Operators begin slashing discounts, special tariffs to improve margins

Telecom operators are pinning their hopes on steadying average revenue per minute (ARPM) to improve margins in a fiercely competitive market.

The ARPM have been showing signs of steadying since the second quarter of this financial year, but after a roller-coaster ride spread over the past 10 quarters.

Key metric

Telecom operators are increasingly looking at ARPMs, a key metric to gauge the financial strength of an operator, rather than average revenue per user, the most commonly used metric.

During the second quarter, ARPM of Idea Cellular steadied at 0.41 paise, Vodafone India at 0.42 paise and Reliance Communications at 0.43 paise. However, Bharti Airtel’s fell by a tad to 0.42 paise from 0.43 paise posted during the first quarter.

ARPM, according to various industry estimates, is expected to rise in the third and fourth quarters of this financial year.

“The steadying of ARPM is a good sign for the industry. Many of the players have been reducing free talk-time minutes and other discounts, and these would result in increased income for the telecom companies. We are already seeing a lot of improvement on the ARPM front,” said Rajan S. Mathews, Director-General, Cellular Operators’ Association of India (COAI).

According to industry estimates, the discount vouchers or special tariff vouchers account for more than 70 per cent of the telecom companies’ revenues. The operators have begun tweaking these since the last month, such as reducing the tenure of the offers or reducing the prices of the vouchers.

Most of the operators’ revenues had declined during the second quarter of the current financial year, with the overall wireless revenues of the listed companies also declining by about 2-4 per cent. The voice revenues were also down by 2.5-5 per cent.

“Profitability pressure, which has been there for sometime now, is expected to ease, provided the volumes don’t drop in significant proportion,” Shobhit Khare, Telecom Analyst at Motilal Oswal Securities, said

“The subscriber additions in the industry are also becoming tough due to the new guidelines. If taking a new SIM is difficult then churn is also going to be difficult,” Khare added.

With at least two telecom firms announcing winding up of operations in certain circles, an increase in churn – subscriber moving over to another subscriber – was also expected.

“The revenues are expected to improve. The stock prices of the companies are improving, as the market has factored this in for the current quarter (third quarter). However, it would be prudent for us to wait till the end of the quarter,” Kishor Ostwal, Chairman of brokerage firm CNI Research, said.

Conventionally, the third and fourth quarters are good for the telecom sector due to increase in minutes of usage and revenues, Ostwal said, adding “this time the third quarter would be even better”.

Tariff to increase

The industry expects operators to raise calling charges from the third quarter of this financial year, apart from withdrawing promotional discount schemes. These would also lead to a 25-30 per cent improvement in voice-per-minute realisations over the next four quarters, and in turn, help in improving ARPMs, analysts opined.


(This article was published on November 26, 2012)
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