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Airtel May Spend $8 Billion Over Next 3 Years On 5G, 4G Expansion

Bharti Airtel will rely heavily on an upward revision in mobile tariffs in the medium term to sustain a whopping $8 billion (Rs 56,000 crore) of incremental investments it is estimated to make over the next three years in greenfield 5G rollouts and in expanding existing 4G networks, analysts said.

Rajiv Sharma, co-head of research at SBICap Securities, estimates Bharti Airtel will need to invest “an incremental $5 billion (Rs 35,000 crore) over the first three years even for a selective 5G rollout, and an additional $3 billion (Rs 21,000 crore) for 4G expansion, for which mobile pricing will need to be revised upwards, primarily to support upcoming investments in 5G spectrum and networks.”The challenge, he said, is that “Bharti doesn’t see mobile tariffs rising anytime soon, and we also believe any meaningful increase in mobile pricing is at least 2-3 quarters away.”Analysts said Airtel’s recent mega fundraise via rights issue, bond sales and an upcoming Africa IPO is expected to address balance sheet concerns and cut leverage, but incremental investment needs towards 5G spectrum and network rollouts would have to be recovered from operating income (read: Ebitda) growth, which can happen once mobile tariffs rise.

New telecom minister Ravi Shankar Prasad said on Monday the government will auction 4G and 5G airwaves in calendar 2019 in what will be the country’s biggest ever spectrum sale. Airtel has said it will buy 5G airwaves only if prices are reduced.

Analysts, though, said Bharti Airtel’s 4.2% sequential rise in its India mobile revenue to Rs 10,632.2 crore in the January-March period has significantly narrowed the gap with Jio’s 7% on-quarter growth and outperformed market leader Vodafone Idea, which recorded a modest 0.1% sequential rise in revenue during the period.

Likewise, Airtel’s near 19% on-quarter jump in ARPU (average revenue per user) to Rs 123 in the March quarter was disproportionately driven by the minimum recharge plan strategy, while selective price hikes of its Rs 99/149 packs to Rs 119/169 further prevented further degradation of this key performance metric. In fact, Airtel has almost caught up on this score with Jio, which saw its ARPU dip 4.5% to Rs 126.

Airtel shares closed 0.1% higher on BSE at Rs 353.45 on Tuesday.

Sanjesh Jain, telecom research analyst at ICICI Securities, though, said the Sunil Mittal-led telco could find it “difficult to sustain its March quarter India mobile revenue growth without a tariff hike” as much of that growth was triggered by minimum recharge plans, which might not continue going forward as “most subscribers are rebased to the new tariffs.”Gopal Vittal, Bharti Airtel’s managing director (India & South Asia) recently said he expects tariffs to firm up, adding its current ARPU of Rs 123 had not reached sustainable industry levels.

Another potential pain-point for Airtel, going forward, is that the 17 million-odd 2G customers who’ve upgraded to data over the last six months have not contributed to the company’s ARPU growth.“Bharti Airtel’s management said (on a recent earnings call) that nothing much has accrued towards ARPU growth from the conversion of 2G subs to 4G, which suggests that it is not revenue but cost savings that will accrue to the company in the medium term with the closure/trimming of its 2G network as it shifts more resources to 4G,” said Sharma of SBICap Securities.

The trend underlines that mere subscriber upgrades to data won’t boost ARPU or telco valuations and industry pricing needs to be revised upwards soon to generate the resources for incumbents to participate meaningfully in the next spectrum sale and 5G network rollouts.―Indians Planet

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