Bharti, controlled by billionaire Sunil Mittal, reported a sharply lower-than-expected net profit of 7.62 billion rupees for its fiscal first quarter ended June. That was a drop of 37 percent from a year earlier.
Carriers in India have traditionally sacrificed profit margins to chase customer growth by offering one of the cheapest call prices. The operating climate grew more hostile after the Supreme Court decided to revoke all permits awarded to eight of Bharti's rivals such as Sistema
While competition for Bharti and Vodafone's
"For the sector, the pain is more from the regulatory perspective and it's got its pluses and minuses," said Srividhya Rajesh, a fund manager at Sundaram Mutual Fund.
"Because of the cancellation of the licences, a lot of the new players are going out of the market. To that extent, it's positive for the incumbents, but at the same time, the charges, the fees that the government is demanding are going to hurt."The government is planning to hold a mobile airwaves auction in November, which is the last chance for carriers whose permits are set to be revoked to win those back.
Carriers have complained that the minimum bid price is too high, with Telenor and Sistema threatening to pull out of India if the auction becomes too costly.
While bigger carriers such as Bharti are not affected by the court order, they are looking to buy more airwaves to feed their overstretched networks in the world's second-biggest mobile phone market.
"Telecom revenues in India have been depressed due to hyper-competition and recent regulatory and tax developments," Bharti's Chairman Mittal said in a statement on Wednesday.
Margins were further hurt as call prices more than halved in a price war two years ago and have seen little recovery. Mobile data, which offers a higher margin than voice, is still at a nascent stage.
Operators including Bharti invested billions of dollars to buy 3G airwaves and build networks, but the premium services have been slow to take off, forcing the companies to cut data prices.
Bharti, nearly a third owned by Southeast Asia's top phone carrier SingTel
Bharti had a net debt of $12 billion as of June, most of which is due to its ambitious $9 billion African purchases in 2010.
The acquisition of mobile operations in 15 African countries made Bharti the world's fifth-biggest mobile carrier by subscribers, but it has yet to turn a profit there.
REVENUE BELOW ESTIMATES
Overall revenue rose 14 percent in the quarter ended June to 193.5 billion rupees, also missing estimates.
Analysts had expected Bharti, which operates in 20 countries across Asia and Africa, to post a net profit of 12.17 billion rupees on revenue of 195.79 billion rupees, according to Thomson Reuters I/B/E/S.
Network operating expenses in the quarter rose an annual 22 percent as Bharti set up more mobile sites, while sales and marketing expenses grew 31 percent to increase the company's market share. That squeezed the operating (EBITDA) margin to 30.2 percent from 33.6 percent a year earlier.
Monthly average revenue per user in India declined 2 percent in the quarter from the previous three months, while in Africa it fell 4 percent. Net loss for Bharti's African operations more than doubled from a year earlier to 6.69 billion rupees.
By 0759 GMT, shares in Bharti were down 2.4 percent in a Mumbai market that rose 0.3 percent. The stock dropped as much as 4.5 percent to its lowest level since May 25, after the earnings were announced.