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Slower growth ahead for telcos in India

LiveMint logoLiveMint 20-05-2014 Mobis Philipose

Vodafone India Ltd’s results for the March quarter closely mirror those of competitors Bharti Airtel Ltd and Idea Cellular Ltd. Growth in voice traffic slowed and expansion in data services was supported by price cuts.

Voice traffic carried on Vodafone India’s network rose by 6.15% last quarter, down from 9% a year ago and 16% two years prior. Additionally, voice revenue per minute fell by 1.4% sequentially, belying expectations that reduced competition will raise tariffs.

Data traffic continued to double, but average realization fell, impacting revenue growth from the segment. Growth is still impressive at 37.5%, though down from 49% in the June quarter. At 10% of revenues, it’ll still be a while before data drives earnings.

Vittorio Colao, Vodafone Group Plc.’s chief executive, said on a post-results call that his company is investing heavily in an initiative called Project Spring to improve network and services. In India, it plans to have 3G coverage for 95% of the population by 2016. Project Spring entails a total investment of £19 million, and given India’s importance in Vodafone’s growth plans, we can expect a fair portion to be spent here. It could mean data pricing will remain extremely competitive as companies try and increase usage. What’s more, Reliance Jio Infocomm Ltd appears to be largely focused on data and its entry will intensify competition further.

As a result, 2014-15 could turn out to be different than the year gone by in which Indian telcos gained as smaller operators shut shop and tariffs rose marginally. Vodafone India’s operating revenue and earnings grew by 13.7% and 26.1%.

In the March quarter, however, the top three companies reported a drop in average realization in voice. Coupled with declining growth, revenue from the mainstay segment is expected to grow at a slower pace. Although data traffic may continue to grow fast, pared prices could mean revenue growth in this segment may slow as well.

Bharti Airtel and Idea Cellular’s share prices reflected some of these concerns earlier this month. These stocks have now risen, thanks to the euphoria surrounding the new government. At current valuations, investors can only hope both the government and the telecom companies deliver.

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