July 23 (Bloomberg) -- Bharti Airtel Ltd., India’s largest mobile-phone operator, reported revenue that missed analyst estimates after it added more low-spending users in the nation’s smaller towns and villages.

Revenue was 99.4 billion rupees ($2.05 billion) in the three months ended June 30, compared with analysts median estimate of 101.7 billion rupees and 84.8 billion rupees a year earlier. Net income in the quarter, including 2.4 billion rupees in deferred tax income, rose 24 percent to 25.2 billion rupees.

Bharti shares fell in Mumbai trading as the results fueled concern that the company’s growth is reliant on low-spending users. Chairman Sunil Mittal is for a second time negotiating a merger with South Africa’s MTN Group Ltd. to tap markets with higher growth potential as urban areas at home get saturated and rivals including Japan’s NTT DoCoMo Inc. seek a share of the world’s second-largest wireless market.

“This sector is gradually reaching a level of saturation” in India, R. K. Gupta, New Delhi-based managing director of Taurus Asset Management Co. said by phone. “Everyone has to spend very heavily on advertisements and manpower; that pressure should continue,” said Gupta, who oversees $144 million in assets that don’t include Bharti shares.

Bharti declined 1.1 percent to close at 814.1 rupees in Mumbai trading, the worst performer today on the Bombay Stock Exchange’s Sensitive Index, which added 2.6 percent. The stock has gained 14 percent this year, underperforming the benchmark index’s 58 percent advance.

MTN Talks

Bharti on May 25 said it was in exclusive talks with MTN until July 31, as a first step in a potential $23 billion merger. The Indian company plans to buy 49 percent of the African carrier and is offering 86 rand ($11.2) in cash and half a Bharti share for each MTN stock. The Johannesburg-based company and its shareholders may buy 36 percent of Bharti, according to a MTN filing at the time.

The carrier is continuing negotiations and can’t give more details, Akhil Gupta, deputy chief executive officer of parent Bharti Enterprises Ltd. said at a briefing today. A successful conclusion to the talks will help create an operator with annual sales of $20 billion serving 200 million wireless subscribers across Africa and Asia.

Bharti added a record 8.44 million users last quarter, 60 percent of them in rural and semi-urban areas, Chief Executive Officer Manoj Kohli said today. The additions boosted the operator’s total wireless subscribers to 102.4 million, more than the combined populations of Spain and the United Kingdom.

Calling Rates

Calling rates as low as 2 U.S. cents a minute are helping Indian wireless operators win first-time users in a market where about one in three people own a mobile phone. India’s carriers added more than 23 million subscribers in the first two months of the last quarter taking the total to about 415 million, according to the Telecom Regulatory Authority of India.

India wants to raise that by 2012 to about 600 million subscribers, including fixed line connections, according to the nation’s Economic Survey report released earlier this month.

NTT DoCoMo’s Indian venture with Tata Teleservices Ltd. last month started services based on the global system for mobile communications, or GSM, standard that Bharti uses and is offering calls for as low as 0.02 cent a second.

Nearest rivals Reliance Communications Ltd. and Vodafone Group Plc’s Indian unit grew at a faster pace in the first two months of the quarter ended June 30. Reliance had about 77 million subscribers at the end of May and Vodafone 74 million, according to India’s telecom regulator.

Bharti’s first-quarter net income after deducting the tax gain missed the projection of 23.6 billion rupees, according to the median of 27 analyst estimates compiled by Bloomberg.

The company plans to spend as much as $3.5 billion to expand its network this year, Gupta said.

Singapore Telecommunications Ltd., Southeast Asia’s largest telephone company, owns about 30 percent of Bharti.

To contact the reporters on this story: Gaurav Singh in New Delhi at gsingh31@bloomberg.net; Harichandan Arakali in Bangalore at harakali@bloomberg.net.

Last Updated: July 23, 2009 08:29 EDT