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Updated: October 3, 2010 15:57 IST

Telecom companies’ profit margins to remain under pressure: Analysts

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After implementation of mobile number portability (MNP) on October 31, and launch of 3G services, analysts anticipate re-emergence of tariff wars. File Photo: N. Sridharan
The Hindu
After implementation of mobile number portability (MNP) on October 31, and launch of 3G services, analysts anticipate re-emergence of tariff wars. File Photo: N. Sridharan

With rock-bottom tariffs and spiralling business expenses, the profit margins of domestic telecom players is expected to remain under pressure in the coming months, feel marketmen.

“Tariff wars and heightened cost of business have taken a toll on the telecom sector. As we expect tariff wars to re-emerge and competition to intensify in the medium term, it is believed that margins will remain under pressure,” a research report by Edelweiss Capital said.

In the past 10 months, headline tariffs have been stable, but revenue per minute (RPM) has declined 22 per cent.

After implementation of mobile number portability (MNP) on October 31, and launch of 3G services, analysts anticipate re-emergence of tariff wars.

While the street is arguing that operators will be rational in pricing 3G services, having paid significant licence fees, marketmen believe, operators will be under pressure to build scale in these services and will likely price them attractively to achieve scale, the report added.

According to market experts, Idea, Aircel and Tata Docomo will utilise the MNP opportunity to target Bharti’s and Vodafone’s high usage customers.

The street and incumbent operators believe that MNP will be a non-event as it has been delayed and since customers already possess dual-SIM phones that enable the use of same handset for two numbers.

It is expected that subscribers possessing a dual-SIM phone would be indifferent to MNP.

The entry of mobile virtual network operator (MVNO) will lead to further pressure on business for incumbents. This, combined with expensing of interest cost and amortisation of 3G licence fee will lead to lower profitability.

Analysts expect some operators (Tata Docomo, RCom, Idea, Aircel and BSNL) to utilise the MNP opportunity to lure the high usage customer base of incumbents, especially, Bharti and Vodafone.

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