Airtel keen for a second round of price increase

Performance of Airtel’s India mobile business (Oct-Dec 2019)

Bharti Airtel, the former No.1 telecom operator in India, said it is keen on having a second round of price increases in the year starting April, but can do it only if the rest of the industry follows suit.

Airtel said it needs to get more money from its customers to ensure that its investors get a decent return on the money they are investing in the company.

During the latest, October-December quarter — numbers for which were announced yesterday — Airtel managed to nudge its average mobile subscriber to pay Rs 134 per month, up from Rs 128 in the preceding three months.

However, said Airtel, an average customer has to pay at least Rs 300 per month if companies are to be as happy as the customers.

“At 200 rupees, we’ll barely have our head above the water in terms of return on capital,” CEO Gopal Vittal said. “We need an ARPU (average spend per customer) of about 300 rupees in Indian telecom, and that when we get a reasonable return on capital in the overall business.”

CAN’T DO IT ALONE

Vittal, however, added that he cannot increase prices without support from the likes of Vodafone Idea and Reliance Jio.

The three companies, who control about 90% of the Indian market, carried out a round of price increases in the first half of December.

On average, prices were increased by about 25%.

Because the increase was done in December, the full impact did not flow through as far as the numbers for October-December period are concerned, Vittal said, explaining the modest, 4% increase seen in its average revenue. He also added that the price hike is far from sufficient.

“While it’s a welcome relief, it’s not good enough.”

Vittal said the second round of price increase can only be done if the other two operators also extend their support. Otherwise, he said, consumers will simply switch from Airtel to Vodafone Idea or Reliance Jio.

“We need to wait to let this tariff increase settle down, and some time next year, we need to see whether the market can absorb a second round of tariff increase,” he said.

“It depends on what happens with the rest of the competition, simply because if we were to take a price increase..and went completely off kilter in terms of the [pricing] premium, then we could potentially lose market share. One of the things we need to look at is how the market will respond. So, that’s an evolving situation.”

This had never been a problem before the entry of Jio. Bharti Airtel, Vodafone and Idea Cellular — the three operators who used to control about 75% of the market — used to keep their prices in sync till about 2015. During the period, 1 GB of wireless data used to cost about Rs 230 rupees.

However, the pricing consensus broke down with the entry of Reliance Jio. Riding on cheaper, more efficient technology and architecture, Jio was able to significantly undercut Vodafone, Idea and Bharti Airtel in terms of data pricing.

As a result, the price of wireless data fell from Rs 230 per GB to about Rs 15 per GB at present.

With Jio consistently refusing to play ball and increase prices, the other two operators approached the govternment and asked it to set a minimum price for voice and data.

It is believed that the government asked Jio to help the others implement a coordinated round of price increases in December, following which data prices increased by 20-30%.

However, the jury is still out on whether the price increase will lead to greater revenue for the operators.

For example, if consumers simply end up reducing their data consumption by 20% when the price goes up by 25%, it will nullify the impact of the price increase and operators will find themselves back in square one.

Compared to about 0.6 GB per month before the fall in data price, mobile consumers today use about 13 GB per month.

Vittal, however, said the full impact of the price increase implemented in December will be visible only when the company reports its revenue and profits for the three months from January to March.

“We’ve seen large parts of its go through without much of a concern,” he said.