“The telecom industry needs to have the right economic model. We have played this game by growing the industry at a minimal pricing level for far too long,” Bharti Enterprises Chairman Sunil Mittal warned in a call with analysts on the company’s decision to raise Rs. 21,000 crore via rights issue. He added that people in India consume 16 GB data on average and it is time to make the industry viable by raising tariffs.
We are happy to take small baby steps which could even be the first in the industry. We will not shy away from doing it. Some of our new plans are a testimony to the fact that we have run out of patience and we have taken the first step — Sunil Mittal in his reply to an investor question on tariffs.
Mittal also bemoaned the lack of government support to the industry as 35 percent of telecom revenues is earmarked for servicing government levies. “We expect the government to respond by having lighter touch regulations and making life simple for telecom companies. The levies are far too high,” Mittal urged. He also batted for having three private players in India.
The telecom industry is on thin ice in India because many years of competitive pricing have affected the bottom line of most telco companies. The AGR ruling by the Supreme Court of India plunged the sector into further financial stress after it created a liability of dues worth Rs 1.4 lakh crore.
Why is Airtel raising capital?
Sunil Mittal offered several reasons behind this move which was approved by Airtel’s board unanimously.
Leverage ratio: Mittal said that the company is bothered by the AGR dues. “The load of AGR, load of spectrum payments have indeed created an extraordinary load of debt. We are comfortable for ‘business as usual’ but we want to lower our debt leverage and, therefore, have access to capital, as and when we need, for growth,” he said.
5G rollout: Mittal claimed that 5G will become a reality in India by next year in key cities and will cover most of India by 2024. “Auction of spectrum is likely to happen early next year,” he explained. “We hope pricing on spectrum is made attractive by the government to ensure India benefits from a robust 5G ecosystem”. He said that 5G Capex should not be “significantly higher” as compared to 4G.
Fiber: The Airtel chief also raised the need to roll out more fiber than they have in the past. “We need to prepare our networks for backhauling 5G type of capacities. We will do millions of new home passes for FTTH broadband services. It has picked up a lot of momentum in the last few months. The number of fixed broadband connections is rising exponentially and we cannot let this opportunity be missed out by the company,” Mittal said.
Data Centres: Mittal disclosed that the company has seen accelerated demand from hyperscalers (they provide cloud, networking, and internet services at scale. Some prominent examples include Google, Microsoft, and Amazon) to set up data centres. He said: “This is one place where Airtel has a right to win. We not only know how to build data centres but also have domain knowledge to operate them more efficiently than anyone else in the country.”
Other issues discussed during the call
Tariff hikes: Mittal urged that the industry needs to get to Rs 200 ARPU (Average Revenue Per User) within this financial year. “This industry needs to be at Rs 300 ARPU eventually in which users can enjoy tons of data, music, entertainment, etc. The beauty of this industry is that it is granular and segmented and despite a hike, the country will continue to have some of the lowest rates anywhere in the world. We have seen the worse now in terms of tariff wars and ARPU contraction,” he said.
Monetisation of assets: Mittal said that Airtel is not scratching off monetisation as a strategy but will not sell at any cost. “We remain committed to monetization but at an appropriate time and terms. We have a large holding in Indus Towers at 42 percent. It is an asset not core to Airtel but an important asset. We have tons of fiber. These assets are on our radar.”
Promoter holding: Mittal said that 56 percent of promoter holding is quite large given the size of Airtel and the market need not be alarmed about the declining stake of promoters over the last few years. When asked about his long-term view, he said: “No promoter goes down in his shareholdings by choice. This industry has seen hell for the last 4-5 years. 8-9 operators have disappeared, a combined operator is struggling. We did dilution of capital at a good time rather than chasing capital when none was available. If it has resulted in some drop in our shareholdings then we are fine with it.”
OneWeb: Mittal clarified that Airtel has no stake in OneWeb Global. “It has a stake from Bharti enterprises with no correlation to Airtel. It will be a partner of choice for OneWeb in India and the total investment of OneWeb in setting up ground stations will be $30-40 million. Airtel’s equity participation in the Indian JV will be to the tune of $5-7 million dollars.”
Handset strategy: Mittal said Airtel has been lucky to avoid spending billions on subsidies that the world spends and India as a market has not required it.
Airtel Africa: Mittal said that it took much longer than expected to create a success story out of Africa. He asserted: “It has been ten years now and the last four years have been delightful. We are outstripping competitors in growth rates in every market we operate. It is a dividend-paying company. We have a clear dividend strategy there. We have made reasonably strong interventions and investments in Africa.”
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