Bharti Airtel Ltd has reported a massive drop in the profitability of its India wireless business in the December quarter. Earnings before interest and tax (Ebit) of the division fell 93% year-on-year to Rs167 crore. After accounting for finance costs, the unit ran up huge losses. Airtel’s net finance costs stood at Rs2,088 crore, and 60% of this is attributable to the India wireless business, according to analysts.

The losses in the flagship India wireless business suggests Airtel is willing to pay a large price—in the form of near-term losses—in fighting Reliance Jio Infocomm Ltd.

“The key takeaway from the quarter’s earnings print is the increased willingness of incumbents to fight Reliance Jio hard in what is now a brutal fight for ‘LTE recharge’ market share; incumbents are gunning to regain some of their lost ‘LTE spend share’ and perhaps seeing some signs of success there. This is at the expense of ARPU (average revenue per user) dilution from a lot of existing customers, of course," analysts at Kotak Institutional Equities said in a note to clients. LTE stands for long-term evolution, the technology Reliance Jio and Airtel are using to offer 4G services.

Revenues of Airtel’s India wireless business fell 22.2% year-on-year and 12.2% sequentially to Rs10,751 crore. The decline can be attributed largely to the 57% cut in interconnection usage charge (IUC) by the Telecom Regulatory Authority of India (Trai) effective 1 October. According to numbers shared by the company, the IUC cut accounted for about 70% of the drop in revenues last quarter.

The fact that revenues fell at a higher pace compared to Street estimates suggests further downtrading by the company’s subscribers to lower Arpu levels. Arpu fell last quarter to Rs123 from Rs145 in the September quarter. Incumbents such as Airtel extended discounted bundled offers to its larger subscriber base only in the last quarter; earlier, most such schemes were available to subscribers who owned 4G compatible handsets. “Incumbents are displaying that they have fight in them; at the expense of Ebitda and cash flows for now," Kotak’s analysts wrote to clients, supporting the company’s move to retain market share by lowering tariffs. Ebitda is short for earnings before interest, tax, depreciation and amortization.

The upshot: the division’s reported profit was below even beaten-down expectations of analysts; and worse still, with rising capital expenditure, depreciation charges were higher than estimates.

The saving grace continues to be the company’s Africa operations, where Ebit rose by 3.5 times year-on-year. While revenues in the region have been more or less flat, profit margins have improved on the back of the restructuring the company has undertaken. Margins of the Africa business were also aided by the deconsolidation of some low-margin operations last quarter. Besides, the Airtel homes business and the enterprise business reported a sharp growth in profits, which is partly owing to one-off items, according to company officials.

In sum, Airtel results show that its fight with Jio has become uglier. How the latter responds to incumbents’ renewed aggression remains to be seen. For now, investors need to be prepared for continued pain.

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