Reliance Jio onslaught has just begun, but some telcos are already bleeding

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India’s leading telecom companies are expected to report sharp drop in operating profit margins in the December quarter, thanks to the twin impact of the Reliance Jio launch as well as demonetisation.

Reliance Jio Infocomm Ltd launched its free services in early September, making Q3 the first full quarter incumbents have been affected.

Besides, the liquidity crunch since mid-November has had an impact on revenues as well.

Analysts are expecting a 10-20% drop in the operating profit of Bharti Airtel Ltd and Idea Cellular Ltd sequentially, despite the fact that Q3 is a seasonally strong quarter.

In the case of Idea, where leverage is high, a shrinking of operating margins will result in large losses in the bottomline.

Analysts at Kotak Institutional Equities said in a note to clients that it expects Idea to report a loss of Rs 440 crore, after accounting for its share in the profit of Indus Towers Ltd. Analysts at ICICI Securities have estimated a loss of Rs547 crore for Idea and Rs320 crore for Reliance Communications Ltd.

Bharti Airtel, with a lower leverage, is expected to remain profitable, although net profit is fall between 35-40% sequentially.

Companies such as Idea Cellular Ltd have told analysts that revenues in the data segment have taken a hit because customers are using Jio’s free services for their data needs. Kotak’s analysts say Jio’s free services will have an impact on three fronts: “Data volumes (as industry’s paid volumes take an expected knock), data pricing (as the incumbents try to hold on to data volumes) and voice pricing (initial impact of bundled offerings in line with Jio’s announced pricing construct + step-up in aggression on pure voice plans + shift in voice volume mix in favour of lower-realization incoming traffic).”

What’s more, things are likely to get worse in the March quarter, what with Jio extending its offer of free services till March. Things may ease a bit after that, when Jio starts charging for its services. But again, much will depend on the proportion of customers that remain on Jio’s network after it starts charging and its pricing strategy post March. As things stand, Jio hasn’t merely made a splash with its launch. It has also caused a splash of red on the bottomlines of some Indian telcos