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Bharti Profit Falls 8% as Price Cuts Erode Margins

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April 28 (Bloomberg) -- Bharti Airtel Ltd., India’s largest mobile-phone operator, reported fourth-quarter profit fell 8 percent after the nation’s phone companies cut prices to compete in the world’s second-largest wireless market.

Net income fell to 20.6 billion rupees ($462 million) for the three months ended March 31, from 22.4 billion rupees a year earlier, New Delhi-based Bharti said today. Profit was in line with the 20.5 billion rupee average of 30 analysts’ estimates compiled by Bloomberg.

Billionaire Chairman Sunil Mittal’s flagship company added customers at the slowest pace among India’s seven largest operators as they cut call rates to less than 1 cent a minute. Mittal agreed to pay $9 billion for Zain’s assets in Africa, where he’ll compete with Vodafone Group Plc, the world’s biggest carrier and the South Asian nation’s No. 3.

“We see Zain as a loss-making proposition as of now, so we are more interested in the domestic scene,” said Amit Ahire, an analyst at Ambit Capital Pvt. in Mumbai. “Profitability, as expected, has come down.”

Bharti fell 0.3 percent to 297.40 rupees as of 11:51 a.m. in Mumbai trading, while the benchmark Sensitive Index lost 0.8 percent. The stock is the third-worst performer in the past 12 months in the 87-company Bloomberg World Telecommunications Index, which rose 17 percent in the period.

Fourth-quarter sales rose 2.3 percent to 100.6 billion rupees. Earnings before interest, taxes, depreciation and amortization, a measure of profitability known as Ebitda, fell 4.5 percent to 38.2 billion rupees, while Ebitda margin declined to 38 percent, from 41 percent a year earlier.

‘Hyper-Competitive Market’

“Bharti Airtel continues to be strongly positioned in India despite a hyper-competitive market,” Mittal said in a statement. The carrier is working as quickly as it can toward completing the acquisition of Zain’s operations in 15 African countries, which would make Bharti the world’s fifth-largest wireless company by customers, he said. “We are excited about the prospects of an eventful year ahead.”

Vodafone’s local unit and Reliance Communications Ltd., India’s second-biggest carrier, overtook Bharti in customer additions in March. Vodafone Essar added 3.63 million subscribers and Reliance 3.01 million, while Bharti gained 3 million customers to end March with 127.6 million mobile-phone subscribers, according to data from the Telecom Regulatory Authority of India.

Phone companies including Japan’s NTT DoCoMo Inc. and Norway’s Telenor ASA have offered cut-price plans to win a larger share of a wireless market that is forecast by researcher Gartner Inc. to exceed 771 million users by 2013. India had 584 million mobile-phone accounts in March, according to the nation’s telecom regulator, second only to China’s market in size.

3G Airwaves Auction

Bharti is also competing in an airwaves auction, which will allow winners to sell high-speed third-generation wireless services that will allow faster data downloads. Bids for a nationwide license reached 86.6 billion rupees, the government said yesterday.

Bharti may pay as much as $3 billion if it wins the auction and also gains spectrum to operate nationwide broadband Internet, Macquarie Group Ltd.’s regional head of telecom research Shubham Majumder wrote in an April 7 report. Earnings growth for Indian carriers “remains lackluster,” because of continued competition, the high cost of the airwaves and the future possibility of customers switching carriers while keeping their phone numbers, Majumder wrote.

“A lot of investor sentiment is going to be affected by the 3G auctions, because we don’t know where it’s going to end,” said Naveen Kulkarni, an analyst with MF Global Sify Securities Pvt. in Mumbai.

Singapore Telecommunications Ltd., Southeast Asia’s largest phone company, owns a 32 percent stake in Bharti.

Capital Expenditure

Bharti expects capital expenditure in the current fiscal year that started April 1 for its Indian operations, excluding costs for the third-generation network, to be about $1.5 billion to $1.8 billion, Akhil Gupta, deputy chief executive officer of parent Bharti Enterprises Ltd., said today.

The cost of the high-speed network, including the price paid for the airwaves, would be passed on to the consumers, who would have to pay more for the faster services, Gupta said.

“This industry has always been tough, and will always be tough,” Gupta said. “Very clearly, though, this last quarter, in terms of the intensity and the irrationality, has perhaps been the toughest.”

To contact the reporters on this story: Ketaki Gokhale in Mumbai kgokhale@bloomberg.net; Mehul Srivastava in New Delhi at o msrivastava6@bloomberg.net.

To contact the editors responsible for this story: Stephen Foxwell at sfoxwell@bloomberg.net; Young-Sam Cho at ycho2@bloomberg.net.

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