Telecoms not ringing quite so true

Despite the huge market in India, declining profits because of mounting costs and intense domestic competition has tempered intitial optimism and forced the country's biggest operator to introduce radical efforts to cut costs.

Bharti Airtel plans to consolidate its operations by merging its mobile, broadband, fixed-line and satellite television businesses.

MUMBAI // Last year, India's largest mobile carrier Bharti Airtel turned heads with its US$10.7 billion (Dh39.3bn) acquisition of the Kuwaiti Zain group's telecommunications operations in Africa.

The offshore expansion, which gave it access to Zain's 42 million subscribers spanning 15 African nations, left the company the world's third-largest telecoms operator.

But declining profit margins - a result of mounting operating costs in Africa and intense competition in the crowded domestic market - has tempered all the optimism.

Last month, the company announced a 33 per cent drop in net profit to $1.4bn for the year that ended on March 31.

In a radical effort to cut costs, the company last week announced plans to consolidate its operations by merging its mobile, broadband, fixed-line and satellite television businesses, which account for 90 per cent of its revenues.

The company declined to elaborate on the plans, but said the restructuring would have a "minimal" impact on jobs.

Analysts view Bharti Airtel's problems in integrating its African operations as temporary start-up hurdles on a new continent that faces a shortage of skilled labour and where the average talk-time rate per minute is 6.2 US cents compared with 1 cent in India.

But increased competition and price wars with more than a dozen other private operators in India's telecoms market is a more serious concern.

Kamlesh Bhatia, an analyst based in Mumbai for the global research firm Gartner, estimates there are 14 operators on average in every zone, which is "unsustainable" in India's fragmented telecoms market. Mr Bhatia said there was a need for significant consolidation to improve profit margins.

Several telecoms operators, including Etisalat DB - a joint venture between Etisalat and India's Swan Telecom - have expressed interest on various occasions in merging operations with other operators.

India's new telecoms policy, expected to be unveiled at the end of this year by Kapil Sibal, India's telecoms minister, will redefine existing merger and acquisition rules and could herald crucial policy changes for operators.

The existing policy was formulated in 1999 when the sector was monopolised by state-run enterprises. But in recent years, there has been explosive growth in the sector, which has emerged as the most dynamic of the Indian economy.

With 811 million-plus mobile phone subscribers - and 17 million new ones being added every month - India is the world's fastest-growing mobile phone market after China.

The Boston Consulting Group says the sector has grown in the past five years at an annual rate of 12 to 13 per cent.

A policy change, experts say, is badly needed to accommodate that rapacious expansion.

"The Indian market has changed dramatically since [the 1999 policy]. The context of growth for the Indian market has altered significantly," says Dr Rajat Kathuria, a professor of economics at the International Management Institute in New Delhi and a former consultant with the Telecom Regulatory Authority of India.

The decision to overhaul the existing policy was announced last year after Indian authorities began investigating the role of Mr Sibal's predecessor, Andimuthu Raja, who was forced to resign in November amid allegations he sold licences for second-generation cellular frequencies at deflated prices.

It resulted in an alleged revenue loss of $39bn for the Indian government.

Mr Sibal insists the new policy will usher a new era of transparency in the business and create a "level playing field" for cellular operators.

But "the number of competitors will not be allowed to fall below six in each [zone]", Mr Sibal said in April, indicating a certain level of healthy market competition will be maintained to benefit Indian consumers.