How long will this price war continue, Gopal Vittal, MD & CEO of Airtel, was asked during the companys earnings call. The company reported lower Mobile Internet revenues and consumption during the quarter, fewer mobile Internet users, and a decline in just about every mobile Internet metric.

“I am not at liberty to tell you how long or how short the price war will continue,” Vittal said. “All I will say is that every investor, every company that enters this high CapEx industry of telecommunications, finally wants to make a return for the capital that they have deployed. And so, there will be financial prudence at some stage once there is equilibrium. I think in the short to medium term, you are going to see rapid consolidation in this market.”

Reliance Jio’s welcome offer, where it is giving free data till March 31st 2017, is unwelcome for incumbent operators, being viewed by Airtel as “predatory pricing”. It has led to a “dramatic traffic skew towards incoming minutes”…”and has led to an unprecedented drop in the industry revenue table for the first time since its inception”.

1. Smaller players will get more hurt; consolidation will help Airtel’s market share: “You are currently confronted with about nine operators. Our sense is that this will rapidly consolidate in the next 12 months to 15 months, and many of the operators, the smaller operators, are really going to struggle to have the financial wherewithal to invest in the capacity that is needed to actually roll out broadband networks. And as pricing has fallen, they are under tremendous pressure and their performance will be even more challenged financially”

“when this is done and dusted”, Vittal said, it will have strengthened Airtel’s existing 33% market share, helped by “Our large comparable spectrum bank, wide broadband data network, rich portfolio of non-wireless businesses and all backed by robust operational cash flows will enable us to weather this storm.” Meanwhile, “In the short to medium term these free offers, will impact all stakeholders including government levies and taxes, lenders with a debt exposure of Rs 400,000 crore to the industry and finally customers as operators struggle to invest on networks.”

Vittal doesn’t expect the pricing to change till March 31st 2017, so there is still more blood-letting expected. But then, “once pricing commences, we will see how they will make choices of where the traffic has got to go. We have been through this game in the past”…”The smaller players are going to get more hurt, and yes, you will see some industry decline in the short-term.” Even for Airtel, “revenue softness is fundamentally on account of the ARPU that has been sliced by customers at the bottom-end, as they have adopted the free services being offered by our competitor.”

2. The end of Multi Simming: Vittal believes that the drop in market pricing, “as operators react with unlimited voice bundled offers will defeat the multi simming trend in India and particularly those of the smaller operators.” In the past, given differentiated pricing plans, users have often kept multiple connections with different plans. This, in the past, has led to the listed telecom operators telling their investors to ignore the “Average Revenue Per User (ARPU), and focus only on Revenue Per Minute (RPM) number. Airtel has seen the total minutes on its network increase by 13.7% YoY, but “there is a clear shift of minutes towards incoming calls due to the asymmetry created by the new operator’s free offers. Owing to this, voice realization per minute in the quarter dropped by 3 paise to 29.42 paise per minute”…”We believe there will be significant SIM consolidation that will happen in this market. Many of the value players, the customers using the value players do not use them as their primary SIM, they always use them as a secondary SIM, and with these bundles we believe there will be more rapid consolidation of SIMs.”

More: Airtel Q3-FY17: decline in Mobile Internet users, usage, revenues, ARPU

The Industry is migrating towards “ARPU buckets”: Given the competition, Airtel is “curating usage” towards “innovative packs offering bundled voice calling and substantial data benefits.” Airtel believes that there is thus an opportunity to “upgrade customers ARPUs by giving more value through bundled data at price points.”
“In the context of playing an ARPU game, we believe that bundled packs make a lot of sense to lock in ARPU, deliver value. The challenge, of course is, for a player like us, where we have a stratified ARPU table across the market with different customers at different levels of ARPU, there could be some potential for downgrades. But that is unfortunately the competitive dynamic that we are living in today, and that is something that we believe makes a lot of sense for us, because that will drive more high ARPU customers into our network.”…”I think in the medium-term to long-term, we will get that ARPU back. So the ARPU is what you need to look at. I would not split it out like what is it exactly the rate per GB versus the rate per minute and so on, it is going to be an ARPU game going forward”…”the immediate impact of bundled plans is normally a downgrade”…”But the medium-term to longer-term impact of this is certainly on upgrades.”

More: Airtel can make more money by keeping Mobile Internet rates low, says Gopal Vittal

3. Expects users to return when Jio starts charging: Airtel reported a decline in data users, but that doesn’t mean they’ve left the network. “…what happens in a situation where you have free services being offered, the SIM is still retained, but the way that we would measure it in that period is that data has not been used, so they fall off. That does not mean that they will not come back when pricing commences from the other operator.”

4. Very little impact of demonetization: “From a demonetization perspective, there was some immediate impact in the few days post demonetization” and “was there for a few weeks, but like we saw in some of our other businesses, like DTH, that recovery was reasonably quick. There was some postponement of purchases, but it was quite quick.

5. Future opportunities: The Opportunity that Airtel sees: “I would say that longer-term, I see this as two opportunities. Number one, the first opportunity is that there is elasticity for data and as people get used to consuming more data, as technology is changing, you will be able to pump out a lot more data for the same amount of spectrum and the same electronics. 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. The second part
of it is, there could be, in future, some pricing adjustment as well, because some of the pricing that we are operating at, especially on the voice front, is perhaps at a very, very low level. But I would say this is in the future, because at this point in time, we are in the midst of a competitive battle and we are seeing that continue for the next few months as well.

More: 5 Charts on Airtel from Q3-FY16: Mobile Internet usage moves elsewhere

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Amruta Pabalkar – Morgan Stanley – Mumbai: Do you see the need to even introduce even a lower value plan like sub-Rs.145?
Ajai Puri – Director, Market Operations – Bharti Airtel Limited: No, we ideally would not want to do that.