Airtel, Idea to report sharp drop in Q3 operating profit margins, courtesy Jio free services & demonetisation

Free services by the new entrant Reliance Jio and demonetisation is likely to impact the third quarter earnings of India’s leading telcos Bharti Airtel and Idea Cellular. These telcos are also expected to report sharp drop in operating profit margins in the December quarter, a telecom report by Kotak Institutional Equities said.

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According to analysts at Kotak, the fourth quarter of the ongoing fiscal would be even weaker following the extention of free services by the Mukesh Ambani-led telecom operator. The brokerage noted that Jio’s free services will impact top telcos’ data volumes, data pricing and voice pricing.

Reliance Jio Infocomm, which launched its free services on September 5, has already acquired over 60 million subscribers in the country.

In order to counter Reliance Jio, incumbent telcos have been responding with various data and unlimited voice offers through various packs.

Kotak said that these telcos have responded to Jio’s free launch offer with selective aggression of their own, in the form of bundled offers with unlimited voice as well as higher discounting on pure voice plans, which has likely helped them protect, or even grow, their outgoing voice traffic at the expense of the ex-Jio challengers.

The brokerage, however, added that the the impact on voice RPM is negative, again for these telcos.

According to analysts, quoted by various media, Bharti Airtel Ltd and Idea Cellular are likely to post a 10-20% drop in the operating profit sequentially, despite the fact that Q3 is a seasonally strong quarter.