Bharti Airtel, the country’s largest telecom network by number of subscribers, has shifted its focus from counting how much money it is getting from each GB of data sold to how much money it is able to get from each subscriber irrespective of data consumed.
Traditionally, companies such as Airtel, Idea Cellular and Vodafone have been very reluctant to ease data prices for fear that it will affect their profit, image etc.. But with the entry of 4G operator Reliance Jio, at least Bharti Airtel’s decided to take a leaf out of the Mukesh Ambani firm’s playbook.
Talking to investors, Airtel CEO Gopal Vittal encouraged them to stop focusing on how much money is being made on a per-GB basis.
He said Airtel’s using only a tiny fraction of its network’s total data carrying capacity. Idle capacity is not helping anyone — not the investors, for whom it’s sunk costs, and certainly not the customers, who cannot use the idle capacity because of high prices.
He pointed out that the company has installed 1.6 lakh 3G and 4G base stations (towers) in the last two years, without seeing anything similar in terms of the utilization of these towers.
Though he did not divulge what percentage of the total capacity of the data network is being used at present, he said Airtel can carry 7 to 10 times as much data as it is carrying today without running out of capacity.
“Today, if you’re sitting at x (data traffic), you could go up to 7-8-10x even with the network that we have, let alone the spectrum that we have,” he said, adding that this capacity will continue to go up as it adds more and more towers.
The comment would suggest that at present, capacity utilization is around 10-15% at peak times, and at low single digits at off-peak hours.
“Remember that in this business, the large investment that you make is in spectrum. It’s a smaller investment on capex and once you put in that capex, then the marginal cost of producing an extra megabyte of data is almost nothing,” he said.
In other words, companies like Reliance Jio, Airtel and Idea have already put their money into spectrum and towers. Now, whatever incremental amount they can make from this investment is practically profit.
Technically, this means that even if a GB of data is sold for Rs 10, it will still be profitable as a telecom network does not have to spend any extra money to carry that extra GB of data, given the spare capacity in the network.
On the other hand, if the peak network utilization levels are in the 80-100% range, then each extra GB sold by the company will degrade the user experience for existing users, who may then shift to another less-congested network.
Vittal said that because even Airtel’s 3G network gives speeds of 4-6 Mbps in semi-urban and rural areas because of low usage.
Technically speaking, a doubling of the number of towers doubles the capacity of the network.
And Airtel is putting up a large number of towers. In the just-concluded three months (October to December), the company installed 22,762 3G and 4G base stations.
Still, the total 4G base stations on Airtel’s network is likely to be only 70,000 or so.
In comparison, Reliance Jio is reported to have around 2.5 lakh base stations, indicating that Bharti’s capacity could go up 3-4 times by the time it completes the first phase of its 4G roll-out over the next two years.
“This gives us incredible headroom to drive utilization up, and then of course, as you put in more sites, it’ll give you more capacity,” Vittal said.
To make the ongoing investment meaningful, the total data transmitted by the network will have to increase by 30-40 times from their current levels, and this can be achieved only by stopping the obsession about how much each GB is generating. The focus has to shift to what is the maximum amount of money you can get from each subscriber, or ARPU.
“..the market will move decisively in the next 12-24 months towards an ARPU game,” he said, adding that his company will also focus on getting the maximum revenue from each subscriber by bundling data.
“In the context of winning an ARPU game, we believe that bundled packs make a lot of sense to deliver value and lock in ARPU.”
Vittal also said some of Airtel’s subscribers will find their bills getting smaller as the data packs become cheaper.
“..there could be some potential for downgrades. But that is unfortunately the competitive dynamics of the market today,” he said.
Much of the credit for the shifting in thinking among India’s traditional operators like Bharti and Idea should go to Mukesh Ambani, who forced them to upgrade their networks.
In an interview last year, Airtel chairman Sunil Mittal admitted that his company would not have rolled out so much network if it hadn’t been for the competitive pressure from Reliance Jio.