Airtel will give the feature phone user base a miss, says management

Airtel will stay out of the feature phone competition as it continues to focus on long term high-end customers, the management said during Q2 results. Analysts have taken a positive view on this move as it might be the only way for incumbents to increase ARPUs in the long run.

"We have chosen not to yet compete in the VoLTE feature phone space because we believe that there are customers already who are using our networks on feature phones. So our focus will be to actually get them to upgrade directly to smartphones,” said Gopal Vittal, CEO, Bharti Airtel while addressing analysts post-September quarter results.

o increaseThis strategy is in line with Airtels’s strategy to minimum average revenue per user (ARPU) through a revised focus on recharge plans as well as rapid roll out of 4G sites to address a smartphone led subscriber base. Industry watchers had expected some response from Airtel following the huge response to Reliance Jio’s feature phone offer launched in August. 

Airtel has introduced low ARPU plans across three circles and plans to take it further across the country in order to introduce some much-desired attrition across their low double-digit ARPU subscriber base. Analysts are also of the opinion that part of the almost 12 million subscriber decline might be due the loss of high end prepaid ARPU base to Jio’s feature phone offering.

According to a report by Sanjay Chawla from JM Financials, Airtel's subscriber base declined to the tune of 6.6 million in the quarter due to the feature phone exchange offer (by Jio). Further, the minute (usage) growth reported by Airtel grew 59 per cent year on year but only 1.3 per cent over the quarter due to seasonal 2G weakness and loss of feature phone subscribers. 

“In the high-value prepaid segment, largely smartphones, this is where we believe that we really need to step up our act to actually win with 4G (subscribers) with this dramatic move that's taking place between feature and 3G phones (users) to 4G (users),” added Vittal. Reducing their 2G and 3G base will also help to reduce pressure on Airtel’s Selling, General and Administrative expenses as well said the management.

“By extending the minimum tariff strategy across India, Airtel has chosen to sacrifice near term for the long term. We have a positive view on this strategy and will monitor ARPU improvement & outgoing call proportion to measure success,” noted Ravi Menon, analyst, Elara Capital in a report. He further wrote that while phasing out 3G might drag revenue, the net impact on EBITDA will be positive. 

Analysts say network quality and content offering will be the key differentiators to create subscriber stickiness in the long run. A JP Morgan report noted that Airtel appears to be a late starter on content space compared to Jio though it is now putting in place partnerships to try to reduce this gap (with Amazon Prime, Hotstar). Jio though has more content at present (Jio TV on mobile, Balaji, Jio Cinema, Jio Mags) with partnerships, strategic investments & outright acquisitions. 

"(Airtel's) Data subs reached Rs 97 million (95 million in Jun-18) of which 67 per cent are 4G subs. This implies that Bharti has been successful in its 2G subscribers (movement) to 4G,” wrote JP Morgan analyst Viju George. 
 

The company has also ramped up their 4G infrastructure with about 25,000 sites added in the quarter. Management said that in regions where they have pushed 4G rollout, they have seen more subscriber adoption of the service as well.