Bharti Airtel, which this month increased its minimum monthly recharge price from Rs 49 to Rs 79, said it plans to continue with the price increases, targeting to take the average amount paid a single customer from Rs 146 to Rs 200 over the next six months.
From this month, the company increased its minimum monthly recharge from Rs 49 to Rs 79 for all prepaid subscribers, leveraging increasing demand for its services as key rival Vodafone Idea faces an uncertain future.
Even as the company continued to maintain that the government should take urgent measures to support Vodafone Idea and maintain a three-player market, it has been Vi’s troubles that have proved to be the wind behind Bharti Airtel’s sail in recent months.
PRICE HIKE
Emboldened by strong subscriber additions in recent months, the company decided to roll-back some of the price cuts it was forced to offer to compete with Reliance Jio.
CEO Gopal Vittal reiterated that the current average bill size of Rs 146 is clearly unsustainable for the company as it is able to generate a return of only ‘low single digits’ for the capital invested in the business at present. At one time, the number used to be closer to Rs 300/month.
Vittal said he wants to take the average revenue generated per user (ARPU) from the current Rs 146 to around Rs 200 per month and then to Rs 300. The first step, he hoped, would be carried out within the next six months.
“In the next two quarters, we hope to implement some amount of tariff increases that take our ARPU closer to 200,” Vittal told investors. “What we have done on the tariff front [in August] is a very small step in that direction, even as it plays to our strategy of focusing on quality customers.”
Even though an ARPU of Rs 200 implies only an increase of 37% in pricing, the actual increase required to take the ARPU from Rs 146 to Rs 200 will be closer to 50%. This is because any price increase will also result in a reduction in consumption, thus calling for another increase in pricing to make up for lost volumes.
THREE-TIER MARKET
Vittal said the current pricing structure in the market is completely out of sync with the structure of the market.
He sees the market as comprising three broad segments — the affluent class, the aspiring class and the basic users.
The basic segment, comprising of farmers, rural traders, housewives and so on, use their mobile connection primarily for keeping in touch, mostly through voice. Airtel estimates that there are around 400 mln customers in this segment on an all-India level.
The second category is the aspiring class — students, gamers, blue-collar workers, traders, migrant workers and so on. This category, comprising around 500 mln individuals, are the major users of smartphones.
At the top are the affluent households, which comprise around 50 mn households.
Vittal said the correct pricing structure would also be three-tier, with the first tier costing Rs 80-100 per month for basic connectivity, the second tier costing around Rs 250 per month, and the final tier costing Rs 500 per month.
However, he said, at present, mobile consumers in India get almost everything they need at around Rs 200-250/month thanks to unlimited plans.
In order to correct this, Airtel had launched new, ‘non-daily-data’ plans which offers a fixed amount of data with no daily caps.
However, Vittal said, the take-up for such plans have been limited, and he does not expect things to improve as long as daily data plans continue to be available. “..the traction on these plans is low, low for us and I’d imagine, low for the industry,” he said.
At the same time, he reiterated that daily data plans have to go if the market is to support higher prices.
“..I do believe it’s the right way forward, because of the current model of a daily quota of GBs, where people are still now using their full quota and consumption is going up without a commensurate increase in ARPU..Unless the daily plans go away, these plans won’t work as well,” he explained.
Vittal also said it was not possible for Airtel to unilaterally implement price hikes in the the upper segments as has been done for the basic category.
The middle segment of students and young professionals, he pointed out, are sensitive to price increases and a unilateral move by Airtel to increase prices in this segment “could lead to the erosion of customers”.
PRICING IMPACT
Vittal said he expects some basic users to leave the network due to the price increase introduced this month.
“The last time we did this, we did see some SIM consolidation at the lower end, which should show up as churn. This will take about 30 days to work out and September should see some recovery.”
Giving Vittal confidence is the company’s strong subscriber additions in recent months. The company today commands a 35% share of the total telecom market in India by revenue — its highest ever, as subscribers have kept coming.
Even during the lockdown period of April-June, Vittal said the company was able to hold on to its subscriber base, compared to a steep decline of 3.8 million users during the same period last year due to the first wave of COVID.
Even though the second wave lock-down led to “consolidation at the lower end as customers moved to their home towns…June bounced back very strongly, and the momentum into July has been sustained.”
At the same time, he expects to report a loss of subscribers in August due to the price increase, followed by stability and growth from September onwards.