Bharti Airtel growth stalls, price war clouds outlook

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India's top mobile operator Bharti Airtel will struggle to improve earnings as an intense price war and the entry of global players overshadows subscriber growth in the world's fastest growing market.

The company, 30% owned by SingTel reported its slowest profit growth in more than three years, highlighting the deep pockets telecom companies need in a market forecast to double to 1 billion users by 2014.

The entry of operators including Japan's NTT DoCoMo and Russian Sistema has pummelled call rates to as low as 0.7 US cents per minute in a 13-operator industry signing up over 14 million users each month.

"The war for market share in the Indian telecom industry has only begun and its only going to intensify as more players enter the market," Rakesh Rawal, head of private wealth management at Anand Rathi Financial Services, said on Friday.

"The companies will have to take a hit in terms of reduced level of profitability because of the price war. This is not going to abate in the near future," said Rawal, who advises his clients to "keep-off" telecom stocks.

Bharti, which last week agreed to buy 70% of Bangladesh's Warid Telecom in its first overseas acquisition, will still focus on expanding in emerging markets on a priority basis, Chief Executive Officer Manoj Kohli said.

"I think this phase of hyper competition will continue for couple of quarters," he said, adding the cut-throat competition was expected to stabilise in the second half of this year.

"By next year, industry will see early signs of consolidation."

Bharti is controlled by billionaire Sunil Mittal, who started his career selling bicycle parts in India and then saw an opportunity in telecoms when the sector was opened for private companies in the mid-1990s. Bharti added 8.4 million mobile users in Oct-Dec to reach a total of 119 million by end-December.

Shares in Bharti, valued at USD 27 billion, rose as much as 2.4% after the results in a weak Mumbai market. By 0945 GMT, the stock pared gains and was down 0.5%.

Internatonal Foray

Last week, New Delhi-based Bharti set up a new unit to boost its foreign expansion, signalling its growth ambitions are intact despite twice failing to reach a deal with South Africa's MTN Group.

Kohli will now head the new international business group.

Bharti and rival Reliance Communications were the only two stocks that fell in 2009 in the main index, which jumped 81%.

Reliance Communications, which has been more aggressive in cutting call prices, is expected to be the worst-hit by the price war and analysts forecast its quarterly profit to halve.

Bharti said net profit rose 2% to Rs 22.1 billion (USD 478 million) under U.S. accounting rules in its fiscal third quarter ended December.

It was the slowest pace of annual growth in net profit since at least April-June of fiscal 2006/07, when comparable growth figures under U.S. accounting standards were first available.

Revenue rose 1% to Rs 97.72 billion. A Reuters poll of 12 brokerages had forecast a fall in net profit to Rs 20.96 billion on revenue of 97.10 billion.

Bharti added 8.4 million mobile users in the quarter to reach a total of 119 million by end-December.

Average revenue per user fell 29% to Rs 230 in Oct-Dec as more than half of new users came from rural areas, where spending is lower, and average minutes of usage also fell 12% to 446 minutes.

($1 = Rs 46.2)