Good competitive performance on the back of charter on sustainability

Airtel’s sustainability approach has been carefully developed through systematic engagement with stakeholders worldwide. Q1 FY24 saw Bharti Airtel’s increased focus on sustainability practices.

The telco has made great progress on its green agenda. Nxtra now utilizes renewable energy for 41 percent of data center energy needs, a big jump from 32 percent a year ago; 43 percent of the network sites are now green sites. These sites consume less than 100 liters of diesel in a quarter versus 420 liters on average for other sites. The rural site expansion is leveraging green energy for 35 percent to 40 percent of the requirement. Such initiatives have helped reduce diesel emissions in the network by almost 48 percent per terabyte of data, and this is over the last two years. In addition, the telco continues to double down on our agenda to drive diversity in the workforce as well as make Airtel a safe and secure workplace.

Gopal Vittal, Managing Director & Chief Executive Officer, Bharti Airtel Limited responds to various questions thrown at him at earnings call, Q1 FY24.

On impact of Jio Bharat phone on the feature phone market.
When the feature phone was launched, we did see an impact at that point in time, the feature phone market was much larger than what it is today. Today the feature phone segment accounts for about 18 percent of Airtel’s overall revenues, and more importantly it is only once in four years that a customer chooses to replace the feature phone. The pricing of this device is slightly higher than the cheapest feature phones, it is competitive. We continue to focus on our upgradation from feature phones to smartphones. We would not be launching any such device. Our feature phone user is on our 2G network, and our focus will be on upgrading them to a smartphone.

On 5G monetization.
A 30 percent offload of traffic from 4G networks to 5G networks is being seen, in sites that have both 4G and 5G. The overall installed base at 14-15 percent is still low, and not increasing at the expected rate. 5G shipments are only 48 percent of the total shipments. It will take time for the full upgradation to happen.

Monetization has to be at an aggregate ARPU level. For us, the monetization levers are feature phone to smartphone, prepaid to postpaid, data monetization, and finally, the possibility of a tariff increase. Other than the 4G rollout of rural sites, which is a coverage-related CapEx, our CapEx has largely been on 5G,

On factors driving the postpaid segment.
Postpaid is a big opportunity. Today about 6 percent of Airtel subscribers are on postpaid. Comparatively, in Thailand the number is well past the teens, and in Brazil almost 40 percent to 50 percent. India too over a period of time will start moving more and more toward postpaid.

The levers of growth for us are prepaid and postpaid where we see an increase in ARPU; switching a user from competition to us and in 5G where early adopters of smartphones are looking for a 5G network and prefer us. There is clearly an opportunity here, as one of the players has not yet launched 5G.

The third opportunity is what we saw with Verizon almost over a decade ago, its great success with the family plan. Airtel too, over the last six to seven years, has been steadily working on the family plan.

And the last is go-to-market. We are spreading our stores closer to the point of consumption, closer to the catchment, thereby giving us more access and increased postpaid penetration.

On rural expansion
Airtel has achieved 60 percent of its rural rollout. The telco has been able to marginally beat the targets it had set, with cost per site lower than anticipated. This was possible, largely from the ingenuity displayed by the Airtel teams in a combination of solar solutions, better batteries, no diesel, and diesel completely eliminated to zero in many places. The rollout is expected to be complete by November-December.

On pan-India 5G rollout, compared to RJio.
Non-standalone technology allows Airtel a 30 percent improvement in coverage. Urban pan-India is more or less covered. It is of concern that the impact of 5G is not necessarily moving the experience needle at all. Subscribers are not appreciating the 200-300 Mbps speed, as the applications they use is messaging, watching a video, or browsing, when 4-6 Mbps is more than adequate.

For us, 5G deployment is about giving a seamless experience, a great data and voice experience right across the city. And to continue to offload 4G capacity investments into 5G. So that we do not spend a single additional rupee on 4G. All our investments are geared toward 5G.

On slicing as a tool in SA vs NSA.
The 1-2 slices on FWA required today are feasible with a non-standalone network, the 3GPP standards are clear about this. It is only when applications require 15 different slices that standalone is required, but that is nowhere near the horizon.

Also, as of now there is unutilized spectrum with Airtel, whether we give a small slice, or a whole slice makes no difference.

On economics of FWA.
The economics of FWA are not attractive yet because of the prohibitive cost of the CPE. The router is required in the home is required, whether it is fixed or FWA. And in the case of FWA, a CPE too, for the fixed unit fibre to go there is needed. A connected homepass in the network costs USD 90, compared to a fixed wireless access CPE that is USD 160, almost double of that. While the price of FWA may come down, the real game is in the cost of the chipset, which is very high right now.

That said, Airtel is ensuring it is ready with FWA. FWA boxes have been ordered for the pilot trials that we are conducting in two cities currently.

On the planned path of premiumization, and its impact on ARPU.
A big increase in ARPU can only happen with a reset of the tariff table. India is today at the lowest levels of the world, even when compared to markets in South Asia or sub-Saharan Africa, both in terms of rate per GB on data as well as on ARPU.

Within the confines of the challenges that we operate with, in a competitive market, there are seven levers:

Feature phone to smartphone gives an ARPU upside. The entry level feature phone price plan is at Rs 155, compared to an entry level smartphone pricing with meaningful amounts of data at Rs 239, resulting in an almost 50 percent jump.

A move from a prepaid subscriber to a postpaid one gives an approximate 75 percent jump in ARPU.

The third source of ARPU is data monetization, where the moment the data allowance runs out, on an impulse basis for 1 GB or 2 GB or 5GB of data at multiple price points. This has become a very meaningful source of ARPU increase for us.

The fourth lever is international roaming, as we drive the penetration of prepaid particularly, because postpaid international roaming penetration is high; prepaid has had very low penetration. There is a tremendous emphasis and focus to simplify pricing. At Airtel, we have one price plan across the world, the one-world plan. It is blended across different countries as we have bilateral deals with these operators around the world. We blend it to arrive at a simplified pricing, with use a lot of digital channels, digital mediums, including our app, WhatsApp and all of that to offer messages, on a very customized basis. At the point when the customer lands at the airport to actually buying this particular plan and so on and so forth.

The postpaid family plan, and users moving from competition result in an ARPU upside.

All of these levers really are being driven hard and get organic movement in ARPU.

On operating leverage.
This business is largely a fixed cost business, and we love to see the operating leverage kick through. At this point in time, our cost program will continue very aggressively. We still have a lot of room for stripping out further cost in the Rs 75000 to Rs 100,000 category of OpEx per site, per month. If there is a tariff increase, of course almost all of it flows through, outside of taxes into the bottom-line. Barring some of the capacity investments that get made, there is strong operating leverage, particularly in the case of unutilized network.

But the operating leverage is a whole business that must kick-in. And we would not be satisfied, if we do not get operating leverage from the incremental revenue that we generate, that is a target that we look at very, very closely.

To close, this quarter has been the highest postpaid net addition that we have done, ever. July too has begun strongly, so I hope that we continue to keep this going!