Phone
Guptas mobile-phone contract with Bharti Airtel Ltd. charged him 6.4 rupees (14 U.S. cents) a minute to call the U.S. His new plan with the local joint venture of Malaysias Maxis Communications Bhd. costs 1.75 rupees, a 73 percent savings.
“Price is an attraction,” said Gupta, 65, an acrylics maker. “Today, when everything is going up, this is the only thing going down.”
Indias 11 biggest phone companies, including Bharti, Reliance Communications Ltd. and Vodafone Group Plcs local unit, are cutting prices to as low as one cent a minute to match offers by newcomers such as NTT DoCoMo Inc. The competition may last two to three years, suppressing company earnings and prompting industry consolidation, said Pauli Laursen, a fund manager at SydInvest Asset Management in Aabenraa, Denmark.
Four more companies plan to start services in the worlds second-largest wireless market, which adds about 14 million users a month. India has 1.22 billion people.
“It is good for the users, but it is really bad for the investors,” said Laursen, who oversees $600 million in equities. He sold his Bharti shares in August.
Bhartis Billionaire
Bharti, founded by billionaire Sunil Bharti Mittal, dropped 19 percent in Mumbai trading this year while Reliance Communications, the second-largest mobile-phone operator, dropped 23 percent. They are the two worst performers this year on Indias key stock index, which gained 76 percent.
“You will see a big erosion in the margins,” said Taina Erajuuri, who manages $149 million of Indian equities at Fim Asset Management in Helsinki. “It takes a while for companies to recover from price wars.”
The companies are sacrificing profits for a larger share of a growing market. Telecommunications services industry revenue is projected to reach at least $50 billion in 2012, said Prashant Singhal, a partner at Ernst & Young Pvt. Ltd. in New Delhi. It generated $31 billion last year, according to a 2008 report by Ernst & Young and the Confederation of Indian Industry.
India had 471.7 million mobile-phone connections as of Sept. 30, according to the government. That will increase to 771 million by 2013, Stamford, Connecticut-based research firm Gartner Inc. predicted in June.
Phone Rates
Bhartis earnings estimate for the year ending March was cut to 24.5 rupees a share from 27.2 rupees after phone usage grew slower than expected in the second quarter, Piyush Choudhary, an analyst at Centrum Broking Private Ltd. in Mumbai, wrote Nov. 3. He recommends buying Bharti shares.
DoCoMo and Indian partner Tata Teleservices Ltd. also introduced a 0.01 rupee a second rate in June. The venture won an average of 3.23 million customers a month in July, August and September, compared with Bhartis 2.71 million customers.
Reliance Communications, whose second-quarter profit tumbled 52 percent to a three-year low, charges 1 rupee for a three-minute call.
I Will Switch
“You only pay for the time you talked, so you save money,” Dheeraj Sharma, 29, said after joining Idea Cellular Ltd.s pay-per-second plan. “If I get a better offer, I will switch.”
Sistema Shyam TeleServices Ltd., a partner of Russias OAO Mobile TeleSystems, charges 0.005 rupee per second, or 0.3 rupee a minute. State-owned Bharat Sanchar Nigam Ltd. charges 0.3 rupee a minute on its third-generation high-speed wireless services.
“This is a short-term phenomenon, when the new competitors will come and at some point fall by the wayside,” said Manoj Kohli, Bhartis chief executive officer. “Consolidation definitely will be expedited.”