Airtel profits weighed down by investment, competition

By Macharia Kamau

Indian mobile phone operator Bharti Airtel continued to take hit from its recently acquired African operations to post a 38 per cent reduction in profits in the quarter ending September 30.

The company’s net profit fell to 10.27 billion rupees ($210 million) for the second quarter, up from 16.61 billion rupees recorded a year earlier.

It’s the seventh consecutive quarter that the operator has reported decline in profitability.

The poor performance is attributable to low margins in its African operations. Other factors that resulted in decline of the Group’s profitability included higher interest costs and foreign exchange losses.

The firm acquired 15 African operations from Kuwaiti operator, Zain, last year at a cost of $9 billion making the firm one of the largest mobile operators in the world by subscriber numbers and geographic foot print. Losses in some of African operations were attributed to foreign exchange fluctuations.

And while some of the individual country operations in Africa have reported good performance, some are still struggling. The company’s operation in Kenya is among those that are yet to turn out profit.

Airtel Kenya though largely credited for pushing down calling rates through a price war it started last year, it has, however, seen revenues from individual subscribers reduce and now needs a mass subscriber base to turn its fortunes.

The Kenyan operation has 3.5 subscribers, having increased significantly over the last year, mostly due to the low calling rates. With decline in individual spending on airtime, the subscriber numbers, however, are yet to translate to significant increase in revenues.

A report released in May by a commission appointed by Prime Minister Raila Odinga noted that other than Safaricom, all other mobile phone operators are making losses.

A recent, Communication Commission of Kenya’s report showed that last year, the Average Revenue Per User (ARPU) per month reduced to Sh348.94, up from Sh389 recorded in 2009, as a result of reduced calling rates, while ARPU was as high as Sh425 per month in 2007.

The reduction in call rates by more than half witnessed last year is believed to have been a tactic borrowed from the parent firm, that aims at capturing mass market, where the volumes are supposed to take care of the low margins.

Bharti Airtel is, however, confident that Kenya and rest of its African operations will turnaround over the next two years and post $5 billion in revenues and $2 billion in profits by 2013.