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For the telecom companies, the third quarter of the current financial year would be another period of strain, mainly impacted by the earlier slash in Interconnect Usage Charges (IUC).
Early last year, the Telecom Regulatory Authority of India had announced a cut in IUC to 6 paise per minute, effective October 1, 2017. The termination charges were cut to 6 paise per minute from the earlier 14 paise, while the regulator announced its intention to gradually reduce it to zero in the next two years.
“The quarter is likely to be another weak quarter for the Indian wireless names. The 57 per cent cut in mobile termination rates (MTR), effective October 1, 2017, is likely to impact Bharti Airtel’s and Idea Cellular’s India wireless EBITDA by around 8 per cent and 11 per cent (on 2QFY18 base), respectively,” Kotak Institutional Equities said in a report.
MTR contributed as much as 14-15 per cent to Bharti’s India wireless revenues, and reduction in MTR should result in an 8 per cent sequential dip in its India wireless revenues. For Idea, MTR’s contribution to revenues during the second quarter was 14-15 per cent, which would mean an 8 per cent impact on its revenues, the brokerage firm added.
“We see mobile EBITDA declining 6-8 per cent for Bharti and Idea. However, we highlight that arithmetically, the IUC cut would be margin accretive,” Credit Suisse said in its report.
“Adjusted for IUC cuts, we believe competitive pressure on telcos will continue, with ARPU pressure sustained. While there have been some tariff actions recently (across almost all leading operators), we believe that the general direction is still downwards,” it added.
Mirroring the sentiment, Bank of America Merrill Lynch said IUC reduction would have hit third quarter balance sheets.
“We expect the 3Q numbers for Bharti/Idea to be impacted by interconnect rate cut and continued down-trending by consumers to low priced plans. Unlike last quarters, we do not expect any major surprises in cost-control initiatives as the rate cut largely masks it,” it added.
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