SECTOR WATCH: Telecom

Telecommunications majors fared well in the March 2007 quarter on the back of a strong growth in revenues and profits. The aggregate revenues and profit of the six key players, Bharti Airtel, Reliance Communications, BSNL, Hutchison Essar, MTNL and Idea Cellular, have more than doubled in the last two years.

While total revenues have grown to Rs 90,700 crore in 2006-07 from around Rs 40,000 crore two years ago, the net profit, estimated at Rs 18,130 crore in 2006-07, was up from Rs 10,300 crore two years ago. The six operators account for over 90 per cent of the market.

Trigger: The increasing demand for mobile phones, a fall in handset prices, a favourable revenue-sharing regime and a drastic reduction in technology costs "" besides infrastructure sharing and outsourcing "" have fuelled the growth rate.

Outlook: With the government estimating 500 million mobile phone users by 2010, revenues should comfortably touch Rs 2,00,000 crore by 2010, a compound annual growth rate of 31.5 per cent. With the government paving the way for infrastructure sharing, analysts see tower sharing as a cost-effective measure for mobile companies to rapidly cover rural areas.

Bharti and Reliance Communications have plans to hive off their tower assets into separate companies. This will create a shift in the country's mobile telephony dynamics and improve capital efficiencies.

According to SSKI Research, infrastructure sharing, falling handset prices and increasing affordability will drive market expansion. The wireless subscriber base is expected to reach 504 million by 2012. But analysts do not see tariff wars in the offing, despite Vodafone's acquisition of Hutch. Hence, the profitability of operators is likely to remain intact.