A few months back investors were worried that India’s operators – having raced out their networks to serve the country’s middle classes – would begin to wheeze uncomfortably as they turned attention to poorer, mainly rural, communities.
Not so, it appears. Bharti Airtel, the country’s biggest operator, has just reported one of its most successful quarters ever. Far from flagging as it enters the countryside, Bharti managed to sign up 7.51m customers over the three-month period – its highest-ever recorded gain. What’s surprising to some is that Bharti did this while also boosting its net profit by 34%.
It’s all down to a precise balancing act that Bharti has mastered to a tee. Cut calling rates and an operator targeting mainly low-spending prepaid customers – as Bharti is – can attract new business and propel usage of its services. But cut them too much and margins begin to wear thin.
During the quarter in question, subscriber gains plus a rise in minutes of use per user (to an average of 534 per month, from 478 a year earlier) helped to compensate for a fall in average revenue per user (to INR350 per month, from INR390 a year earlier). But Bharti’s operating margin (based on earnings before interest, tax, depreciation and amortisation) slid to 30.7% from 40.6% in the first quarter of 2007. Operationally sleek as Bharti may be, the company’s senior management has warned that further price reductions will be hard to bear.
Even so, this performance is impressive given that India’s calling rates are already among the lowest in the world, at less than 2 US cents a minute. It will be interesting to see how its competitors respond.
