Bharti targets Rs 200 ARPU to stay ahead

“This is a seasonal thing in telecom,” is how a top government official, familiar with the industry, described the current financial stress in the sector facing a debt pile of more than Rs 4.5 lakh crore. While pointing out that Sunil Mittal-led Bharti Airtel should come out of the crisis as it’s a fighter, he said Mukesh Ambani-owned Reliance Jio was there to stay as a long-term player. “I see both as long-term winners.” 

Recent research reports and studies also do not clearly say who the winner is. If UBS, a global research firm, said Jio had lost the early momentum and that things were going in favour of the incumbents, others suggested contrary trends. For instance, on Wednesday, a report by Jefferies said the growth of Jio subscriber base and its free offering till the fourth quarter of 2016-17 has led to an 11.7 per cent year-on-year decline in industry revenues. Yet another report by market research firm Velocity MR on the same day said only 18 per cent of Jio customers use the service as their primary telecom provider. 

In this backdrop, Business Standard spoke to senior executives and analysts to find out what Airtel’s strategy would be to remain a leader. Ambition to acquire high-value customer base seems to be the top bet for Airtel at this point as a revival strategy. A source told this newspaper that the top management believes that the going has never been this bad before, at least in a long time. But it wants to reach an ARPU, a term used to denote average revenue per user as well as the health of a telco, of more than Rs 200 a month.

In fact, Managing Director and Chief Executive Officer Gopal Vittal had emphasised in the Q4 analyst call that ARPU construct would be a priority in the mid- and long-term. Airtel has not given any guidance on when it could cross the Rs 200 mark, but right now it’s far from it. 

In the 2016-17 fourth quarter results, Airtel’s ARPU had slipped around 19 per cent year-on-year to touch Rs 158, down from Rs 194 a month in the same period in 2015-16. The industry average hovers between Rs 140 and Rs 150. Bundling of offers along with data, music, banking and other services is something that the company is pushing for to reach its ARPU goal. 

It’s another matter that Jio’s ARPU grew to Rs 300 after it ended the free offers in March, according to a research by Kleiner Perkins, a San Francisco-based venture capital firm. This was higher than the ARPUs recorded by all other telcos that month. 
Airtel is also learnt to be looking at reducing the churn rate using marketing science. The company’s churn rate is 3.5 per cent a month, well below the industry average of 6 per cent, a company source said. The company is also in the middle of a significant digitisation drive that would lower expenses and increase efficiency.

Focus on business-to-business enterprises, home broadband and DTH broadcasting — all areas where Jio is planning to come strong — are among the other steps that the company is working on. Minimising wasteful expenditure across functions — whether it is using solar energy for cell towers or encouraging online working — is yet another area that the company is getting active on. 
Is there a rejig in strategy because of Jio and what incumbents call “predatory pricing”? A source said that many of the strategies are ongoing steps, but admitted that measures related to tariff and bundling have been triggered by Jio. Operational expenditure, according to another source, is already controlled at Airtel, which is a top telco with a market share of 34 per cent, having grown 2 per cent in 2016-17. 

Dragged down by Jio’s aggressive pricing strategy, Airtel had reported a 72 per cent fall in net profit at Rs 373 crore for the fourth quarter ended March 31, a second consecutive quarterly decline. “The sustained predatory pricing by the new operator has led to a decline in revenue growth for the second quarter in a row…,” Vittal had said. 

The company would not like to give up the top slot, and wants to accelerate market share, an analyst said. Its capital expenditure is projected at $3 billion for the current year, the same as the previous year. And it knows that Jio has deep pockets and can stay in the game for long. 

Even as indications from Jio are that tariffs wouldn’t go up, the incumbents tend to believe prices cannot go down any further. In the game of tariffs, telcos are in continuous meetings with the government (telecom minister Manoj Sinha and a top-level bureaucratic panel) and regulator Trai to get out of the financial mess.

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