Bharti Airtel may take the lead to hike tariffs this year
Premium- Telco aims to raise average revenue per user metric to ₹200 preferably by the end of the year
- Airtel had hiked tariffs by over 20% in November, with other carriers following suit
NEW DELHI : Bharti Airtel Ltd, India’s second-largest telecom operator, may take the lead in raising tariffs to help push its average revenue per user (Arpu) to ₹200 in 2022, Airtel’s chief executive officer Gopal Vittal said during an analyst call on Wednesday following its December quarter earnings announcement.
The tariff hike will be determined by the dynamics of competition once the impact of the SIM consolidation, prompted by the last round of tariff increases in July and November, run the course, he added.
“I do expect another round of interviews, of course, it’s going to be determined by the competitive dynamic and by what happens to the other players, but we would not hesitate to lead it just as we’ve done in the recent past," Vittal said. “I do expect a tariff hike in 2022. I don’t think it’s going to happen in the next three-four months simply because of the SIM consolidation, and growth needs to come back."
Vittal hopes the industry’s Arpu rises to ₹200 preferably by the end of 2022 and touches the ₹300 levels within the next few years to provide over 15% return on capital.
“The industry tariffs are abysmally low compared with other global markets, including Sub-Saharan Africa," he added.
Vodafone Idea CEO Ravinder Takkar, too, had hinted at a possible tariff hike in FY23.
Airtel had increased tariffs by over 20% in November, with other carriers following suit. Vittal said the early signs of the tariff increase have been encouraging, and the full impact is expected to be felt in the quarter ending 31 March. “We expect this consolidation trend to correct from here on," he said.
Arpu, a key metric to measure the profitability of telecom companies, rose 5.9% quarter-on-quarter and over 11% year-on-year to ₹163 in the December quarter from ₹146 in the year-ago. Airtel’s Arpu is the highest among peers, with Reliance Jio clocking ₹151.6, while Vodafone Idea is at ₹115.
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Airtel reported a 26% sequential fall in consolidated net profit to ₹829.6 crore in the December quarter, while consolidated revenue rose 5.4% to ₹29,866 crore from ₹28,326 crore. Its consolidated net income was 2.8% lower than the ₹853.6 crore reported in the quarter ended December 2020, while revenue rose 12.6% from ₹26,517.8 crore.
Airtel’s profits missed Bloomberg analysts estimate of ₹928 crore, but revenues beat estimates of ₹29,370 crore. Its India revenue for the third quarter rose 10% year-on-year to ₹20,913 crore, while mobile revenues grew 19.1% on account of rising ARPU led by pricing interventions and a pick up in 4G customer additions.
Vittal said the company is working on reducing network operating costs by upgrading technology, such as the use of artificial intelligence and machine learning, and by initiating rental re-negotiations. It is also moving indoor tower units outdoors to eliminate the need for air-conditioners, reducing energy consumption, in view of the sharp rise in diesel prices, labour costs and loading charges. “Along with a possible fuel price hike, it has seen a 6% increase in network costs, limiting incremental EBITDA margin to 53% v/s the expectation of 60–70%," said analysts at Motilal Oswal Securities Ltd, adding that high network costs had moderated incremental EBITDA margin.
The company now has a zero bank-debt profile and will use its cash flows to settle dues of the telecom department. “We have over ₹20,000 crore of 10% interest rate DoT liability existing in the profile on the 2015 spectrum auction," Bharti Airtel group director Harjeet Kohli said. Overall its net debt reduced sequentially to ₹1.59 trillion from ₹1.66 trillion.
“With the Google fund infusion of ₹52 billion and strong operating cash flow from the tariff hike benefit, it should see healthy deleveraging of ₹80–100 billion (6%), and consistent annual deleveraging of ₹200 billion (15–20%)," Motilal Oswal analysts said in a note.
Vittal said if the reserve price for the 5G spectrum recommended by the telecom regulator is not reduced drastically, Airtel will not be able to buy nationwide spectrum . Spectrum-related levies should also be lowered, he said, adding that large scale adoption of 5G will happen in FY24, and only 3-4% of smartphone units in India were 5G-enabled, which is likely to reach 10-12% by March 2023.
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