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Talk must be cheap

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Live Mint explains why talkers dominate some markets:

Bharti Airtel Ltd’s results for the December quarter were a huge disappointment. Its shares fell by 7% after the results announcement. In contrast, Idea Cellular Ltd’s shares had jumped by 11% in just two trading sessions after its results announcement.

The main distinction between the results of the two companies is this: while Idea managed to grow volumes or the total traffic carried on its network by over 7% compared to the September quarter, Bharti’s volumes were practically flat, rising by a mere 0.8% last quarter. Bharti carried 219 billion minutes on its mobile network last quarter. Idea is roughly half its size, having carried 114 billion minutes on its mobile network. But the smaller of the two players has evidently been more nimble-footed.

It became clear in the September quarter that Indian mobile customers are price elastic. Volumes of both Bharti and Idea fell by 2% compared to the June quarter, a first in the history of the industry, thanks to price hikes taken in May and June 2011. Idea woke up to this fact and became flexible with its pricing policy in the December quarter.

Sanjay Kapoor, chief executive officer of Bharti’s India and South Asia operations, on the other hand, said on the post-results analysts’ call that what separated his company from others was that it didn’t raise tariffs selectively, but in all of its operating circles. He added that Bharti didn’t believe in toying with tariffs soon after they were raised, and that it was good to be patient and demonstrate in the market place that there is price stability in the market.

But a look at the numbers shows that the company’s patience has backfired, simply because competitors didn’t share the same view.

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Written by Arhopala Bazaloides

February 8, 2012 at 3:29 pm

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