Bharti Airtel's profits hit by Africa acquisition

The company is saddled with high interest costs in a competitive market

Revenues at India’s largest mobile operator surged in the last three months of 2010, but competition and higher spectrum costs, and increased interest payments ate into profits.

Bharti Airtel said Wednesday that its revenue grew by 53 percent to 158 billion rupees in the quarter (US$3.5 billion as of the last day of the quarter) and net profits fell 41 percent to 13 billion rupees. The results are based on international financial reporting standards.

The figures for the quarter ended Dec. 31 are however not strictly comparable to those in the same quarter of 2009, because they include the results from Bharti Airtel's acquisition of Zain in Africa. The company acquired the African carrier in a $10.7 billion deal in June.

Bharti Airtel’s revenue from its traditional markets in India, Sri Lanka, and Bangladesh grew 13.7 percent in the quarter from the same period a year earlier, even though the number of mobile subscribers grew by 31 percent to 157.5 million.

As a result of fierce tariff wars in India, average revenue per user (ARPU) was down 14 percent on the year earlier.

ARPUs in India have stabilized in the current quarter as the tariff war has abated, said Kamlesh Bhatia, a principal research analyst at Gartner.

Some operators will soon start seeing a small growth in ARPU as revenue from value added services may go up steadily after the introduction of 3G services, and users are educated on the benefits of some of the new applications, Bhatia added.

Bharti Airtel has been trying to increase revenue from value added services and that appears to be working. They accounted for 13.8 percent of revenue in the quarter, up from 11 percent a year earlier. The company continues to add such services and on Monday launched a pre-paid e-money service called "airtel money."

Revenue from Africa was $911 million in the quarter, with the number of subscribers at 42 million. The company did not disclose a comparable figure for the same quarter in the previous year.

Bharti Airtel was expected to face a drag for some times on its margins and profits from its acquisition in Africa, Bhatia said.

The company had 199.6 million subscribers across Asia and Africa at the end of the quarter.

In the last couple of years the company has seen debt increase as it expands. It spent about 156 billion rupees on licenses to offer 3G and broadband wireless in several Indian cities and has acquired Telecom Seychelles and a majority stake in Warid Telecom in Bangladesh. The company also spent 3.4 billion rupees in the quarter to bring its operations in 19 countries together under the "airtel" brand.

The company had a net debt of 599 billion rupees as on Dec. 31. The interest on borrowings during the quarter was 5 billion rupees.

John Ribeiro covers outsourcing and general technology breaking news from India for The IDG News Service. Follow John on Twitter at @Johnribeiro. John's e-mail address is john_ribeiro@idg.com

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