Gopal Vittal at Bharti Airtel, Earnings Call, Q2 FY23

“Our focus this quarter earnings calls on three things, our performance and the strength of our portfolio an update on 5G and why we believe this will in the short term, give our business a fillip. And finally the opportunity in rural.

We’ve had another steady quarter for Airtel. Our consolidated revenues for the quarter grew sequentially by 5.3% to reach Rs 34,520 crores. In India, our EBITDA margins improved 51.8%, benefited by continued cost control and the SUC benefits, which were part of the several telecom reforms of last year.

5G spectrum acquisition optically increased our debt levels, while our deleveraging continued, on the back of fiscal prudence, and strong operating leverage. Equally, we continued our waste program to help fuel margin improvements. Despite this performance our South Asia and India, return on capital employed is at 8.4%. For a business that takes risk and puts in substantial CapEx in order to drive digital adoption, we believe this level of ROCE is very low. The only way to help remedy the situation is a tariff correction.

Let me now comment on our various businesses and why each part of our portfolio creates greater customer stickiness while driving premiumization.

Let me start with Airtel Payments Bank. Our payments bank has now crossed the milestone of a 50 million monthly transacting users and clocked $25 billion of annualized GMV. Our take rates are now 100.61% the highest in the industry. This translates into an annual revenue run rate of Rs 1233 crores and we are the only profitable FinTech player in the industry. The interesting and unspoken part of this business is that our telco churn, comes down by almost 50% the moment a customer’s bank account number is the same as her mobile number.

Our digital services saw an annualized revenue of Rs 960 crores, up from the previous quarters run rate, growing sequentially at well over double digits. I mentioned before that these services have been built on some very significant digital capabilities, that are helping our core business.

We see our business in three parts, the underlying digital infrastructure, including the massive data infrastructure we’ve created; the digital experience layer, that follows the customer through their lifecycle, enabling them to discover by experience; and finally our digital services layer that leverages the foundation to create revenue streams at very low capital outlays. This is what makes our Digital Play Special.

Now on to Airtel Business. This business is a jewel in our portfolio. Over the last many years, we’ve delivered sustained profitable and competitive growth in this business. This quarter, we continued our momentum, delivered strong sequential growth of just under 7%. This will help cement our position in the B2B market by adding a landmark of being the largest listed player in the B2B space in the country. Based on the results declared of the other players, it is clear we have solidified our position and gained revenue market share.

The consistency of our performance can be attributed to four underlying reasons. The trust we enjoy with our customers; the value we place to privacy of data and transparency in dealings; a steadfast focus on emerging businesses, including SeaPass, security, data centers, cloud, IoT; and solid execution of our go-to-market strategy for going wide and deep, wide to cover more accounts where we are not doing as well, and deep to create much more meaningful relationships with our customers by serving them with more and more products and solutions.

Let me now turn to our Home split. Our broadband business continued its acceleration, on the back of growing need for reliable and consistent broadband in India. We are now present in 1060 cities through a combination of our own infrastructure, and the LCO model. This has helped us to add 417,000 customers and report about 7% sequential revenue growth during the quarter. While the DTH business saw a decline of 2.6%, the outcome of the strategy we put in place a few months ago, is showing early signs of having delivered and creating some momentum. Our strategy was simple. Double down on the largest cable markets of the South Maharashtra and Bengal, simplify pricing and make it easier for customers to choose their content, and finally bring the full power of our convergence proposition to win the high value game. And while doing that, bundle OTT content, linear content, along with broadband and mobile, which is Airtel Black. This strategy is now seeing traction. The months of late August and September have seen growing momentum. Oct has been even stronger.

To give you an accurate picture of the business, we’re now harmonizing the definition of what constitutes a customer with our mobile business. As a result, we are applying the same stringent criteria to this business. A customer will be recognized as such only if he or she is a revenue earning customer. This means that the customer has to give us some revenue in a rolling 30-day period.

Use the same definition in our mobile businesses as well. I’m more confident than ever before, that we will deliver market beating performance in this business going forward.

Let me now turn to the Mobile sector. The mobile business saw sequential revenue growth of 4% on the back of upgrades, continued feature phone to smartphone upgrades and our focus on data monetization, based on our digital capabilities to get users to buy extra data on any day within the plan cycle, when their allowance runs out. As a result, our ARPU moved from Rs 183 to Rs 190. This was achieved on the back of 5 million 4G net additions, a recovery from last quarter. Our postpaid segments are net additions of 300,000. With this the now the decisive leaders in postpaid. In some we delivered steady results to grow our market share across all businesses.

I believe we are very well positioned as a portfolio due to two critical reasons. Each part of our portfolio helps our overall premiumization strategy by moving people up on the ARPU ladder, from feature phones to data users to postpaid to broadband, and eventually Airtel Black. We see a clear doubling of ARPU at every step. We see this ARPU ladder providing us a strong runway for growth.

Second reason is that when a customer buys more than one product in our portfolio, be it digital service, consumer product or an additional B2B product, we see a dramatic reduction of churn.

So the way we think about business objectives when you look at our portfolio is simple. Grow share of wallet on the one hand, and drive stickiness on the other.

Let me now turn to the second part of my opener, 5G. There are 4 advantages we offer. 5G works seamlessly on all 5G devices. All of Xiaomi, Oppo, vivo and realme devices are now ready for our network. Samsung and OnePlus will be fully ready in the next couple of weeks. Apple soon thereafter, Apple will be ready by around mid-November to early December. This cannot be said with alternate technologies, where many devices will deliver either an inferior experience or simply not work on 5G.

A second advantage is that we offer a superior experience. With our anchor band riding on the underlying 4G layer, our 5G band covers an additional 100 meters to provide a compellingly superior experience.

The third advantage is that our solution is more power and carbon efficient for India.

Finally, the cost of producing a gigabyte in India is the lowest for Airtel.

Onto our plans for rollout. We’ve now commenced our Airtel 5G plus launch starting with key cities. By March 2024 we expect to cover all towns in urban India as also key rural areas. As the network starts getting built out, we will see a significant part of our existing data traffic on 4G move to Airtel 5G plus. This is important since it will allow us to gradually move more and more spectrum to 5G at the flick of a button.

We have also started testing the SA mode at 5G. This mode may be relevant for some enterprise use cases. While these specific use cases are very niche, we are already doing our trials to serve customers where needed. We are also testing our millimeter wave spectrum for fixed wireless access. You will hear more about our plans on fixed wireless access in the coming months.

Finally, let me just comment on the use cases. The use cases for five years are still nascent outside of high speed broadband. That said, we are working across a large number of companies including startups to test out use cases. These use cases pan experiential education using virtual reality, connected ambulances to save lives, productivity enhancements in manufacturing and agriculture, logistics and entertainment. These were showcases recently at India mobile congress. Over time, some of these use cases could potentially be game changing for the country.

At the end, while many of these use cases could come into India over the next few years, we believe that there is a serious short term opportunity to grow share and disproportionately win quality customers, leveraging the power of 5G. Given the financial embrace situation that one of the players in the industry is going through, we feel that the moment is ripe for Airtel, pulling ahead and being decisively the most aspirational brand in India. With this, we hope to take a further lead particularly in the postpaid segment.

Let me finally turn to rural. In the last 10 years, we’ve moved up population under coverage from around 87% to 96%. Yet we believe there is still headroom for expansion and growth. We now see over 40% of industry 4G netadds coming from rural areas, And believe the time is right to bridge a substantial part of the coverage gap and mobile against the leading player in the industry.

As we do this, we are applying a whole host of lessons that we’ve learnt. We are using our data science models to determine exactly where to go. At the same time we’re sending our people to the field to determine exactly where the opportunity is. Even more important, we have designed and built lower cost sites that will allow us to expand profitably.

We take great pride in treating every single network tower as a factory in itself. And we monitor the revenue and profitability across all 254,000 locations. So our plan to expand rural coverage, based on these lessons will lead to sustained competitive performance and be done profitably. With the sub gigahertz footprint we now have, this will provide customers with a very good proposition, thereby fuelling our growth.

In sum, we are now at an exciting juncture. Our portfolio is deep and resilient. It acts as a virtuous flywheel for our business, creating greater stickiness and providing opportunities to grow the share of audit of performance consistency is in large measure due to the strength of our simple strategy backed by this powerful portfolio. We are ready and rolling with 5G.

While in the short term, there may not be too many nextgen use cases, we believe Airtel 5G Plus will be a strong lever for us to grow quality customers. Finally rural, where network coverage law is a massive opportunity for us. And we will use all the lessons we’ve learnt to roll out prudently and quickly.”

CT Bureau