“I want to debunk this obfuscation that what the consultation that TRAI [Telecom Regulatory Authority of India] put out is anything to do with net neutrality,” Airtel’s managing director Gopal Vittal said during the company’s earnings call when asked about the Telecom Regulatory Authority of India’s (TRAI) consultation on the regulation and selective banning of over the top (OTT) communication services such as WhatsApp and Telegram, and its potential to violate net neutrality. During this consultation, many telcos (including Airtel) had suggested that communication platforms should be subject to the same regulations that telcos currently meet, dubbing this demand ‘same service, same rules’. Airtel and other telcos had also demanded that communication platforms should also pay them for the use of their infrastructure.
In an attempt to explain the Same Service, Same Rules argument, Vittal gave the example of direct-to-home broadcast content (films and TV shows). He explained that such content reaches the end customer through one of three pipes, “it is either on the DTH pipe [a DTH box like Airtel Digital TV], or it is on the cable pipe, or it is on a delivered through a broadband pipe in the form of an OTT app.” Of these three, he said, the provider of DTH is subject to price regulation, is subject to cross holding restrictions where the player cannot have any investments in the content company, and is subject to a license fee.” Similarly, cable providers also are subject to price regulation, he mentioned. However, for the broadband-based content provider (the OTT), no restrictions apply. “So our limited point is please subject everybody to the same rules. Let us not have regulatory arbitrage determine the course of technology and industry. I think that is the first ask,” he said.
Going back to the focus of TRAI’s consultation (communication platforms), Vittal argued that telcos are asking for the same (Same Service, Same Rules) because telcos have a lot of regulatory requirements such as curbing phishing, fraud, and spam; a failure to curb them leads to penalties from the regulator. “But at the same time if this [service] was delivered to an alternative technology which is over the air on any one of the messaging apps, then there is no regulation,” he said adding that all Airtel is saying is that, “regulation should keep pace with the advent of technology.”
Getting OTTs to pay is not the main issue:
Following up on Vittal’s comments, a representative of Ambit Capital asked him if Same Service, Same Rules was more important than revenue share between OTTs and telcos. “So you are saying that there is no demand or rather there is no case here that the TRAI consultation and the industry demand of improved monetization basically getting the OTT players to pay for bandwidth that is not the primary issue. These are the ones that you outline the broadcast content and messaging, those are the main issues, right?” a representative of Ambit Capital asked Vittal. “Yes, those are the main issues,” Vittal responded, suggesting that the company cares more about Same Service, Same Rules than about revenue share
Airtel’s overall performance:
Airtel’s consolidated revenues have seen a year-on-year (YoY) growth of 7.3% this quarter (Q2 FY2024). The company suggests that its consolidated revenue growth of impacted by the “devaluation of Nigeria Naira and other currencies during the period”. Its revenue in India stood at Rs.26,995 crores which is a slight increase from the previous quarter where its Indian revenues stood at Rs 26,375 crore. Its earnings before interest, taxes, depreciation, and amortization (EBITDA) margin for the quarter was 53.1%, an improvement of 176 basis points (1/100th of 1 percent) YoY.
Other key points discussed in Airtel’s earnings:
Rise in average revenue per user:
Airtel reports an increase in average revenue per user (ARPU) going from Rs. 200 in the previous quarter to Rs.203 in the quarter ending on September 30, 2023 (Q2 FY24). The company attributed its ARPU increase to factors such as a shift from feature phones to smartphones and growth in international roaming. The company also reported an increase in data usage with average data usage per data customer going from 21.1 GBs/month in the last quarter to 21.7 GBs/month this quarter.
During Airtel’s earnings call, a representative of Goldman Sachs pointed out that this quarter had the benefit of an extra day and as such, the ARPU growth wasn’t as much as expected. To this, Vittal responded that even if you go by the number of days in this quarter, you would still see a growth of Rs 1.80. He further mentioned that the growth wasn’t significant because Airtel has reduced the gap between its entry-level plans and smartphone plans, from Rs.99 to Rs.179 per month. “So to that extent, every feature phone to smartphone upgrade gives us a slightly lower upside when compared to what it was in the prior quarters.”
On standalone vs non-standalone 5G architecture: “[With] regards [to] standalone and non-standalone architecture, Airtel will switch to standalone when its required and only when there are additional benefits. This is certainly not the case at present,” Vittal said.
This is in direct contrast to Reliance Jio’s earnings during this quarter where it was highlighted that the company uses standalone 5G architecture. Vittal said that across the world, more leading networks are on non-standalone architecture [NSA]. “Airtel has the added advantage, unlike other players in India, on [the] mid-band spectrum which allows us to work with NSA, deliver a better experience and with lower cap-ex [capital expenditure],” he mentioned.
Reduction in capital expenditure: This quarter, Airtel reported a cap-ex of Rs 7,778 crore which is significantly lower than the previous quarter’s results where it stood at Rs 9,327 crore. This, Vittal said, was a byproduct of “monsoons, and some moderation in our ability to deploy.” He said that the capex investments in this quarter were focused towards, “5G rollout, rural expansion, fiberization covering homes and B2B [business to business] under our 1 transport strategy and data centers.”
Rise in post-paid subscribers: Airtel reported its highest-ever post-paid subscriber growth, at 1 million subscriber additions in Q2FY24. Vittal pointed out that 26% of the net subscriber additions to Airtel’s network were in the postpaid segment. The rise in subscribers in the postpaid segment is coming from the launch of Airtel’s family plan, the rise in the number of Airtel stores, and the launch of 5G. “These customers give us more ARPU, are locked in for longer, and are eventually are an excellent top of the funnel for us to drive broadband and home convergence where we see a massive ARPU upside,” he explained.
Growth in the 5G segment: The company says that as of this quarter, it has 55 million unique customers on its 5G plus network.“Though there is no monetization of 5G given the unlimited data plans that run on 5G,” Vittal mentioned.
Fall in the international segment: During the company’s earnings call, Vittal explained that it focused on two equal-sized geographic segments— domestic business and data centers and the international segment which servers carriers and over-the-top (OTT) companies. The international segment, he explained, serves needs such as “wholesale traffic, data and bandwidths and Communications Platform as a Service (CPaaS)”.
Vittal said that the global segment has seen a slowdown because “large global OTTs have begun to defer their spend, and are also optimizing on bandwidths and messaging given the larger slowdown in western markets.” He explained that this is impacting telcos around the world and said that the company expects the segment to look up in 2-3 quarters.
Note: We are unclear about the breakup of Airtel’s international segment and have asked for clarification about the same. This story will be updated once we receive a response from the company.
Improvement in Airtel’s Finance: “The assets under management [at Airtel Finance] have crossed 1000 crores of personal loans and more than two lakh co-branded credit cards,” Vittal said. He said that Airtel Finance is now distributing loans at a run rate of 550 crores per quarter, growing at about 22% quarter on quarter.
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