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Airtel can make more money by keeping Mobile Internet rates low, says Airtel India MD & CEO Gopal Vittal

Asked on the Airtel conference call about the situation of Mobile Internet (data) prices being as low as Rs 50 per GB, and whether there is any concern regarding getting stuck at such a low price point, Airtel India MD & CEO Gopal Vittal didn’t appear worried. Airtel has been pushed to drop rates by “predatory pricing” from Reliance Jio, whose welcome offer of free data and free voice calls has led to incumbent operators dropping rates. Vittal said “I am not concerned about the Rs 50 per GB in as much as I am concerned about ARPU”…”the cost of producing a megabyte is almost nothing, once you have sunk your money into the spectrum and put in the CapEx (Capital Expenditure). I think you might as well get a lot more revenue.”

“…let me give you an example. If two years ago, our consumption was 500 megabytes a month with a pricing, or a realization at Rs 270 a gigabyte. Today, it is about 1 GB a month with a realization, which is around Rs 170 a gigabyte. This still gives us about Rs 160 to Rs 170 ARPU. And tomorrow, if it is Rs 50 and you are getting 4 gigabytes a month on an average, you should get Rs 200 ARPU. So I think it is an ARPU game and that is a function of how demand shapes up. And we have seen that when you get the right pricing, we do see elasticity on data. So I think this is an adjustment phase that we will go through, but over time, people will tend to use more.”

Vittal explained that “in this business (telecom) once the large investment you make in spectrum, it is a smaller investment on the CapEx and once you have put in that CapEx, then the marginal cost of producing an extra megabyte of data is actually almost nothing. And so, given the utilization being low, we believe that this market is moving decisively and it will move decisively in the next 12 months to 24 months towards an ARPU game.”

“So on data capacity, how many times can you go up?”

“(In terms of data capacity) if today you are sitting at, X, you could go up to 7X, 8X, 10X today. With the network that we have, let alone the spectrum that we have because on the spectrum that we have, we put in some more, actually your capacity anyway goes up, because finally capacity is a function of the spectrum that you have and the number of sites that you have. We have already invested in spectrum that is done. Now the question is of the sites. We have rolled out a large number of sites, so over two years, we rolled out almost 160000 base stations on our 3G and 4G networks and that gives us incredible headroom to actually drive capacity up. And then of course, if you put in more sites that gives you even more capacity.”

“where we have deployed our 4G networks,” Vittal said, “with the capacity that we have created, we could do up to 7 times, 8 times, 10 times of what we are actually doing. And we need to do more over the next 12 to 24 months and we will do that.” In addition to this, Airtel plans “to add more sites or to deploy the network more aggressively is a matter of literally months, because we already have our sites there in the form of our 2G and 3G networks and the incremental cost of loading an additional technology on a site is very, very marginal, both in terms of energy and rent.”

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And lastly

“…So the cost of producing a megabyte will keep falling and therefore it will become a game about putting in the right CapEx and getting the right utilization. And as applications and content and innovation happen on the demand side, people will tend to use more, which is why you will then earn a lot more data revenue.

So why doesn’t Airtel support the open Internet?

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