives the call.

The move to slash the rate dealt a blow to the nation's established mobile phone operators who are high receivers of call volumes. Further, these companies are already grappling with declining revenue and losses, amid a bleeding price war triggered by the entry of billionaire Mukesh Ambani's Reliance Jio Infocomm.

Jio's strategy of slashing prices to lure customers forced rivals such as Airtel and Idea to respond with matching offers, further pulling down their average revenue per user.

Airtel's third-quarter net profit is likely to plunge 28% to 3.63 billion rupees ($57 million), while its revenue could drop by 9.1%, according to a Reuters poll of 20 analysts. The company is due to report its earnings on Thursday.

Call termination charges accounted for 14%-15% of Airtel's wireless revenue and a similar proportion of its operating earnings, according to Kotak Institutional Equities. The brokerage expects the rate cut to lead to an 8% sequential decline in revenue for the company.

Still, African operations are likely to remain a saving grace for Airtel in the December quarter, as it continues to bear the fruits of improved operating performance in the continent. In the September quarter, Bharti's profit beat expectations in spite of a 77% slump in profit, thanks to a sharp expansion in operating margins in Africa.

Idea Cellular, India's third-largest mobile phone operator, is likely to report a wider loss in third quarter at 13.40 billion rupees, according to the Reuters poll. Revenue is likely to decline 21%.

The impact of mobile termination charges on Idea is set to be steeper as it earned 14%-15% of revenue and 20%-21% of its operating earnings from the interconnect usage charge. The company, which is set to complete a merger with larger rival Vodafone India later this year, has yet to announce the date for releasing December quarter results.

Jio, a beneficiary of the government move to cut the mobile termination rate, is set to report a profit in the third quarter, when parent Reliance Industries reports earnings on Friday, according to some analysts.

In the quarter ended in September, Reliance Jio had already reported an operating profit that exceeded analysts' expectations.

Jio's user base is likely to have risen to 160 million, with average revenue per user similar to that of the previous quarter, due to a price hike in October, brokerage Jefferies said in a report earlier this week. The company has yet to account for most of the operating expenses, it said.

With all this, Jio may well turn profitable in third quarter, the brokerage said.

Shares of Bharti Airtel closed 1.4% lower on Tuesday, while Idea Cellular lost 2% in Mumbai trading. Reliance Industries lost 2.5% and the benchmark S&P BSE Sensex closed down 0.2%.

--Dhanya Ann Thoppil

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