“I think in the next 12 to 15 months, it is very important that at a time when the industry is consolidating, at a time when the industry is in churn and there is a lot of uncertainty, this we believe is once in a life-time opportunity for us to accelerate our market share. I think we want to grab it, we want to make sure that we get that right.” – Gopal Vittal, MD & CEO (India), Bharti Airtel Ltd
Airtel feels it’s one of two (or two-and-half) choices for customers who want 4G services in India. In its earnings conference call for the quarter ended 31st March 2017 (Q4-FY17), Vittal reasoned that around a quarter of the market has customers on operators who do not have 4G spectrum, and of the rest, the other two operators (Vodafone and Idea?)” do not have as wide a reach on 4G. “I think the choice really for customer becomes one of two brands”, so “the market share of the new entrant is likely to be higher than expected on 4G but the measure that we monitor is what is our market share and there we are okay and I think that is the most important metric to measure.”
Data will deliver revenue in the future
The idea for the company is to use data growth to deliver revenue in the future.
“In the short term you are seeing ARPU (Average Revenue Per User) compression”, but at the same time, there is growth in data consumption (around 30% sequentially, data usage per customer crossed 1.3 GB), as customers get “habituated to using data and internet and seeing stuff, entertainment, commerce, social media and so on”. “That in a way signifies that some of that consumption is coming back, albeit at a lower realization, which is, not therefore translating into revenue. Once that habit takes root, then moving pricing at a time, when there is equilibrium in the market will actually lead to all of that pricing coming back in the form of revenue.”
Airtel’s focus this year is on retaining customers, given the heightened competitive intensity, lowering cost, and “growing our high-quality customer base”, which it says will be enabled by its focus on network and customer service.
Thus while, in the short term, “there is financial stress and therefore in the short-term one of the major metrics that we are tracking and really relentlessly going after is the market share. You can see the value players melting down; the smaller operators are really coming under tremendous pressure, because they are not investing in capacity. They have also not been able to play in the bundled minutes, because of costs of actually operating there, the merger of several other players in the market or potential mergers leading to some amount of uncertainty, so in all of this we feel that there is opportunity for us to accelerate our market share even as tariffs come down, which is what has happened in the quarter leading to some revenue pressure, but long-term we are very optimistic about the ARPU construct of the market.”
Data ARPU dropped 17% year on year. “We have seen a slicing of ARPU and that is fundamentally coming on account of lower tariffs, you can see that is a direct correlation to lower tariffs, so the share of wallet may have been intact, but it is just that the consumption that we are seeing is coming at a substantially lower realization which has impacted ARPU.
Other notes from the concall:
1. Retaining customers: While other telecom operators are struggling to retain mobile broadband (3G+4G) customers, Airtel’s growth was driven by “two massive programs”, the company said on its earnings conference call. One was a focus on partnerships to get increase the number of 4G devices on its network (for example, a partnership with Flipkart to ship 4G Airtel SIMs with each 4G handset bought), and secondly, by “really going after those customers who have moved their usage away from us to the free-SIM but as the pricing came in try and attract them back with the targeted offers”, to get back the share of wallet that Airtel has lost to Jio.
2. The handset market has tipped over to 4G: 85-90% of the new smartphones shopped into India are 4G phones. The total smartphone penetration in India is 240-250 million, and “what you are likely to see over the next let us say three years is this number going up to maybe 600 to 700 million and that in effect has a real big impact and implication on the way data growths will actually take place.” Airtel’s share of new 4G smartphones used to be 35% a few quarters ago, and that then dropped down because of “the free offers” (Jio), “but since then we have been able to inch that back”
However, the price of smartphones hasn’t gone down yet: it’s still in the Rs 4000-5000 range. While there’s talk of pushing the smartphone prices down, Vittal went against conventional wisdom and suggested that the price dropping to Rs 2000-2500 would not be attractive, “because if the smartphone is available for Rs 4000, somebody upgrading from a Rs 7000 phone will probably not go to Rs 2500. He will go to a Rs 4000 phone.” Vittal said that if it is priced at Rs 1000, that will mean a massive subsidy.
3. Refarming spectrum to 4G this year: Airtel may consider refarming some of its spectrum to 4G in the second half of this year. The metric that the company looks at is the voice traffic being carried by 2G devices on a 2G network, and if that number continues to fall, below a particular threshold, Airtel will start looking at refarming the spectrum. “My estimate is that that number will be breached towards the back half of this year so as we look at FY2018 and FY2019, we will certainly have refarmed a bunch of spectrum in some of the key cities.”
Airtel is acquiring Tikona and Telenor, following which “we will have the highest data spectrum capacity per site in the industry.” The Tikona deal will give Airtel spectrum in 2300 MHz in seven circles, and with Telenor, Airtel will get “43.4 MHz LTE-ready spectrum in the 1800 MHz band.”
4. Network: The company says it invested around $2.5 billion in CAPEX in India, and intends to invest the same in FY17, at around $3 Billion. Airtel is focusing on reducing costs here: in terms of procurement savings, sharing of infrastructure, and fiber sharing. It is looking at every network site as “a factory with profit center” and “being prudent about putting in CapEx where we can translate it into revenues.
Badal Bagri, CFO (India & South Asia) for Airtel said that while their sales and distribution costs have been flattish, 75-80% of their new customer acquisitions are now using Aadhaar e-KYC, and “that has given us a substantial reduction in the cost.”