It was much speculated whether the increase in mobile call tariffs over the last nine months would be beneficial or harmful for the telecom industry.
The version that the telecom industry sold us was that it would be beneficial, as there was very little ‘elasticity’ in demand. Low elasticity means that even if the price goes up, usage will not go down.
One thing to remember is that mobile operators do not face a big uptick in operating expenses if usage of the network increases, for example, from 50% to 55%. While such an increase would boost revenue by 10%, operating expenses may rise only by 1% or so. After all, the cell sites have to kept on 24 hours a day, regardless of whether capacity utilization is 50% or 55%.
The results of Idea Cellular, Reliance Communications and Bharti Airtel showed a steep slowdown in usage in the July to September period. However, that was dismissed as a seasonal pull back, given monsoons. However, Friday’s results from Reliance Communications, and results in the previous week from Bharti Airtel and Idea Cellular shows that the consumers are indeed pulling back on expenditure given the higher tariffs.
It is in this context that RComm’s results have to be seen.
The company’s total traffic on its network fell 3.8% in July-September quarter to 101.5 billion minutes. The company said it was due to seasonality as there is always a 2-3% reduction in usage during the quarter. As a result, everyone expected usage to bounce back in October-December quarter.
But did it? On Friday, RComm said usage increased only by 0.4% to 101.9 bln minutes.
The story was the same for others too. Bharti Airtel saw its traffic fall to 251.3 bln minutes in July-September quarter from 258.4 bln in the previous quarter. It was expected to recover in the October-December quarter, but didn’t. Instead, it rose only slightly to 255.0 bln minutes.
Not surprisingly, the companies, including Idea Celllular, Bharti Airtel and Reliance Communication, have all posted revenue growth below expectations.
Profit has been hit as well due to the decline in revenue, especially for RComm. After all, as pointed out earlier, higher usage increases revenue proportionately, but costs go up only by a fraction of the percentage by which usage increases.