UPDATE 1-Idea Q2 net up 53 percent, says price war to continue

Mon Oct 26, 2009 9:19am EDT

* Net profit of 2.20 bln rupees vs 1.44 bln year ago

* ARPU falls 20 percent in most zones

* MD says price pressure to continue (Adds details)

By Pratish Narayanan

MUMBAI, Oct 26 (Reuters) - Idea Cellular (IDEA.BO), India's fifth-ranked mobile operator, posted a 53 percent rise in quarterly profit on higher users, but warned a price war in the world's fastest-growing wireless market will continue for some time.

Indian mobile operators have for long thrived on a model that assumes more people subscribe to mobile phones and talk more when prices are low and that model has paid off, fuelling tremendous pace of subscriber additions -- more than 12 million on average every month.

But intensifying competition in the crowded market with 11 mobile operators has given rise to a price war with firms cutting call charges to grab users at a faster rate than rivals and key metrics such as average revenue per user falling, threatening firms' profitability.

Idea Cellular, which also recently cut prices in some telecom zones expects more of such cuts.

"This is a bloodbath which has only begun," Managing Director Sanjeev Aga told reporters at a news conference on Monday after the firm announced its quarterly results.

"I think it will take a year for the field to settle," he said. "Eventually prices will go back up."

Idea, part of the Aditya Birla conglomerate, reported consolidated net profit rose to 2.20 billion rupees ($47 million) in its fiscal second quarter ended September, from 1.44 billion reported a year earlier.

Revenue rose 29 percent from a year earlier to 29.74 billion rupees.

Idea, which now operates in 18 of India's 22 telecom zones, saw its subscribers rising more than a half from a year earlier to 51.5 million at end-September, but average revenue per user fell an annual 20 percent on average in 15 of the zones.

The company, which gets 40 percent of its revenue from customers in rural areas, cited the delayed monsoon for weakness in demand.

Idea bought smaller Spice Communications SPCM.BO in a deal last year that also gave Malaysia's Axiata Group (AXIA.KL) about a fifth in the combined entity.

Shares in the company, valued at about $4 billion, closed 3.4 percent lower at 56.80 rupees in a Mumbai market that fell 0.4 percent. Bigger rivals Bharti Airtel (BRTI.BO) and Reliance Communications (RLCM.BO) which report results on Friday, also closed lower, but outperformed Idea shares. ($1=46.6 rupees) (Writing by Devidutta Tripathy; Editing by Jarshad Kakkrakandy)

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