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Crisil sees surge in telecom profit

Mumbai, Dec. 26: Rating agency Crisil today forecast that the operating profit of large telecom companies was likely to rise 20 per cent over the next two years, against 10 per cent growth in the last five years.

The two major factors to contribute to the performance are tariff hikes and an increased use of data and value-added services (VAS) by customers.

Crisil said the pricing power would sustain over the next 2-3 years.

“While the pricing power started returning a few months back, we are now seeing tailwinds from the regulatory side, too, because signs of policy clarity are emerging. The crucial issues of spectrum availability and pricing have been partially addressed with the finalisation of the reserve price for the next round of auction in January. While these signal better times for operators, a caveat is due: how quickly the rest of the regulatory creases are ironed out will remain the key monitorable,” the rating agency pointed out.

In the case of large telecom companies rated by Crisil, average realised rate per minute (ARPM) stabilised in 2012-13, while it improved by around 5 per cent in the first half of this fiscal as tariffs were hiked in select circles.

“Our estimates show there is still a 50 per cent gap between headline tariffs and ARPM because of discounted call rates offered to many subscribers. With the easing of competitive intensity, telcos are in a better position to reduce the discounts and crunch the gap,” Sudip Sural, senior director of Crisil Ratings, said.

He added that revenues from data and value-added services could touch 20 per cent in the medium term from 16 per cent in the last fiscal with large players seeing data use more-than-doubling in the first half of this fiscal over the year-ago period.

The trend is expected to continue in the wake of a near doubling of smartphone sales over the last fiscal and higher 3G penetration following the reduction in 3G prices. This is also expected to contribute to the rise in profits.

Moreover, in the upcoming auction, the reserve prices of spectrum in the 1800MHz and 900MHz bands are 26 per cent and 53 per cent lower, respectively, compared with the previous auction.

During the second quarter of this year, the net profit of Reliance Communications (R-Com) surged to Rs 675 crore from Rs 102 crore in the same period last year helped by the write-back of an earlier provision.

Senior company officials had said the pricing power was coming back with virtual consolidation taking place. They added that average realised rates were expected to strengthen on the back of improved headline tariffs, removal of free and promotional minutes and increased contribution from data.

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