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Telcos to gain as 2G base shrinks

The loss of millions of 2G subscribers because of covid lockdowns is likely to improve Bharti Airtel Ltd’s and Vodafone Idea Ltd’s profitability as they will save significantly in fixed costs on servicing low-margin 2G users, analysts said. A fall in the number of low-paying 2G users could also boost the average revenue per user (Arpu).

The lockdowns led to an exodus of workers from urban to rural India following job losses, resulting in a fall in the 2G subscriber base.

Limited access to recharge centres also led to 2G service disruptions, as 4G customers prefer digital modes for recharge.

“We believe that the loss of subscribers may not hurt the telecom companies much. This could be due to two reasons—loss of customers mainly in the 2G space owing to labour migration, and not using dual SIM cards and moving to a single SIM,” said Sanjeev Hota, head of research, Sharekhan by BNP Paribas.

The bulk of the growth in Arpu that the telecom firms are looking for will depend on their ability to transition from 2G/3G customers to the 4G ecosystem, with the improved services leading to customer stickiness and higher revenue, said Rajiv Sharma, head of institutional equity research, SBICAP Securities.

“While tariff hikes across the industry will require some consensus among telcos, enabling upgrades to 4G devices will immediately improve data experience, usage and spend of subscribers to the ₹200 range, which is what telcos are aiming for,” Sharma added.

Loss of subscribers at the lower end, while retaining higher-paying 4G customers is in line with Airtel’s and Voda Idea’s business strategies. Both have been focusing on upgrading their 2G customer base to quality 4G users amid heightened competition from Reliance Jio Infocomm Ltd, which only offers 4G services. Currently, 49% of Airtel’s customer base is on 4G network, while for Voda Idea it is 37%.

However, telcos cannot do away with 2G services despite increased investments in 4G and for 5G rollout, as many customers still use feature phones.

According to global industry body for mobile operators, GSMA, 12-13% users will continue to use 2G handsets till 2025 in India. “Airtel and Vodafone Idea will keep 2G networks operational as they have to serve the needs of users on feature phones,” Hota said.

For Voda Idea, upgradation to 4G will come through partnerships, unlike Reliance Jio which plans to subsidize the 4G device ecosystem, the latest being the announcement of an entry-level 4G-enabled smartphone developed with Google Inc. Airtel has also launched a premium plan, Platinum, to attract high-paying 4G customers.

“Subsidising devices is not our play. We will work with original equipment manufacturers (OEMs) and non-banking financial companies (NBFCs) to help people upgrade to smartphones through easy EMIs where people can choose what devices they want,” said Akshaya Moondra, chief financial officer, Vodafone Idea, in a post-earnings conference call.

Even though Airtel and Vodafone have lost 4.7 million customers each in May, while Reliance Jio Infocomm Ltd has added 3.7 million users, the loss or gain has not translated into any major change in usage patterns. Live Mint

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