With limited scope of 5G monetisation, Airtel to focus on enterprise and cloud

The scope for monetisation of 5G is currently “very limited” and subscribers do not see any compelling difference between 4G and 5G when they use various services, according to a top Bharti Airtel executive.

The executive pointed out that not only a small fraction of smartphones currently in use are 5G devices, customers are also upgrading their phones slowly. “Currently, only 12 per cent of devices are on 5G. In the past few years, the average smartphone replacement cycle has extended from 18 months to 30 months. That could be because of better quality smartphones or loss of the novelty factor.”

“The scope for monetisation is very limited. The 5G enterprise business is also in a nascent stage and it has to be developed. It is starting off with larger corporations. Subscribers are also in a zone of indifference as they cannot see the impact of it on the services they use,” he said.

He noted that attempts to offer 5G as a premium service have not worked anywhere in the world. “Many countries tried to sell it as a premium product, like in Thailand, but it did not work.” He further argued that the headline tariff needs to go up as the price per GB of data in India is even lower than in Sub-Saharan Africa, but said Airtel cannot do it alone.

The telco, however, is undertaking test runs for fixed wireless access (FWA) broadband — a big use case for 5G globally, as well as in India (by Reliance Jio). The executive pointed out that cost per home pass in fiber is lower than the router cost of a 5G FWA at $200. But when prices go down, the executive said Airtel expects to complement fiber to the home broadband with FWA.

The executive also rubbished claims that Airtel’s services, because of the deployment of non-standalone 5G against standalone 5G offered by its competitor, are inferior. “Like-for-like, there is no difference between the two 5G services,” he said.

Airtel is looking at taking its Payments Bank public, which it has to do under the RBI guidelines. On the Payments Bank strategy, the senior executive said: “We would look at monetising Payments Bank by taking it public as required by regulations. The bank has 50 million users, Rs 20,000-crore gross merchandise value, and is profitable”

Airtel has deployed a three-pronged strategy to increase average revenue per user (ARPU) which entails pushing prepaid customers to opt for postpaid connection and encouraging 250 million feature phone users to upgrade to smartphones (2G to 4G).

It also wants to prod the 600 million smartphone (4G mostly) users, many of whom are on prepaid plans, to move postpaid services and then buy an entire range of Airtel’s communication services for their home, including fixed broadband connection, at least three pre or postpaid connections (for an average three members in a family), DTH, OTT bundles, and various digital offerings. The addressable size of this market, which is at the top of the three-stage pyramid is around 50 million homes (or 150 million customers).

Elaborating on Airtel’s strategy, the senior executive said: “The shift of feature phone users to smartphones would lead to doubling of the ARPU. And when a smartphone user, who has moved from prepaid to postpaid connection, starts using the entire range of services for their home, ARPU would nearly quadruple.”

The top executive said earlier, postpaid tariffs were 1.8x-2x higher than prepaid rates, but this difference surged to 3x-3.5x. That was because in the 4G price war — prepaid rates declined faster than postpaid tariffs. Currently, the gap is 1.6x. “It is the best opportunity for us to make interventions to push prepaid users towards postpaid connections. For instance, we have started by offering international roaming to postpaid customers in just one pack across 184 countries. We are also evaluating in 100-odd towns the credit risk of offering customers postpaid connections.”

To test the market, the company recently experimented in two circles by increasing tariffs in Haryana and Odisha by 57 per cent on 2G entry packs on a pilot basis. The top executive said that though Airtel expected churn, it was much lower than originally projected and the loss was more than made up by the increase in tariffs. In fact, many realised that they are getting more value by paying a bit more.

Asked whether Airtel would roll out similar hikes in other circles, he said: “We will know more clearly whether the experiment has worked or not in the next six weeks and then take a decision on its extension in other circles.”

Airtel plans to push the pedal in the Rs 45,000-crore enterprise business, which accounts for 20 per cent of revenues. Its strategy in this space is two-pronged. “Currently, 80 per cent of our revenues in enterprise come from 20 per cent of our accounts. So, there is a huge scope to go all out and get those who don’t have any business with us…. That apart, we will play a bigger role in the related Rs 50,000-crore market of cloud, cybersecurity, and other services,” he added. Business Standard