The telecom voice and data business is all about the average revenue per user (ARPU). The future belongs to telecom players that can maximize ARPU without compromising on growth.
How Bharti Airtel gained
In early October, the Supreme Court rejected the plea of telecom companies and instructed them to pay up the AGR. Bharti had to pay up Rs.33,000 crore. Interestingly, that was the day, Bharti stock price bottomed as the uncertainty surrounding the issue was put to rest. Not only has Bharti been one of the top gainers, but it has also been the most preferred buying pick for mutual fund managers in April. How did Bharti Airtel manage the ARPU game so effectively as to stand up to the challenge posed by Reliance Jio in the data space.
Lockdown was a blessing
When we look back at the lockdown, the one sector that would have really gained would be the telecom sector. For Bharti Airtel and Jio, the gains were clear as the sector has almost become a duopoly now. Lockdown led to intensive usage of data as people started juggling office work from home. Companies invested more in voice, data and conferencing as WFH became the norm. But the biggest advantage for telecom players was that it led to a greater willingness on the part of consumers to pay for high quality voice and data networks.
Winning the ARPU game
For the quarter ended Mar-20, Bharti Airtel reported ARPU of Rs.154 while Jio reported ARPUs of just Rs.131. On QOQ basis, Airtel reported ARPU growth of 16% compared to almost flat growth for Jio. But the entire difference in ARPUs may have been largely driven by one factor called Jio Phones, which was laid out by Jio to target the low end clients. This was targeted at a time when Airtel and Vodafone Idea were trying hard to improve their ARPUs by weeding out low value customers and just focusing on mid to high value clients. Once Jio Phone effect saturates, Reliance Jio may also see its ARPUs growing. The good news for Airtel is that apart from ARPUs it has also grown its market share in the highly lucrative 4G data segment. That could hold the ARPU edge for Airtel.
We could end up with a duopoly
Clearly, Bharti Airtel has raised the bar by monetizing African assets and raising a war chest. Its focus on data segment and on network quality has also worked. The pressure is likely to be the most on Vodafone as they have consistently lost market share to Bharti Airtel and Jio. The advantage for Jio is that it has a complete ecosystem at its command; something Bharti Airtel cannot claim to have. Bharti also does not have a profitable oil business to bank roll their telecom plans. But last round of telecom war did belong to Bharti Airtel!