Transcript of Bharti Airtel Earnings Call, Q1FY22-Gopal Vittal, CEO, Bharti Airtel

“I discuss Airtel’s results for the quarter ended June 30, 2021.

“Let me start with an update on COVID. India is now seeing a recovery from the devastating impact the second wave of COVID brought on the country and the economy. Things are slowly picking up and businesses are opening up. Right through this tough period, our teams at Airtel did what was needed to serve our customers. Be it our network teams, the home delivery teams, our sales teams, or our digital teams, every single one of our people live the spirit of service. And I cannot really stress how proud I am of how each one of us at Airtel, stood up to serve the nation in this hour of crisis.

3,224 of our employees were impacted by COVID upto date. Sadly we lost 24 of our colleagues. While this is an irreparable loss, we’ve done what we can to provide support to the families of these employees through a generous insurance, jobs for their spouses, and education for their children.

We’ve also set up an extensive COVID support program to help our people in dealing with the stress caused by the pandemic. Our partnership with Apollo Hospitals has allowed our own employees, their families, as well as the employees of our associates to all be vaccinated. Till date, close to 90 percent of our people have been vaccinated. In addition, we’ve helped our low-income customers tide over the impact of COVID through providing about Rs 270 crores of benefits to keep them connected.

Let me now briefly comment on our performance during the quarter. Our consolidated revenues for the quarter grew by 4.3 percent sequentially to hit Rs 26,854 crores. Our EBITDA margins improved from 48.9 percent to 49.1 percent on a sequential basis. While a lot of attention is paid to our mobile business, I do want to underscore the strength of our portfolio, which is very clear in our performance this quarter. As you know we have three parts to our overall portfolio: India Mobile, Enterprises and Homes in India, and Africa. Sequentially of the Rs 1106 crores of growth that we showed at a consolidated level, India mobile accounted for 20 percent of this growth. The rest of the growth, which is a balance 80 percent, came from our other businesses as well as geographies outside of India.

So at a time when wireless revenue was impacted by the COVID-led lockdown and the consequent financial squeeze amongst many of our relatively lower income customers, the rest of the portfolio delivered strongly. This really shows you the resilience and strength of our portfolio.

Let me now comment briefly on each of our businesses within the portfolio, and I will start with the Homes’ business. During the quarter we continue to expand our presence by rolling out an additional 1 million home passes.

Our innovative partnership model with a local cable operator allowed us to extend our services to an additional 98 towns, taking, our broadband presence to over 300 plus towns. With a continued growth in demand for high quality broadband, triggered by work from home, online education, and entertainment, the business added 285,000 customers and reached a milestone of 3.35 million broadband customers. This was despite challenges faced in the quarter due to lockdowns.

With the lifting of the lockdown and the ebbing of the second COVID wave, we’re seeing even stronger momentum in this business. We’re also seeing the temporary disconnections made by small businesses and commercial offices being activated again.

Going forward, I believe fiber-to-the-home is a very large opportunity and we will continue to step up investments to take our network to over two thousand towns across India and cover over thirty five million home passes in the next three years. We have further strengthened our number two position in the DTH industry and now have a presence in 18 million high-value homes. The ARPU for this business has remained at Rs 151.

I believe there are two opportunities to grow this business. The first is conversion from cable, and the second is the move to connected boxes, which also allow us to operate as a platform of choice for driving the penetration of over-the-top services, in partnership with over-the-top content providers.

During the quarter, we made a representation to the government to bring DTH under the DoT. Given the varying regulatory policies arising out of the different delivery modes of the very same content and services through different technologies, be it cable, satellite, or fiber. We will continue to pursue this so as to bring about a more cohesive and consistent policy regime.

For the mobile business, COVID-induced lockdown saw some impact on smartphone shipments. We also saw consolidation of spends at the lower end of the market, as many customers migrated to their home towns and villages. That said, the impact of this lockdown on our business was substantially lower than the last one. You will recall that we lost close to 3.8 million customers in quarter one of 2021, while we were about flat this time. And this has largely been on account of the work that’s gone on behind the scenes on raising our digital capabilities.

In addition, I must say that June bounced back very strongly and the momentum into July has been sustained. Despite all the challenges we added 5.1 million 4G customers and continued to lead the industry on our ARPU at Rs 146. Our revenue market shares at the end of quarter four, at well over 35 percent, was also at a lifetime high.

I also want to underline some changes that we made to our tariffs recently. Our minimum entry plan will now start from Rs 79 versus Rs 49 earlier. This pack also offers more value to the customer with up to four times more outgoing minutes of usage. On post-paid, we’re moving all of our corporate entry plans to Rs 299 from Rs 199 while providing extra value. Our retail post-paid plans have also been further simplified. We now have just four plans and one add-on family plan. As we’ve always said, ARPU in India is extremely low, and at this level our return on capital is in the low single digits. ARPU must rise first to Rs 200 and eventually to Rs 300.

What we have done on the tariff front is a very small step in that direction, even as it plays to our strategy of focusing on quality customers. During the quarter, we’ve also deployed the additional mid-band spectrum in the 1800, 2100 and 2300 bands to enhance capacity and improve customer experience.

One of the biggest initiatives we took was the deployment of our sub gigahertz footprint on a pan-India basis. We’re doing this by deploying new radios in 7 circles where we did not have a sub gigahertz layer. In 4 other circles we’ve upgraded our software to provide 4G services on the sub gigahertz layer.

The introduction of the sub gigahertz layer will give us dramatically enhanced coverage of an additional 90 million people, thereby driving greater competitiveness in our mobile segment. I do want to underscore that the sub gigahertz layer that we have introduced is the reason for the elevated CapEx in the quarter. Our overall CapEx outlook for the year remains unchanged from what we discussed last quarter. I say this because we’ve already made substantial investments in capacity over the last few quarters in the form of capacity addition, spectrum refarming, and augmentation of transmission networks. During the quarter we saw a traffic surge, but the good news was that the consumption pattern was flat across the day, much flatter. And you must remember that our investments in capacity are always made keeping peak usage in a day rather than average usage. So with a flatter curve, CapEx is not impacted.

I now turn to Airtel Business. Airtel Business has consistently grown market share and outperformed its listed peers. In fact, as per Frost and Sullivan, in the enterprise data market, our share has moved to 31.4 percent, up from 22.4 percent a year ago. In the enterprise mobility market, we’re undisputed leaders with 43.3 percent market share. In addition, we’re now the leaders in IoT and indeed in every part of the connectivity market. While COVID has seen some softening of the order book in the first two months of the quarter, we’ve recovered strongly in June and into July.

For the quarter, Airtel Business clocked revenues of about Rs 3,790 crores, a sequential growth of 2.4 percent and an EBITDA margin of 38.8 percent. Airtel Business serves over 3,600 large and 1 million-plus emerging enterprises. Yet, as I have mentioned before, 20 percent of our customers account for 80 percent of revenues in every single vertical. There are many large greenfield accounts where we have very low share, and this is why I feel the opportunity in this business is really limited by our own imagination.

We have two opportunities, the first is to go deeper, what we call farming. This is about leveraging the trust that we enjoy with our customers to offer many more solutions around cyber security, surveillance, cloud communications, cloud-based services, work-from-home solutions etc. At the same time there’s a massive opportunity to also go wide, to build our presence in several customer accounts where we’re either not present or have limited presence. This is what we call hunting. Our entire go-to-market has now been retooled to address both these opportunities through a combination of differential focus, sales incentives, and insourcing of our SME sales force. All of this is being bolstered by strong omni-channel digital capabilities, from search, to discover, to purchase, and finally, to experience. Our teams are now digitally enabled end-to-end so that the process of sales, training, and even fulfilment is completely digitized.

Having commented on each of our business segments, I want to step back today and talk about our view of the market and customer opportunity in India. Our strategy and our choices flow from this view. There are several Indias as we all know. Incomes, lifestyles, geographies-all have an impact on the wide differences in the Indian opportunity. But let me give you a quick over simplification of this market. This will help clarify the basis of our strategic choices.

There are potentially 50 odd million high-value homes in India. They comprise of executives, self-employed professionals, businessmen and the like. These are customers who want to feel special. They desire a simple, convenient experience, and they are really concentrated in the top 25 cities of India. Their average spend today on all telecom and entertainment services is about Rs 1500-2000 per month. But this can grow, with pricing being correct. And they have the capacity to spend.

The second broad segment comprises of almost 500 million migrants, gamers, young students, blue-collared workers, traders and farmers in rural areas. For the sake of simplicity, let’s call them aspirers. These aspirers have a smartphone for whom the device is an essential part of their lives. They seek a good experience around their specific use cases and look for good value, not necessarily the lowest price.

A large part of this customer base is concentrated in about 300 odd districts in India. The common characteristics of both these segments is that they switch seamlessly between channels, both online and offline.

The third segment comprises of an additional 400 million users comprising of farmers, the elderly, housewives, and rural traders. And these are largely users of feature phones. They’re looking for basic connectivity and a satisfactory experience that is hassle free.

The first two segments-the high value homes and the aspirers, account for almost 85 to 90 percent of the overall consumer market in telecom as a whole. 

This view of the market is what informs our choices and informs our strategy. We have a four-pronged approach as I’ve all mentioned earlier. First is to provide a razor-sharp focus on these quality customers that give almost 85 to 90 percent of industry revenue. Second, a relentless obsession to deliver the best experience for them through our network and all the digital assets that we’re building. Third, to leverage these digital assets, as well as the partnerships we form, to create new revenue streams in adjacent areas. And finally, doing this with financial discipline and sound governance. This strategy is the thread that ties all our businesses together.

So let me provide a little more texture; an example on each of these areas. Let me start with quality customers. Our focus here is to strongly differentiate our service in a way that is difficult to replicate. A few examples of this are the post-paid family plan, which has a powerful network effect and creates barriers to exit. Almost 61 percent of our postpaid customers are now on the family plan with negligible churn. Another example is the integration of our Payments Bank proposition into the core of the mobile offer. Airtel’s Safeway is the most secure way to pay online. An Airtel Bankwala SIM meets a very tangible need for the aspirers. And these are just two illustrations of that.

The last example is our pivotal launch of Airtel Black. This is India’s first truly converged solution. It is built for the high value home who has the option of bundling two or more of Airtel’s services, fiber DTH, or mobile together, to be a part of the Airtel Black Club. This entitles the customer to one single bill, one customer care number, with a dedicated team of relationship managers and priority resolution of faults and issues.

All of this comes with zero switching and installation costs coupled with free service visits for life. The most exciting thing for us is that close to 30 million, of the 50 million high value homes that I spoke about, are already on our network, either with a postpaid, DTH, or broadband connection. So this opportunity is really ours to tap into. In fact, we’ve seen strong traction on Airtel Black and are already close to reaching the 700k mark in terms of homes. Remember, each of these homes gives an additional average revenue per account of Rs 650.

The second element of our strategy, which matters deeply to the quality customers we serve, is to deliver a great experience. This starts with a network which is our biggest strength. We’ve invested over Rs 150,000 crores over the past five years, across spectrum and CapEx, to build a world-class network, one that delivers the best speeds, the best video experience, the lowest latency, and the best gaming experience in India. Our complaints, which are a simple measure to drive the behaviour of every employee in Airtel, is at an all-time low, and we’ve built a network that’s fully ready for 5G.

It’s a capability we’ve already demonstrated by conducting India’s first 5G demo over a live network and are now conducting trials in multiple cities. We’ve made substantial investments in our transport layer over the last five years to be ready to deploy 5G when needed. We’re also leading the O-RAN initiative, the open radio access network initiative in India by partnering with the best companies such as Intel, Qualcomm, Mavenier, Altiostar and Red Hat.

In addition, we’re now part of a very critical Make in India push, having announced a strategic partnership with the Tata Group. Our formidable spectrum holdings, particularly in the mid-band, can be deployed for 5G over time. All of this is supported by India’s largest network of data centres and large global submarine capacities.

The other aspect around experience is to deliver an omni-channel model of delivery. Customers today switch seamlessly between online and offline channels and are looking for a consistent and cohesive experience wherever they are. Our model to deliver this is to follow the customer across the flywheel of experience as we call it. This flywheel traces the customer across every part of the life cycle: search, discovery, purchase, onboard, experience, and refer. Every part is being retooled by digital teams.

Let me give you one example from Airtel Black. A customer today can order Airtel Black from the web or our app. The moment the order is placed, this goes straight to the nearest store who confirms the time and date of the appointment. All metrics relating to this call are tracked inside Airtel IQ. Once the appointment is taken, the work order goes digitally to the nearest installer, to our Airtel work app which tracks and provides analytics on the time taken to complete the job. It also has an in-built scheduling algorithm to make sure that no time is wasted between two tasks.

This entire capability has been built by our digital teams in a totally modular way. This will allow us to expand the menu of products to meet many more needs in the homes of our customers. In addition, this capability can also be taken to our Airtel Business customers to create new digital service revenues.

We’ve already done this with Airtel IQ and we’ll do the same with Airtel Work.

Today we have over 1900 people in our digital organization building products and services like this. Airtel is also increasingly a magnet for the best and brightest of digital talent, and this leads me to the third part of our strategy. Leverage our digital assets to create new revenue streams and adjacent areas.

Today Airtel has one of the biggest digital ecosystems in India with over 190 million monthly active users across its three platforms, Airtel Thanks, Wynk Music, and Airtel Extreme. As of today Airtel Payments Bank has a monthly transacting user base of close to 30 million users, an annualized GMV of over Rs 100,000 crores and a merchant base of over 7 million. Even more importantly, Airtel Payments Bank has been fully integrated into all our digital channels, both our consumer app, as well as retailer app, making us one of the few companies that can collect cash for any service at the point of sale, both online and offline.

I’m also pleased that Airtel Payments Bank is now on the verge of hitting Rs 1000 crore annualized revenue run rate and has actually broken even in the month of July. Our four core strengths of data, payments, distribution, and network are now increasingly becoming a source of competitive advantage to build an Airtel of the future.

There is Nxtra by Airtel, which is today the largest network of data centre business in India. We have Airtel IoT that’s now a market leader in the M2M space. We’re also leveraging our digital assets to create altogether new revenue streams. There’s Airtel IQ, our cloud communication suite which now has over 120 customers panning the biggest internet companies banks and more. There’s Airtel Secure, both in the B2B and B2C space, that offers protection from cyber-attacks and threats. This is a business that’s now gaining traction. There’s Airtel Ads which rides on our vast digital assets. Today we already have around 100 brands advertising on our platform. Finally, we have subscription services across music and video which are beginning to gain traction.

All of these businesses in the digital area, operate in a market that’s over Rs 50,000 crores, and growing. The company remains aligned with the Paris Climate Accord proactively implementing clean fuel based power solutions for our towers, our data centres, our switching centres, and other facilities.

We’ve remained committed to the society, our customers, and employees right through the harrowing time of the pandemic. We have continued to demonstrate the highest standards of corporate, financial, and operational disclosures. Our classification of revenue and costs are in line with the best global peers. Our operational KPI definitions are the most stringent in the industry. In wireless for example, our earning customer definition takes into account actual revenue earned in the last rolling 30 days. When it comes to Airtel Payments Bank, we have further enhanced our reporting standards and now we’ll be representing two additional numbers from this quarter.

Firstly, the total users. These are those who have a bank account or wallet with us. Secondly GMV, which is a standard definition in the industry. This is an addition to the monthly transacting users. I must also underscore that the monthly transacting users that we report are those unique users who have transacted on the platform at least once in the last 30 days. This is a more stringent definition than any other payment platform today.

CRISIL have recently assigned us a GVC level 1 rating indicating the highest levels of corporate governance practice and value creation.

Lastly, on the recent AGR judgment of the Supreme Court, our request was to permit correction of computational errors in the AGR demands by DoT. These apparent errors have a significant implication on the overall AGR demand. While we are disappointed with the recent outcome, the company has provisioned for the onerous pay out, and already paid over Rs 18,000 crores covering its obligations for the first few years as per the direction of the Supreme Court.

On the next steps relating to any review petition, we will be guided by legal advice and no decision has been taken on this yet.

Finally a word on our capital structure. The balance sheet continues to remain strong with healthy cash flows and a net debt to EBITDA of just about three. A position that is comfortable. The business has been generating strong cash flows for many quarters now. This has been a result of revenue growth, strong operating leverage, and effective deployment of capital.

Over the last few months, we’ve announced multiple monetizations in Africa in the form of tower sales as well as stake sales and Airtel Money.

Following a USD 200 million investment in Airtel Money by TPG, USD 100 million investment by Mastercard, and the sale of tower companies in Madagascar and Malawi, we’ve also recently announced an additional USD 200 million investment from Qatar Investment Authority in the mobile business in Africa. The total proceeds of close to a billion dollars from all of these transactions will be used for further deleveraging. In sum, our performance for the recent quarter has been strong because of the resilience and depth of our portfolio.

In every one of our businesses, we’re at a lifetime high in terms of revenue market share, the most critical barometer of our competitiveness. Our momentum going into Quarter-II has been strong. Our strategy and choices are dictated by our view of the India market opportunity. These are cohesive and simple. Even more importantly, we’re building an Airtel of the future and are well positioned as we go forward.”

Question-Answer session
As an outside analyst I see Bharti as the leader in post-paid and the premium segment. Typically pricing increase leads are taken by the leader. Could you articulate why Airtel is not more aggressive on price hikes with the premium customer segment?
We’ve already done that. We have taken a price increase on post-paid in the B2B space moving up our entry plan from Rs 199 to Rs 299. On all other plans, we are at a very substantial premium. In fact I would argue that our entry plan on post-paid really begins at Rs 399. There are plans in the market today that some of our competitors offer and post-paid starts at Rs 199, so we are close to 2x of those plans. That’s a very substantial premium already.

I would like to congratulate us on the operational excellence. The question is that we now support 844 4G users per tower compared to about 712 users per tower a year ago and therefore could you talk a little bit about the operating leverage with regards to the number of towers and the data consumed per user.
The fact is that the overall data consumed in India is exceedingly high, simply because the allowances that we provide, at very low levels, are extremely high. And this is something that we’ve been talking about, that the ARPUs in the country are perhaps lower than where it should be, to give a reasonable return on capital for investment. The reason that our users per tower have gone up is that we have focused a lot on this. We have a project, where we measure the utilization of every single tower. We look at the number of users at every single tower, and our entire go-to-market is aligned to that metric. One of the things that, all our sales teams and our field force are accountable for is actually driving up utilization of call low utilization sites or unprofitable sites, so that the average comes up. This is one of the reasons that we saw a significant part of our incremental net ads in the last 12 months come, from those sites where our utilizations were low.

Please comment on the industry structure over the next couiple of years. And is Airtel prepared for a two-player market if the situation arises? And if it is, what would be the additional investment requirement?
As a country, we do need three players. This is a large enough country, with 1.3 billion people that can easily accommodate three players in this market, i.e. three plus the government player. There is clearly a situation of serious financial stress in the industry, we’ve seen one of the players say to the government that they may not be able to pay their dues coming up in March 2022. We hope the government provides some relief to the industry. Even more important , if our ARPUs can go up, then the industry’s repair can certainly happen. Substantial investments have been made already by the industry. There are lots of jobs, not just direct jobs, but indirect jobs, and there are many parts of the ecosystem that depend on this industry for employment and livelihoods. Just from a national perspective, it would be appropriate to see an industry structure where three-plus-one players do not just survive, but thrive.

What are the nature of transactions that we are seeing and can you comment on the future plans that we have for Payments Bank?
We’ve seen a strong growth in scale on our Payments Bank. We have almost 30 million users. We have several streams of revenue.

One is the deposits itself, that earn a certain interest. And our deposit base has been growing over the last couple of years. Also the average balances per customer has been growing.

The second big revenue stream is remittances. We are the number one player across the country,  simply because of our vast customer base on the telecom side. We understand the corridors of consumption and usage, and speaking, and are able to play in the remittance space in a very powerful way.

The third part is payments to merchants. We have a large pool of seven million merchants and are seeing increasing growth in our merchant payments on the offline side.

Finally there is the digital side, where both payments and remittances emerge.

The last point on Payments Bank is cash collection. One of the big sources of revenue that we are driving is cash collection for companies that need digitization of cash at source. We are actually identifying each of those customers and using that as another opportunity to drive revenue in GMB.

The CapEx for the India business has been elevated in the past four quarters, while theguidance was for flatish to slight reduction in CapEx. Will we see CapEx reduction in FY22 versus FY21. Could you explain how much of this CapEx, is creating capacity for 4G and how much is going toward strengthening backfall, fiber, and preparation for 5G?
A large part of the CapEx in this quarter was the massive rollout of 900 and 850 band sub gigahertz radios. We wanted to get that done fast because we spent a lot of money buying that spectrum. We were able to add almost 90 million customers onto our coverage footprint. One of the reasons that you see an elevated level of CapEx in Q1 is deployment of radios that we would otherwise have done over a period of time.  We wanted to finish that.

There are three parts to our investment in CapEx now. One is radios. You’ll see the incremental radio investment coming down now, with the exception of this big chunk of sub gigahertz radios that were bought. Because a large part of the radio is only capacity radios. Today we have our 900 band and our 1800 band pretty much all across the country. We have a 2100 band in about maybe 60 percent of the country, and we have a 2300 band in about 80 percent of the country. The incremental radios that are needed for covering additional, let’s say sites or additional towers, is marginal at best. And therefore the only source of radio investment is really more capacity solutions where there is very high consumption in the form of new sites. But with the spectrum purchases that we’ve done, we’ve been able to offset that. The radio investments will now come down.

The core investments, a modest part of the overall CapEx portfolio is a direct function of how the capacity grows.

And the last part is on transport and backhaul. This is where a substantial amount of investment has been made over the last few years. In the best telcos in the Western countries, you will observe that as data grows, almost 40 percent of the CapEx is on transmission and fiber. We have also, over the last few years seen a significant augmentation of transmission and fiber CapEx.

All in all, it’s a balanced CapEx outlet. And I see no reason to change our stance on CapEx for the year.

It’s great to see Airtel take the initiative in changing the floor plans on 2G prepaid and corporate post-paid, as these segments do not see much competition from the players. Could you share the thought process behind the timing? Why now rather than earlier? Should we expect more proactive action on reshaping the pricing paradigm or removing the floor plans in the 4G prepaid site?
Well any time is okay. The ARPUs are abysmally low, so any time would be welcome. We were trying to be careful about testing this in a few markets. For some period of time,  we had tested this in Andhra Pradesh and UP West, a strong market and a relatively weak market. And once the results were found satisfactory, the results meeting action standards, we went ahead with it.

On the B2B post-paid side, we were observing what was happening on the post-paid segment in terms of competitive intensity, and the traction from what were competitive moves.  Once we found that we were in a position, we made the move.

On the rest of it, while there may be some opportunities unilaterally, like what we’ve done in a few areas, going up beyond the premium that we today, on the large pool of 500 million smartphones,  the aspirer segment could lead to some switch away of perhaps some more price elastic customers. Therefore we need to be a little bit more careful about that.

We’re already at a premium. This is where we will not be in a position to take the first step. Simply because that could lead to more erosion of customers and consequently erosion of competitiveness. We will have to wait and watch how that plays out.

It’s great to see carving out of the digital assets including Payments Bank but is there any change in the thought process regarding raising external capital in these businesses?
The Airtel Payments Bank is set up as a separate company, as mandated by regulation from the Reserve Bank of India. While it’s a subsidiary of Airtel, and has a strong linkage with Airtel because that gives it a tremendous advantage in terms of distribution, scale, and customer access, as well as the digital assets that Airtel has, it still operates independently.

Airtel Payments Bank is subject to certain regulatory restrictions and as a promoter entity, we had a lock-in period for five years to keep the stake after which by regulation it can be lowered.

So at some point, will we monetize Airtel Payments Bank? Will we look at other avenues of raising capital and network payments bank? Yes absolutely.

On the digital assets on the other hand, that is totally intertwined with Airtel because there is no real digital asset without the access to the four strengths that I’ve talked about from an Airtel standpoint. It’s very intertwined with what Airtel brings to the table and enables us to add value, not just to the core but also drive new revenue streams. They are independent, in the sense that they are independent businesses that are profitable and have their own business model and economics in their own right.

And while the Payments Bank operates as a separate company, we are perhaps the only platform, with the current scale of 30 million users, close to Rs 1000 crores of annualized revenue, that have broken even.

On a stand-alone platform, you can never break even with that scale. Some of the other competitors who have declared their results, are incurring losses on this. The business model of Airtel Payments Bank is very powerful, while it operates independently, it also has the advantage of the scale and the asset base that Airtel has in terms of distribution, customer access, and technology.

Your thoughts on 5G and the potential implications on our CapEx plans?
Firstly, it depends on when the auction is announced. It could be as early as next year. There is likely to be an auction of the 3.5 gigahertz spectrum band, where adequate spectrum will probably be made available. The reserve prices that were last announced by TRAI were astronomical and at that price, we will not able to afford it. We’re hoping that the reserve price will come down. The DoT has referred to TRAI to relook at the reserve price.

From a transmission standpoint, our networks are getting ready day by day. Over the last two years, we made a substantial investment in transmission, transport, and fiber to ready ourselves for 5G. We will be ready by the time the launch happens.

As we demonstrated in the test that we did in Hyderabad, most of our radios are already 5G-ready.. The core networks are all getting future-proofed in terms of 5G. The real investment that will be needed on 5G in the additional radios is a modular investment, to be made as the devices light up.

On the B2B side, the use cases on 5G are still few and far between. On the B2C side, some of the devices that are coming into India, in the most recent month, 12 percent of the shipments of device or smartphones that came into India were already 5G compatible. But on an installed base basis it’s less than 1 or 2 percent. So even if we look at, say 12 to 18 months out, this is likely to be about 12 to 15 percent of the installed base. And it could start with the larger cities, in the more affluent geographies before it rolls out everywhere.

As 5G rolls out, some of the 4G CapEx will come off, simply because the cost of producing a gigabyte on 5G will always be lower than the cost of producing one on 4G because there’s more spectrum there. The radios have used more advanced technologies to crunch in a lot more data on the same herds of spectrum. So to that extent that’s the way the CapEx will get managed.

With the upcoming launch of low-cost smartphones do we expect the market to gravitate toward a subsidy-led model, given that we are all vying for smartphone customers. How does that gel with our focus on the top two customer buckets highlighted in the opening remark?
I think that’s a good question. The subsidy game is a really a mug’s game. Firstly the ARPUs in India are extremely low and the financials or the P&L of any telecom company will really struggle to absorb large-scale subsidies. And the second reason is that once the subsidy is withdrawn, you do see customers at the end of the device-upgrade cycle coming back and remaking their choices all over again. So it’s not necessary that you stay on the same network.

For all of those reasons, subsidy is not a great idea. But it is a competitive market and you know it’s not up to us alone. There would be a play in the low-end of the smartphone segment, We’ll have to wait and watch and see how that plays out.

Suffice it to say that we’re building a bunch of capabilities.We’re working with both OEM manufacturers, with Google, as well as with software developers to see how we play this game in the smartest way without taking inventory positions, without manufacturing our own device, while still playing with the ecosystem at large, and yet being competitive.

I am not able to share a lot more texture and detail on this because some of this is still being worked through and it’s still unclear what could happen comparatively. But I want to underscore that we are ready with two or three scenarios and we’re working with all of these options. And many of these have already been piloted and tested and are ready to be triggered, whenever they need to be triggered.

Recently telcos have launched plans without daily data limits. For Airtel how has been the traction in such plans and at a broader level could this be the way forward for the industry? With higher price points but flexible usage effectively guaranteeing us higher price per GB than what we’re able to garner now?
The short answer to this question is that the traction on these plans is low; low for us, and low for the industry. Having said that, I do believe it’s the right way forward. Because the current model of a daily quota of GBs where people are still not using their full quota and therefore consumption is going up without necessarily a commensurate increase in ARPU. The growth in volume and the growth in ARPUs are sort of on two different lines.

The one way by which a well architected price structure can be achieved is by playing with the consumer pyramid in India. That means, there is  a need to have, a low, medium, and high type of price point. Let’s say you begin at a Rs 80-100 plan, have a Rs 200 plan and a Rs 500 plan, with different amounts of data thrown in. On the other hand, what’s happening in India is for about Rs 200 you get one and a half gigabytes of data, which is 42 gigabytes of data in a month, and you don’t really need any more than that because the consumption is still only about 18 gigabytes per month. Therefore a more sensible price architecture that plays to the consumer pyramid in India is needed. This experiment is something that we’ve tried but with the prevalence of daily plans, those plans are not as attractive. So unless the daily plans go away, these plans won’t work as well.

As subscriber additions resumed from July,  what should we expect as far as revenue growth for Q2 is concerned?
June has seen a strong bounce back. April and May were soft because of the lockdown as people had consolidated their SIMs, and postponed their recharges; our definition of customers is very stringent, it is based on the last 30 days; so it’s not necessarily a customer churn. Maybe they had gone back home, or two people in the home were sharing the same SIM or consolidated their spend behind one SIM. Normally the moment the lockdown lifts, which is the bounce back we saw in June, as those customers came back, and all those SIMs lit up again.

July has been a strong month as well. To that extent it’s been good news. In August we made the intervention of the plan from Rs 49 to Rs 79. The last time we did this, we saw some SIM consolidation at the lower end of the market, which would show up as churn. And this will take about 30 days to settle. Then September should come back to a normal recovery. I cannot give you a guidance for the quarter, but can tell you, there will be a combination of all of these factors- A strong June, a strong July, a SIM consolidation in August, let out of the price tariff increase at the lower end of the market, some bounce-back in September, and revenues arising out of this tariff increase flowing through. It’ll be a combination of all of those factors.

Any medium-term guidance or where to expect a boost over the medium term. And, given it’s a tech services based company, have we ever thought about the emerging agile business and unlocking value there?
Again, guidance on ARPUs is like a guidance on revenue, I’m afraid I can’t give you a guidance on that. What I can say is, I hope, in the next few quarters, we do see some rounds of tariff increase which take the ARPU up, closer to Rs 200. That would be a good outcome and of course eventually it needs to get to Rs 300.

If you look at the composition of Airtel Business, and this is true not just for us but across telcos around the world, the enterprise business is built on top of the wireless business. Let me explain that in a moment. The heart of the telecom business increasingly is fiber, and while radios etc are important, connectivity and providing fiber and large capacities to backhaul traffic is really the heart of the business. And this is where the enterprise business is interwoven very strongly with the telecom business.

This is also true for homes. Because, once fiber is up to the tower; from that tower, to take it into homes or offices, is much lower in terms of cost structures than if you did not have that fiber. Now once you’ve invested in the electronics, to carry that capacity back from those towers to the central core centers, that investment can be defrayed over much of these businesses that ride on top of this core infrastructure. And this is why I think the enterprise business is very strongly interlinked with the telecom business. That is on the connectivity layer.

The beyond connectivity. Where you look at things like cloud communication, cyber security, and all of these businesses, they could be stand-alone businesses. But the advantage that we bring to the table is that we bring the four strengths that I often talk about. We bring the data of our customers, the distribution, and the access to those customers. We bring the ability to collect money, which is payments, and of course we have the network which allows us to extract APIs and provide services like Airtel IQ.

The third part of our enterprise business is Nxtra, the data centers. Data centers, in a way, is a standalone business. Because other than the access to the customer base that Airtel provides, data centers can be spun off completely independently.  And this is why we brought Carlyle, with a 20 percent stake into the Nxtra data center business.

The rest of the enterprise business has a very strong linkage with the telecom business.”
CT Bureau