A weaker balance sheet is forcing Vodafone IdeaNSE 5.91 % (VIL) and Bharti AirtelNSE 3.55 % to rapidly pare customer base and crank up average revenue per user (ARPU) levels to get profitability going even at the risk of playing into the hands of Reliance Jio Infocomm, analysts and experts said. Jio is constantly expanding its user base with an aim to monetise it in the near future.
The two financially-stressed telcos, they said, are also letting go of plain vanilla, low-value subscribers, unable to sustain a dense, pan-India 2G network, especially as they divert the bulk of network resources – spectrum and tower assets – to 4G services to combat Jio.
Vodafone Idea and Airtel have taken recourse to minimum recharge plans to clean up their low-paying user base. “Voda Idea and Airtel are focused on improving ARPU and profitability by weeding out low-value customers as they need to shore up cash generation to fund high capex requirements and deleverage balance sheets to effectively combat Jio,” Nitin Soni, director (corporates), Fitch, told ET.
VIL lost 88 million users over the last two quarters of FY19, while ARPU jumped over 18% to Rs 104. Airtel’s monthly ARPU is estimated to have gained 25% to Rs 125 in this time, assuming its subscriber base was largely unchanged at 284 million as reported in the December quarter. Airtel lost 48.5 million users in that quarter. Its January-March customer and ARPU figures were not available due to a rights issue that closed on Friday.
By contrast, Jio added 55 million subscribers over the last two quarters. Though its ARPU has dipped 4.5% to Rs 126, it’s still highest. Analysts expect Jio, by virtue of its deep pockets and stronger balance sheet, to continue focusing on customer growth at the expense of some ARPU dilution.
Jio, they said, can afford to service lower-value customers and still make margins on the strength of its more cost-efficient VoLTE network. VIL and Airtel run more expensive hybrid networks and are compelled to churn low-value users to cut overall servicing costs.
Fitch’s Soni expects Jio to step up user base monetisation once its revenue market share crosses 35% from about 30% now, or once it has 400 million users from the present 307 million. This, he said, could be by way of “innovative bundling of valueadded services such as music, movies and videos to drive up 4G data consumption, which in turn, would increase ARPU and lead to sustained profitability.” Experts said Airtel and VIL could end up playing a losing game if they continue focusing only on ARPU growth without arresting heavy customer losses.
VIL and Airtel will soon “need to churn subscribers away from Jio and notch up strong customer adds in coming quarters to grow mobile revenues and remain profitable,” said Rajiv Sharma, co-head of research at SBI Cap Securities. They “have no choice but to cut their low-value user base to also maintain coverage quality on their much thinner 2G networks.” Vodafone Idea, Airtel and Jio did not respond to ET’s queries till press time.―Gadgets Now