Airtel India CEO and MD Gopal Vittal expects a completely revised industry structure in telecom in India by, “say March 2019”, with three mobile operators. “The two battles that are currently being fought, one, on the 2G-3G side,” which is about feature phones and a traditional (voice) game, and of upgradation from 2G to 4G. “We getting a disproportionate share of those upgrades,” Vittal said on the Airtel Q3-FY18 earnings conference call, saying that the customers are switching from a 2G to a 4G phone on their network. Airtel, he added, is getting a fair share of 4G devices on its network.

The second real battle, he said, is that because “most devices are configured such that you have a primary slot, which is a 4G or a 3G SIM slot,” and a second slot which is 2G, Airtel is battling to ensure that they get a disproportionate share of the 4G SIM slot.”That is a function of where you put your CAPEX, which towns are you there, which villages are you there, which districts are you there because once you have got your network in with the brand being strong and being aspirational with our go to market and sales and marketing efforts being competitive and well run, we have no reason to believe that we will not get our fair share of 4G and in fact disproportionate share of 4G, so that is really the battle.”

Notes from the conference call:

– On market consolidation: “dramatic value erosion led to “a heightened pace of consolidation”, with smaller operators either scaling down operations or merging with larger players. It is currently a four player market, and will soon be three players (plus BSNL). Airtel has received approval from Competition Commission of India for its merger of the wireless business of Tata Teleservices, although other clearances are pending. It’s expecting the Telenor merger to be completed by this quarter, with approvals pending from National Company Law Tribunal and DoT. The Tata merger might take a couple of quarters.

“So you are going to have over a period of time, three reasonably large operators and these levels of pricing clearly are unsustainable, so pricing will have to lift, but at this point in time there is a fight for market share and that is being driven by the new entrant and therefore pricing continues to remain compressed.”

“Operators are currently reporting negative return on capital, which is unsustainable given the significant investments in network already undertaken and required to cater to the huge surge in traffic.”

– Multi-Simming: “The proliferation of unlimited voice bundles has further reduced multi-simming behaviour.” “Wireless subscribers in the industry declined by over 24 million between July and November 2017 largely coming from
the smaller operators who have cumulatively lost over 58 million subscribers during the same period.”

– “Data demand continues to explode led by smartphone penetration and aggressive offers in the marketplace. Increased data demand is calling for higher investment, which cash-strapped operators can ill afford. While market pricing may not follow a linear path upwards, we continue to believe that ARPUs need to move up in the long run.”

– Airtel’s strategy: Firstly grab and retain high ARPU customers, second provide more services per customer, third create a brilliant customer experience, fourth accelerate non-mobile business and fifth a war on waste to hold costs.

– MIMO Deployment: Airtel has deployed Massive MIMO, which evolves its existing 4G networks to 5G. “Massive
MIMO provides better user experience in high-rise buildings where providing coverage has been a big challenge. These
enhancements also help in improving spectrum efficiency thereby enabling us to serve over 4X to 5X more capacity from the available spectrum resources.”

– VoLTE handsets: Airtel has launched VoLTE (voice over LTE) in seven circles, and plans to have it deployed across the country within this financial year (by end of Q4). “Currently more than 80 popular smartphones support our VoLTE services. Our VoLTE network is unique in India as it can seamlessly handover VoLTE calls on 4G layer to both 3G and 2G networks when users move out of 4G coverage.”

– Interconnect charges: “TRAI mandated reduction in Interconnect Usage Charges by 57% to 6p from 14p, effective 1st Oct 2017, which has led to a significant loss in revenues during the quarter. Reduction in IUC coupled with continued down trading of high ARPU customers due to industry-benchmarked price offerings, has led to a 22% decline in our India wireless business.”

– Data consumption and investment approach: “If you look at data consumption, typically it goes through a tail, so there is a big head followed by tail, so 10% of sites account for about 30% of traffic and the bottom may be 30% of sites account for 5%-10% of traffic, so one part is actually planning it at a very granular level to be smart about Capex and that is something that we do for a living. The second is that the requirements on transmission, the core network and the transport network are actually rising. This is true for all operators as they experience data growths, so that is something that we are also seeing and the third area of investment is very unique, fiber. We look at the country in three parts, the top 200 cities, the next 2000 cities and the rest of the India to try and make sure that the transport and the backhaul capabilities at site level are well engineered. When it comes to your
question on the capacity, currently we are doing about 12 to 13 petabytes of data a day, which is the kind of ballpark number. Our capacity utilization on 4G is still low, but like I said we are concluding the footprint, there are also requirements on the core and transport side and there are requirements wherever there are capacities that fill up particularly in congested areas.

Effectively in India for about Rs. 130 a month you can pretty much buy a data plan and a voice plan and you do not need to buy anything else because voice is free, data is at a GB a day and SMSs are also included, roaming is included so effectively it is a capped out plan at Rs. 130, even though the customer may be willing to pay Rs. 300 or Rs.400 or Rs.500 for such a plan.

– Feature Phone bundling: early days, but with bundling with feature phone or low end smartphones brings in “a very, very disproportionate increase in the
share of those devices on our network.”

– Impact on MiFi devices on home broadband networks: “people are postponing their purchases of new broadband connection. At the same time, we see very sharp deterioration in churn, so we are not seeing as much churn in that business but we are seeing a postponement of purchases because at the bottom end what people are doing is actually using MiFi devices or tethering of smartphones, given the low prices of the current plans that are operating in the market and making do with a network that is decent enough.”

– “out of the 230 million [airtel customers] around 50%-60% of them would be well below these bundle
plan in terms of ARPU”, “40%-50% Indian market is customers with dual sims” and their ARPU may actually be higher on somebody else’s network or there may be a second sim on the Airtel network itself”.

– The eKYC issue: “we have an extension till March 31, 2018 but there have been several exchanges and we are
working very closely with the authorities and there was an audit that was done, we are fully compliant with all the issues around the audit so we are very, very confident that this will get resolved with time.” “In the first part in December, our telco KYC was shut for six days, so it did hurt in those six days, I mean, it would obviously hurt in
those six days. Therefore December saw some pressure from that front, but there is no further hurt, because after that it was fully opened up and there is absolutely no issue. ”

Source: Airtel conference call