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Airtel Q1-FY12 Results Concall: On Tariff Hike, 3G, Non-Voice, Gross Subscriber Adds

Heading into this conference call, apart from the India and Africa results, Airtel had two key developments that were up for debate: a price hike, reportedly, of 20%, and a restructuring of its organization in the key India and South Asia region. While there was hardly any discussion on the organizational structure, apart from a question on the appointment of heads for its B2C business and reporting B2C and B2B as separate segments, but the company was quizzed on the price hike and also a decline in contribution of non-voice revenues, and decline in revenue marketshare:

Tariff Hike: Sanjay Kapoor, CEO ( India & South Asia) did not comment on the magnitude of the hike, saying that it is different across different circles. “Over the past few quarters we’ve seen hat the tariff decline has been slowing. Apart from 3 markets, we by-and-large corrected tariffs in every market. This is the right move for the sustainability of the market. Voice is under-penetrated in rural parts of the country.” He later declined to comment on any regulatory backlash on tariff increase, or even if there has been any contact with the regulator on the issue. “The results of each (telecom) operator are an indication, and there have been cost increases in terms of additional (3g) spectrum. The tariff reduction over past 8-10 quarters cannot be made up by any price increase. The full impact of price hike will take a few quarters.” On whether this will impact either usage or sign-ups, Kapoor said that it is too early, but “given the inflation in the country and the role of communications, I’d be surprised if volumes fall. There will be small corrections but this is the right move for the industry.” Later in the call, he said “I don’t know how any industry can sustain with an 8% inflation in the economy and reduction in prices.”

Gross Ads and Net Adds: Airtel reported a lower increase in customer base, at 6.98 million for the quarter, compared with 9.7 million the previous quarter. Kapoor said that the industry churn is beyond 12% per month, and “I dont think anybody can operate viably with such a big leak. The high churn is catching up in the market, and people cannot continue to print gross ads.” Editor’s note: The VLR data should be a better indication.

Revenue Marketshare Trending down? “All I can say is that we don’t know of many cases, where with hyper competition, the market leader hasn’t lost some share. It’s a miniscule give-away. A declining price regime, the guy with the maximum share ends of losing. Some operators were not national earlier, now they’ve started to compete,” Kapoor said. “Given the circumstances, it’s a phenomenal performance in protecting marketshare and bottom line.”

3G: “We cant give precise numbers in terms of 3G vs non 3G. We’re seeing that the proliferation of handsets in the Indian market on the 3G side is increasing. It’s substantial. Hopefully, that should lead to people opting for 3G services in the future. It is the first priority to set the customer experience right, and that’s where the focus has been. To make sure networks are pervasive. I wouldn’t worry about the revenue increase: if we get the experience and ecosystem right, the revenue will follow. Our customers can get access to virtually in every part of the country, other than Orissa and Punjab. We have roaming agreements with like-minded operators.”…”When data upsurge happens in any part of the world, 2.5G and 2G also benefit, it happens at every end of the spectrum. As far as cannibalisation of SMS (by 3G) is concerned, SMS is a very small proportion of our VAS revenue, less than 4%.” The company has pre-poned some of the 3G expenses.

Non-voice percentage of revenue has fallen: Kapoor said that a huge amount of seasonality had hit VAS services: “In the last quarter, we had New Years, Valentines day and Holi in the quarter, and we had the Cricket World Cup. That led to an increase last quarter. I can’t comment on what Vodafone has done”. This was in response to a caller mentioning that Vodafone had not shown any seasonality. MediaNama’s coverage of Vodafone’s results here.

SBI-Airtel JV: “There are permissions to be sought from the financial regulator. SBI is the majority partner and they are following up. Our focus on m-commerce continues.”

MNP Trends: Kapoor reiterated that Airtel does not believe that MNP will be a gamechanger. “I think the guys who benefited maximum are the retailers: extra money has been thrown at them to lure customers from one operator to another. The magnitude of the change is coming down. MNP is predominantly prepaid, and on post-paid we are net gainers.”

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