Despite its Africa operations continuing to bleed and many operational parameters looking worse—ARPUs are down 5% and minutes on the network 11% sequentially—Bharti Airtel managed to show an 80% jump in its overall Q4 profits thanks to a sustained turnaround of its India piece. On a year-on-year basis, the telco’s overall profits are down 49%, but given the pace of change, sequential comparisons are more meaningful. While there was 4% rise in ARPUs and a 5% growth in minutes on the network in the India piece sequentially, the most significant change was a near halving of the monthly churn or the ratio of subscribers leaving Bharti Airtel for another network. As a result, as a proportion of revenue, operating expenses fell over 200 bps sequentially. A rise in data usage in the India network is another big positive. In sharp contrast, monthly churn rose 8% in Africa, leading to a 110 bps increase in operating expenses as a proportion of ebitda. Not surprisingly, Africa ebitda margins continue to fall while Indian ones are higher—25.4 versus 31.3 in March—and continue to rise. The Africa turnaround continues to be elusive and, till it does, the costs of financing will continue to keep overall profits depressed as well as volatile.
The problem for Bharti Airtel, however, is that there is just so much operational efficiency it can squeeze out of the India operations. Indeed, the regulatory overhang is getting a lot worse and is the subject of bruising court battles. The one-time payment issue for the extra spectrum the company has is in the Delhi High Court, the 3G intra-circle roaming issue is both in the Delhi High Court and the Supreme Court. The larger issue, of renewal of its licences in lucrative metros such as Delhi and Kolkata, remains a matter of suspense with the government rejecting the application on the grounds that the telco will have to participate in the 2G auctions—the telco has not done so because the base price is too high. The overarching constraint, of course, is that with high entry fees—going by the base price fixed for the 2G auctions—and high 8-10% annual revenue shares, Bharti Airtel and other telcos will take a big hit on profits unless this regime is revisited. If the regulatory overhang is sorted out, and the government allows higher holdings of spectrum after M&As, telcos like Bharti can look forward to a brighter future. Until then, Bharti Airtel has no option but to bank on a turnaround of its Africa business. To make Zain a gain instead of a pain.