Bharti Airtel Q1 Review: The Fight To The Bottom

It’s a fight to the bottom for the country’s two private telecom operators. The recent quarterly results of Bharti Airtel, the third largest operator in terms of number of subscribers, paint a disappointing picture. With the company recording net losses (consolidated) in more than a decade, the growing pain in the telecom sector is evident.

Airtel posted net losses of Rs 2,866 crore on revenues of Rs 20,738 crore in the first quarter of 2019/20. Though these numbers are comparatively better than those of Vodafone Idea, which had posted net losses of Rs 4,881.9 crore in the last week of July, Airtel doesn’t seem to have clarity as to when the situation is going to turn around.

The telco blames the Q1 net loss to exceptional items that has dented its bottomline by Rs 1,445.4 crore. However, it would have recorded its worst performance in over 16 years even without this hit. For a long time, Airtel has been holding its ground against the fare war unleashed by Reliance Jio three years ago. The recent results were disappointing primarily due to operational challenges. The telco was able to report healthy 41 per cent EBITDA (earnings before interest, tax, depreciation and amortization) margins but the margins at the PAT (profits after tax) level was low due to forex losses and high interest cost.

In fact, the telco has been witnessing rise in APRU (average revenue per user) over the past three quarters, thanks to its efforts in migrating 2G subscribers to 4G services (which results in two-fold jump in revenues per user), booting out low-grade customers from its network (about 65-70 million so far), and focussing on services such as Airtel Thanks, Airtel TV and Wynk Music that lead to higher data usage. For instance, its ARPU in June quarter stood at Rs 129, up from Rs 123 in the March quarter and Rs 100 in the September 2018 quarter.

Airtel plans to have just 2G and 4G services by next March as it plans to completely get out of 3G by that time. The telco has shut down its 3G network in Kolkata in the June quarter which will be followed by more shutdowns over the next nine months. Moving out of 3G services makes sense. The device ecosystem is moving towards 4G, and new smartphone shipments are in India are 4G/2G-enabled. 3G seems to be going out of fashion, and Airtel is refarming the liberalised 3G spectrum in the premium 900/2100 megahertz bands to 4G.

Airtel has about 95.2 million 4G users, out of which 8.37 million were added in the past quarter itself. The move from 3G to 4G cost Airtel a lot – the telco registered Rs 142.7 crore of losses by accelerating depreciation of the 3G equipment.

Like Vodafone Idea, Airtel is also caught in a scenario where the competition is forcing it to keep the tariffs in a particular price range. In a recharge for Rs 120-130, any type of customer today gets 1.5 gigabytes of daily mobile data, and unlimited voice calls. Telcos like Airtel are not able to charge differential pricing where it can charge more from its high-end customers, and really low-end customers are not in a position to pay Rs 120 per month. Airtel CEO Gopal Vittal raised this issue in the recent earnings call.

Though Airtel has re-architectured the pricing of its postpaid plans to capitalise on the postpaid opportunity – since Jio is not focussed on postpaid market. Still, the chances are upside is limited because postpaid customers are just about 5 per cent of the total subscriber base. Airtel is trying to improve the quality of services for its postpaid customers by identifying 12,000-odd office buildings and 4,000-odd tech parks, and investing more resources in these locations. It’s also going to focus more on 244 districts of India – out of a total of 670 – which are critical from the revenues point of view, and will be putting more investments.

For a loss-making telco, the next few quarters are going to be crucial since there are no signs to hike the overall tariff structure. Though Airtel CEO has said that they are prepared for no tariff hikes, he will have to look for new avenues to boost revenue and bring the company back to profitability.―Business Today