“We have always maintained that the price of the spectrum on 5G as has been indicated is very expensive and we won’t be able to afford it at those levels,” Bharti Airtel India & South Asia CEO Gopal Vittal told investors on Thursday, adding that 5G is still a nascent technology and ecosystem, and that it would be quite some time before it has any significance in India. “The fundamental issue really is that at these levels of ARPU — 5G offers higher speeds and lower latency. If you have more spectrum of 4G without deployment of radios, you can still get higher speeds. […] The fundamental issue in 5G is that the cost of spectrum is way over the top for any kind of business to work, because the capex wouldn’t have even started.”
Impact of COVID-19 on Airtel
“On the mobile side, there were several headwinds, one was the international roaming fell to zero. Secondly, massive amount of SIM consolidation at the bottom end, or dropping of SIM altogether. We have seen challenges in our outlets. April was bad as recharge points were closed. We were able to activate chemists and grocers. We have seen lockdowns in May and June in a district-by-district level. Saturdays and Sundays have low recharge levels, but they were very poor because of harsher lockdowns. The erosion of customers that we saw, however, was on the lower [ARPU] level, and that has completely stopped.”
Cost cutting and acceleration to digitisation: “COVID taught us that we have a lot of waste in our business,” Vittal said. “We renegotiated rent in many stores. On marketing costs, there was no need to go out and do marketing. Sales and distribution costs went down, because acquisition was not able to happen. We found that customers were not able to reach us because of call centre shortages. So the digital team revamped the IVRS and the app, and today even with call centres open, we are not getting as many calls.”
Home broadband: Even with a surge in home broadband installations, that segment’s growth was offset by other pressures. Vittal said, “We have seen a massive surge in installations in the home segment, but we saw a lot of temporary closures, people saying take my connection away or continue it at a low price, because shops and offices were closed.” Airtel CFO Badal Bagri said that the ARPU for new home broadband users was the same as existing customers, around Rs 800 a month.
‘Airtel uses Chinese tech, but will abide by Indian law in case it changes’
Asked about how much Chinese technology was used in Airtel’s networks, Vittal said, “We work with Chinese, American, European partners across our business. We respect all our partners; many of them bring unique solutions. We look at commercial models with cost structures that work for us; some partners are able to meet those costs better than others. We are committed to continued work with all our partners. If there is any government notification that emerges, we will abide by the law of the land. There is really nothing more to say on that.”
‘Current data prices are not sustainable’
Vittal made it very clear that data prices must go up, and that data allowances at the current price points are not sustainable. “The organic increase [in ARPU] in the lack of price increases is modest, and is a function of users transitioning from 2G to 4G, or postpaid growth. The tariffs have to go up. I can’t comment on the specifics of when,” he said. He added, “We saw a 16% jump in data consumption. Most of this data consumption came on the back of very few 4G net adds. In previous quarters, we got 10 to 20 million data net adds. This meant that existing users were using a lot more data at homes, and they were still not blowing through their full allowance, which is being given at a very generous form.” He added that incremental spending from existing subscribers was minimal, and that tariff structures need to be more progressive so that people using more data pay more. Vittal said that ARPU needs to go up to Rs 200 soon, and Rs 300 eventually.
Partnering with Local Cable Operators: “We have an expanded toolkit where we are able to work with a local cable operator,” Vittal said. “We give them a revenue share for laying and maintaining the last mile fiber [for fixed line broadband connections]. Everything else, the billing system, the router, the customer relationship, is managed by Airtel. There have been several lessons we have learned to onboard these partners and build the business. It’s an opportunity for entrepreneurs to earn money with us and for us to build relationship with customers. We have gone into 12-13 towns and accelerating rapidly.”
Phasing out 2G networks: Hundreds of millions of feature phones are still in use in India, and Vittal said that this will take time to change. “We are getting a high share of 4G net adds as people upgrade to smartphones. The current pace of 4G net additions in India is anywhere between about 60 to 70 million a year, and given there are still 400 million feature phone users, this will still take some time, unless there is something that lowers smartphone price dramatically. It will take some time. We will shut off most of our 3G networks eventually, but as 2G contribution becomes small, the time may come to take a call on 2G networks,” he said.
On Jio’s multi-channel strategy: Responding to a question about Jio investing in much more than just the access part of internet, Vittal said, “I’ll not comment on the competitive positions of our competitors. The way we look at the market is the need for us to go deep, to win with a great experience, and pick up the best quality customers, and to do that in a lean and efficient way. When you’re able to use all your assets, our real opportunity is to build new streams of revenue by partnering across the board. The next is building products and services yourself which are more unique. But we’re still playing off the same strengths. We have two or three services there that we will comment on at a later date.”
No liquidity access issues
Rating agency changes following AGR dues: On the AGR issue, in which the Supreme Court has reserved its order, Airtel’s Finance Director Harjeet Kohli said, “Airtel deposited around Rs 18,000 crores as their partially assessed position [for paying AGR dues]. Financing wise we don’t need to do anything, there are no liquidity access issues. What is happening in the operating side is giving the right impetus to the EBITDA increases, we expect no significant stress, but won’t be pre-empting what rating agencies think.” Kohli was responding to a question on how ratings agencies would change their outlook on Airtel in light of its results.
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