Current telecom prices ‘clearly unsustainable’ – Airtel CEO

Bharti Airtel CEO Gopal Vittal today said that the current levels of pricing in the Indian telecom market was ‘clearly unsustainable’ and will have to be raised.

“These levels of pricing are clearly unsustainable, therefore pricing will have to be lifted,” he said, discussing Airtel’s third quarter results.

“But there’s a fight for market share that is being led by the new entrant, and therefore pricing is compressed.”

During the last three months of 2017, Airtel saw the highest ever decline in both its India mobile revenue as well as per-user revenue.

During the three months, Airtel’s India mobile revenue fell by 12%. Typically, revenue used to increase by about 2-5% every quarter, instead of decreasing.

Similarly, the average revenue (or bill size) that the company is able to generate from a single mobile customer in India fell even faster, by 15.2% in the same three months.

Airtel’s average revenue generation per subscriber has fallen from around Rs 175 to about Rs 123 in the last one year, as many of its customers have moved from expensive plans to the ultra-cheap plans. Even the newcomer Reliance Jio claims to have an average revenue of more than Rs 150 per user.

Vittal pointed out that due to the high level of competition from new operator Reliance Jio, Airtel and others have been forced to offer plans that give almost everything at just around Rs 130 per month.

For Rs 130 per month, you get unlimited voice calling, roaming, SMS and 1 GB of data per day, he pointed out.

Before Jio’s entry, such a plan on Airtel would have cost about Rs 1,000 per month.

Even today, said Vittal, customers are willing to pay more than Rs 130, but the market dynamics is such that the price cannot be increased.

“Even though customer is willing to pay 300 or 400 or 500 for such a plan, it’s capped at 130 per month,” he said.

“You are unlikely to see this kind of ARPU (average revenue per user) erosion going forward,” Vittal reassured his investors.

Airtel added around 7 mln wireless broadband (3G+4G) users in the last three months of 2016, taking the total to 62.15 mln.

However, the same three months saw a decline of 2G data users on the network from about 10.5 mln to about 8.7 mln, indicating that many were buying new 4G handsets.

On the positive side, Airtel said about 55%-60% of its current customers do not even generate Rs 130 per month — the amount that a basic ‘unlimited’ customer generates, and therefore, some of them can be enticed to subscribe to such unlimited plans.

“But it’s a change of habit, and it takes time,” Airtel officials said.

Vittal said that even the company’s wired broadband business has suffered because of the hyper competition seen in the 4G market.

He said customers are not ‘cutting the cords’ but the pace of new customer additions has gone down. “(They are) making do with a network that is decent enough,” he said.

As a result, he said, Bharti Airtel has had to ‘compress’ some of its wired broadband prices.

“Over the next 5-7 years, you’ll see a greater penetration of home broadband,” company officials said.