Telcos see drop in minutes of usage

Rising competition in the telecom sector is likely to have a significant impact on the minutes of usage (MoU) recorded by telecom companies over the coming
months and years, according to analysts.

Although MoU per user per month for telcos had increased earlier, the last two quarters have seen the MoU numbers dipping. Besides, the pre-paid churn rate of mobile companies increased, which is yet another concern for the telecom operators. Pre-paid user base makes up for almost 95% of the total subscriber number for telcos.

Bharti Airtel recorded an average MoU of 478 minutes in the first quarter of the current financial, down from 485 minutes in the previous quarter. Even Idea Cellular showed a marginal dip in MoU, which fell to 399 minutes from 402 minutes earlier.

As for movement of subscribers, Bharti reported a churn rate of 3.5% in the pre-paid category, up from 3.2% in the previous quarter, which means 3.5% of Bharti’s pre-paid mobile base shifted out, perhaps to another operator, during the first quarter of 2010, against only 3.2% earlier. The post-paid voluntary churn for Bharti was maintained at 1.2%.

Idea’s churn rate in the pre-paid category was 6.9%, up from 5.3% during the previous quarter. However in the post-paid segment, the churn rate fell to 2.9% from 3% earlier.
In a recent report after Idea Cellular’s financial results, ICICI Securities, referring to MoUs and ARPUs, said the decline would intensify due to increasing dual-SIM usage, driven by free minutes and differential pricing.

Pointing at the increase in pre-paid churn of Idea, the report said that it may further rise with the entry of new competition. “We maintain a cautious outlook on telecom, owing to the rising competition,” the ICICI Securities report said. It added that even as new operators may find it difficult to attain financial viability, “they increase the risk of price-based competition and further division of MoU among operators”.

In yet another telecom sector report on Bharti, First Global spoke about risks that may impede achievements of the price target/investment thesis. In view of the growing competition, the report listed regulatory levies by the government, lower-than expected increase in subscriber base, changes in government policies relating to spectrum allocation and pricing as the possible risks for the telcos.