Airtel bets on enhanced network to grow 5G revenue
5 min read . Updated: 08 Feb 2023, 11:43 PM IST
Premium- Airtel plans to take 5G services to 300 cities by March ’24 from 70 at present
- Airtel will also expand its coverage into 60,000 new villages and 40,000 community clusters
New Delhi: Bharti Airtel Ltd plans to deploy a multipronged approach for future business growth, managing director and chief executive Gopal Vittal said. This will include improving the network experience in 150 cities while taking 5G services to 300 cities by March 2024 from 70 currently.
India’s No. 2 telecom operator will also expand its coverage into 60,000 new villages and 40,000 community clusters, step up investments in its digital businesses of CPaas, IoT and cloud, reduce network running costs at 80,000 high-cost sites while directing some 4G capacity investments to 5G as customers upgrade to the next-generation services.
“This expansion will give us our fair market share, and provide tailwinds to the business," Vittal said at Airtel’s December quarter earnings call on Wednesday.
In the 150 cities, Airtel will use 5G with high speeds, going up to 500 Mbps, to pivot customers to move to high-value postpaid services, to boost average revenue per user (Arpu) and stickiness with the service. Airtel will also use data science to predict demand patterns across all its businesses to deploy resources to build better coverage, which will drive efficiencies even as it invests in building network infrastructure in these areas.
The carrier will also focus on building better engagements with enterprise business customers in these 150 cities through more investments in CPaas, IoT and cloud, to generate more business from the existing set of 500 enterprises.
On reducing sales and distribution costs, Vittal said 80,470 high cost sites have been identified where solutions to reduce the operating costs will be found over the next six to nine months. “5G could be a capacity offload for 4G, so we’re looking at squeezing out 4G capacity investments and direct it towards 5G," he said.
Reiterating the need for tariffs to rise to ₹300 to get a ‘respectable’ return on capital employed, Vittal said the company’s portfolio was resilient and diverse, with 30% coming from Africa operations, India wireless contributing 50% and the balance from the fast-growing digital and enterprise businesses.
“This portfolio gives us a unique ability to withstand risks by being solidly positioned for where growth is coming from," he said.
Vittal also said the expansion of 5G services into the rural areas will hinge upon the adoption of 5G smartphones in those markets. “The rollout is going to happen across urban India by March 2024, the pace of the rollout beyond urban India is something that will be dictated by how the 5G devices shape out," he said, noting that 5G-enabled smartphones is currently at 11% of India’s total smartphone base, which could rise to 20% by March 2024, even as 5G phones comprise 35-40% of quarterly shipments.
“We have to look at where the devices are likely to come over the next 6-9 months and plan a rollout, in addition to the coverage that we will provide in whichever cities that we have decided to go," Vittal said.
Outlining the tally of 5G-ready devices across India, he said in metros like Delhi, 15% of smartphones are 5G ready, while in states like Bihar, the penetration is just about 9%. Airtel’s rival, Reliance Jio, the No 1 telco, has set a target for pan-India 5G rollout by the end of 2023.
Meanwhile, the Sunil Bharti Mittal-promoted company has extended the entry level ₹155 plan to more circles as of January, from two – Odisha and Haryana – in November last year, but is yet to roll it out across all circles.
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Vittal said raising the entry level plan was a ‘calculated bet’ but was withheld in the few remaining circles which were weak, while stating that the churn experienced in the two circles was much less than anticipated, which led the company to extend it to 17 circles.
“We estimate upside of 2% on revenues/Ebitda from entry level tariff hikes," said analysts at JP Morgan in a note following the results.
Vittal also backed the case for overall tariff increases but cautioned that the carrier would not do it unilaterally as it would run the risk of losing market share which would be difficult to claw back in a highly competitive Indian mobile phone market.
On a question on the company’s approach on offering fixed wireless access as services to consumers, Vittal said that Airtel was doing several experiments on the product, but highlighted the cost for FWA was currently double of fiber, owing largely due to the router cost between $180-$200 which pushes up the cost to connected home to $100, versus present $50 for fiber connectivity to the home.
“We’re actually working on fixed wireless access, we’re intending to try out some pilots and then be ready in the next six months," he said.
On the question of timing of the pending rights issue of ₹15,000 crore to be called amid a better free cash flow for the carrier, joint managing director Harjeet Kohli said that Airtel will continue to keep the calls ready and re-benchmark them for future use. “I think from where we are, it’s useful to keep that product alive and maybe over the coming few quarters we can re-benchmark when is the effective date for the balance calls," he said.
Airtel’s profit for the quarter ended December 2022 missed analysts’ estimates even as profit rose 91% to ₹1,588.2 crore for the quarter ended 31 December from ₹829.6 crore in the year earlier, on revenue of ₹35,804 crore which rose over 20%, as it added new 4G customers and posted growth in postpaid and enterprise segments. Earnings nearly doubled from a year earlier but were hit by a one-time charge of ₹669 crore, including taxes, and provisions of ₹2,298.1 crore towards doubtful debt by Indus Towers due to Vodafone Idea’s financial challenges, as per brokerage CLSA.
Analysts at Goldman Sachs though, cautioned that since the telecom sector subscriber additions were likely to stay weak in the near term due and revenue growth could decline in the absence of tariff hikes. “While we expect wireless revenue growth to decelerate to 13% YoY in Mar ‘23 due to a delay in smartphone tariff hike, we are building in a price increase in early FY24; we believe that since industry subscriber additions are likely to stay weak in the near term, telcos are likely to raise tariffs to aid revenue growth, without which we estimate revenue growth for Bharti/Jio to decline to less than 10% YoY by June ‘23, vs 15-20% YoY in recent quarters," they noted.
