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Bharti Airtel to look to get its Payment Bank license upgraded to Small Finance Bank, says Mittal

Bharti Airtel will not foray into ecommerce or content creation but will keep exploring partnerships with various players including Google and Facebook on multiple business aspects, according to Goldman Sachs which hosted Bharti Enterprises Chairman Sunil Mittal on December 11.

Mittal had shared thoughts on various aspects of the telecom business, including his outlook on industry structure and tariffs, 5G, smartphones/devices, among others.

As per Goldman Sachs, Mittal mentioned that while Jio has received investments from a number of players, this does put Airtel at a disadvantage.

Bharti Airtel will look to get its Payment Bank license upgraded to Small Finance Bank – this could enable lending, and increase deposit sizes (which are currently restricted to US$1,500).

Mittal informed Golman Sachs that Airtel was seeing a lot of traction for its Payment Bank; the company has one of the largest branch networks in India, with billions of dollars of monthly throughput. “Bharti has been able to reduce churn of its mobile customers due to this offering.”

The Sunil Mittal-led telco is looking at low-end smartphones, but primarily in the form of partnerships and bundled data. Mittal told Goldman Sachs that the company has stayed away from device subsidies in the past and will continue to do so as they view it as a drain on costs.

High customer churn and low loyalty do not justify investment in devices,
especially since ARPUs are very low in India. Bharti Airtel will not foray into device or equipment manufacturing.

“…as we have highlighted in the past, we do not view smartphone or 5G services launch by Jio as a negative for Bharti; our analysis suggests minimal impact due to launch of subsidised devices, and we believe the 5G device ecosystem will take a few years to mature in India. We remain constructive on Bharti and see current levels as compelling buying opportunity,” Goldman Sachs said in the note.

Bharti Airtel believes ARPUs would have reached Rs200 already if COVID had not happened, and believes the company should get there in the next few months.

As per Mittal, the ideal ARPU for the industry is Rs300, but mentioned it could be a longer journey to get there. ARPUs at Rs300 does not mean there will not be offerings for consumers at Rs100 price points, and the company believes high-end customers should be able to pay US$6-8 per month.

Mittal said that Airtel will not raise tariffs at the cost of market share.

Bharti Airtel believes the current industry structure (4 players) is ideal, but expects market share to consolidate further; it believes the top two operators can end up with around 80% market share (currently around 75%) in 12-18 months.

“Bharti Airtel’s execution continues to be near-flawless, and we have been encouraged by the closing of the incremental market share gap between Bharti and Jio. While a tariff hike is inevitable in the near term in our view, given Vodafone Idea’s stretched balance sheet, we see Bharti continuing to win market share in the interim; the company’s current c.32% market share can potentially rise to mid-to-high 30%s in the foreseeable future if tariffs do not move up rapidly,” Goldman Sachs said in the note.

Mittal does not expect a material market share difference between the top two players. The company’s focus is on higher quality customers, and it has consistently been able to attract and retain mid-to-high end customers.

The telco also believes if spectrum prices were to remain at current levels, it may not participate in auctions in 2021.

However, by 2022, Bharti Airtel may need to buy 5G spectrum and expects 5G launch to start happening in 2-3 years at least in India’s main cities.

Mittal said that there are currently not enough use cases for 5G and devices will need to be more widely available at lower price points for 5G to happen. The company does not think 5G will lead to incremental capex as it will just be substituted by a reduction in 4G capex. Tech24by7

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