Reliance Comm Q3 net falls by over a fifth

NEW DELHI, INDIA:  Reliance Communications reported a 21 percent drop in quarterly profit as hefty declines in call charges hit India's No. 2 mobile operator, but the profit fall was smaller than expected helped by forex gains and lower costs.

"The results are better than the market was expecting but the challenges of over capacity and price war are going to be there for two quarters at least," said Gajendra Nagpal, CEO of brokerage Unicon Financial.

"Only a consolidation in the sector would help and from a long-term perspective, one should be bullish on the telecoms space," he said.

Reliance, which has been more aggressive than larger rival Bharti Airtel (BRTI.BO: Quote, Profile, Research) in slashing phone call tariffs, was confident of withstanding high competition, Chairman Anil Ambani said in a statement.

Larger rival Bharti Airtel last week reported a 2 percent rise in quarterly profit as the intense price war took a toll.

An upcoming initial public offer of Reliance Communications' tower unit, which banking sources say could raise up to $1 billion from a 10 percent stake sale, is set to boost the company's financials. Reliance has received regulatory clearance for the share sale but is yet to set a date.

A crowded market with global players such as Vodafone , NTT DoCoMo and recent entrant Telenor has led to fierce competition to grab market share in the world's fastest-growing mobile market.

The industry signed up record users at a monthly average of nearly 15 million in 2009 to have a total of 525 million. The majority of new users are however from rural areas and tend to spend less than their urban counterparts.

Reliance Communications, part of conglomerate Anil Dhirubhai Ambani Group, said its net profit fell to 11.08 billion rupees ($239 million) for the quarter ending December, from 14.10 billion reported a year ago.

But profit for December quarter rose by a half from September quarter's 7.40 billion rupees.

Revenue fell to 53.10 billion rupees from 58.50 billion for the Mumbai-based firm, which added 7.7 million users during October and December to have a total of 93.8 million.

For detailed results, see link.reuters.com/qaj76h

Analysts polled by Reuters had expected net profit to fall to 7.14 billion rupees on average on revenue of 56.50 billion.

Shares in Bharti and Reliance Communications were the only losers in 2009 among the 30-share benchmark index .BSESN, which jumped 81 percent.

On Friday, Reliance Communications, which has a market value of $7.6 billion, ended down 0.9 percent at 169.85 rupees.