Worst over for telecom firms?

By Devidutta Tripathy

NEW DELHI, INDIA: Results for the last quarter could show profits bottoming out for India's top mobile firm Bharti Airtel and rival Reliance Communications as the sector stabilises after a vicious price slump.

Firms including Bharti, Reliance Comm, Vodafone, Tata Teleservices, Idea Cellular and Reliance Industries, spent a combined $23 billion to grab licences in recent auctions of 3G and broadband wireless radio airwaves in the fastest-growing cellular market.

Voice services account for nearly 90 percent of Indian telecoms firms' revenue, but metrics such as average revenue per user are declining as a majority of the new users come from rural areas, who spend less than their urban counterparts.

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"I am cautiously optimistic," said K.K. Mital, head of portfolio management services at Globe Capital in New Delhi on the outlook for telecoms firms.

"The worst seems to be over in terms of price falls and the minutes of usage is on the rise," Mital said.

Some analysts said debt levels would be an overhang on the industry until the next-generation services take off and start making money for the firms.

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After call prices tumbled to as low as 0.4 U.S. cents a minute -- with the brunt of the price cuts taking place in the second half of 2009 -- in a vicious war in the 15-operator market, there were no significant price falls in April-June.

Bharti, which dominates India's mobile market with its about 137 million users, or more than 21 percent of the market of 635 million, is set to report quarterly profit fell by about a quarter, according to a Reuters poll of 10 analysts.

"Going forward, one has to see what kind of response 3G services get. That will be key for Bharti," Mital said.

Reliance Comm, which had been more aggressive in cutting call prices, could see its profit slump about 60 percent. Reliance Comm is selling its telecoms towers to help reduce its high debt and has also plans for selling up to 26 percent stake in itself.

The key for Bharti would be integrating its $9 billion acquisition of telecoms operations in 15 African countries that made it the world's fifth-biggest mobile operator.

Indian telecom firms will be allotted 3G radio airwaves only in September and are expected to launch services around end-2010 or early next year.

Bharti and Reliance shares are flat so far this year after being the worst performing stocks in the Mumbai benchmark index in 2009.

(Editing by Ranjit Gangadharan; Editing by Anshuman Daga)