Despite avoiding what would have been its first quarterly consolidated net loss in over a decade, Bharti Airtel remains optimistic about the future. It expects that its strong network coupled with a massively underserved market in India would work in its favour in the long run.
During itsQ1FY19 earnings call, Bharti Airtel CEO Gopal Vittal said that in a market with a population of 1.3 billion people and substantially low penetration, the consolidation of three equal sized players (plus BSNL), will provide enough opportunities to generate growth. He claimed that with three large operators at play, it is the most efficient and viable structure the industry could have hoped for. With this structure, Vittal said that he expects mobile tariffs to increase in the next six months or so to a more sustainable level.
Beat expectations, yet so poor
In Q1FY19 Bharti Airtel reported a net profit of Rs 97.3 crore, down 74% YoY, and a consolidated revenue of Rs 20,080 crore, also down 9% YoY. While the performance looks abysmal without context, Airtel actually beat market expectations of a net loss which can largely be attributed to a Rs 515.6 crore exceptional gain it made from the creation of a deferred tax asset in Nigeria. Minus the Nigerian gain, India’s largest telecom operator’s books would have shown a consolidated loss of Rs 300.4 crore, compared with a Rs 406 crore net profit last year. You can read more about the results here.
Airtel said it faced “sustained pricing pressure” in its Indian mobile business, which weighed on it the bottom-line. “Industry pricing remains untenable,” Vittal said in a release. In the earnings call, a company executive said that had the telecom industry not indulged in price wars, the company’s ARPUs would have remained similar to what they were a few years back and in that scenario, ‘’business would have been double to what it is now.’’
Silver linings or interim glory?
There were two silver linings for the company though — Its digital TV service in the Indian market and its African operations on the international front. While the former posted a marginal rise of 1%, revenues from the latter were up by 8.89% YoY. However, market analysts are wary of Airtel’s success in the DTH business from August when Jio enters this sphere. Most commentators expect Reliance’s JioGigaFiber to disrupt the home broadband and DTH markets as Jio disrupted the telecom industry in 2016.
Quest to regain glory
Going forward, the company acknowledges that it may not inspire some of it previous users to come back, given the unimaginably low tariffs that the competition offers and users getting used to it. However, by ‘creating and offering a solid network experience’, the company hopes to win some of its old users back. Or at least attract them enough to make Airtel their primary slot (operator).
Other notes from the con-call
Success in Africa: The company said that it will continue to invest heavily in its African operations given the massive potential to grow. In its African operations, while mobile data traffic grew by 75% YoY, data customers increased by 45.2% year on year to 26.4 million. However, average revenue per user dropped by 3.4% on-year and 1.3% on-quarter to $2.9 in the quarter ending June. As on June 30, 2018, the company had an aggregate customer base of 91.2 million as compared to 76.9 million in the corresponding quarter last year, an increase of 18.6%. Airtel currently operates in 14 countries in the continent. While nine of those countries have Airtel’s 4G network, Airtel Money is available in all of them. Airtel Money’s customer base in the continent increased to 11.8 million, and the total transaction value on the platform by 43% on year. Airtel Money contributes to 5% of all revenue from Africa, the company said.
Upgrade in network: Answering a question, a company executive said that given the competitive pressure in India, Airtel invested heavily in improving its network. Consequently, the company’s April-June capital expenditure stood at a record high of Rs 8,217 crores, with Rs 694 crores going into its India mobile services operations alone. “Aggressively expanding our 4G capacities and continuing to offer highest data speeds to customers remains a key priority for us, and towards this end, Q1FY19 (Apr-Jun) has seen our highest quarterly capex spends,” Vittal said as in a release.
VoLTE: The company said that it has rolled out VoLTE in most circles and will start operations in the remaining circles soon. Airtel says that usage will increase in the coming months as most devices have recently got software updates to run on Airtel’s network or will get them soon. An Airtel executive said that the company is in talks with handset manufacturers regarding this. It said that while the pilot phase was extremely encouraging, it also acknowledged that in order to run VoLTE services efficiently, the network should be ‘optimized and tuned.’ He said that the service will pick up momentum over the next six months.
Data and voice consumption: Mobile voice traffic has increased 62% to 684 billion minutes in the quarter ending June, from 422 billion minutes in Q1FY18. Mobile data consumption increased fourfold to 2,151 billion MB from 472 billion MB in Q1’18. Consumption of data per user stood at 7,864 MB as compared to 2,611 MB in the corresponding quarter last year and has increased by 19.4% from the previous quarter. In the earnings call, the company said that both voice and data have not yet reached their peak usage and that consumption could increase ‘a bit more’ before either stabilizing or falling.
Spectrum: Airtel said that following Telenor’s acquisition, the company would get 43.4 MHz spectrum in the 1800 MHz band spread in seven circles.
Featurephone: In the con-call the company said that it doesn’t see Jio’s 4G feature phone, or any feature phones, as a threat because Airtel’s priority is on getting the right quality customers who have high ARPUs. An executive said that the company is ‘averse’ to the idea of giving subsidies to customers who are not potentially high ARPU offering. However, the company said it would offer ‘initiatives or bundles’ to potentially high value users (even if they are feature phone users). The company was of the view that Jio, with its 4G phone, was taking in existing feature phone users and not smartphone users.
Content: Despite saying that the current free content it offers will remain free until December, the company said that monetizing content, especially on mobile is a huge challenge in the current scenario. The company said it will speak to its content partners and offer only services that are sustainable and that it ‘will be careful’. The Airtel TV application has now been downloaded over 50 million times on the Android Play Store, the company said.
Home/fixed Broadband: Airtel said that India is a ‘very underserved home broadband market’ and that the ‘company would step up investments’ in this sector. Answering a question on the subject, a company executive said they would target two million customers in this year. He said that the company would focus on offering FTTH services to high rises, affluent customers/areas in select cities. Asked about the viability of this business, the company said it saw home broadband as a stable and extremely profitable vector with loads of untapped potential. Airtel also said it will strengthen and market on the DTH + broadband + postpaid bundle to counter Jio’s foray into the business.
Airtel Payments Bank: The company said it has received the mandatory approval from both the Reserve Bank of India and UIDAI to commence operations in India.
Acquisitions: The company’s merger with Telenor has been completed in this Q1FY19 which resulted in Airtel adding an user base of 28 million customers. The company also said that SEBI and CCI have approved the merger of Bharti Infratel Limited with Indus Towers Limited and that it will now approach the NCLT. The Tata merger, however, is being considered by the NCLT and upon getting a successful approval from it, getting the DoT’s nod would be the final step.
Source: Airtel conference call