Airtel Rings In Lowest Capex

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Airtel rings in lowest capex

18 Jul, 2008, 0134 hrs IST, ET

MUMBAI: Cellular operator major Bharti Airtel seems to compare favourably in the infrastructure cost or capex per subscriber, an indicator of a company’s operational efficiency. While the figure for Airtel is Rs 3,800 per user, the corresponding number for Idea Cellular is around Rs 4,800 per user and that for Reliance Communications is the highest at Rs 6,540.

Bharti Airtel has been shaving costs to the bone through outsourcing networks management, IT as well as call centre operations. As telecom is a capital-intensive business with economies of scale, a low capex per subscriber leads to savings on interest and depreciation, which translates into higher profitability.

During FY08, depreciation expenses were only 13% of net sales for Bharti Airtel and Idea Cellular. The corresponding figure for RCOM was 15%. According to Accendia Consulting principal analyst Alok Shende, the difference in the capex expenditure between Bharti, Idea and RCOM and even other unlisted operators can be explained through the capex implementation model.

He said for operators that have outsourced network management to the equipment vendors, the capital expenditure is only to the extent of voice minutes that are being consumed during a given quarter. On the other hand, for telcos doing it in-house, not only should the capital expenditure address the current demand, but also address anticipated demand. Hence, per capita capex is higher.

“While the long-term cost of technology can almost be the same in in-house and outsourced model, the outsourcing model works better because its investments are made-to-order and it also avoids financial charges for unused capacity,” said Mr Shende. An analyst at a technology research firm said the higher capex for RCOM is the result of capacity build-up.

“Over a period of time, when subscribers come on board, it may get levelled out. Also, Bharti and Idea seem to be holding back capex for impending 3G (third generation) services rollout,” he said. Companies create value by investing capital to earn returns more than the cost of the capital. Effective capex management maximises a company’s value and returns to shareholders, an industry analyst said.

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now this is y reliance has started costing more to its subscribers...!! nice info dude!!

Edited July 18, 2008 by Greatest