Rates will keep rising for the next few years, says Airtel MD

Prices to increase despite a possible price war after Reliance Jio's entry, believes Gopal Vittal

Bharti Airtel, which spent Rs 18,530 crore to buy telecom airwaves in the recently concluded auctions, has said rates would rise continually in the next few years.

“We will have to make more investments in infrastructure. Growing mobile internet also requires more investments in (optic) fibre. There is no other way but for rates to go up,” Gopal Vittal, managing director, said on the sidelines of the Kotak Annual Global Investor Conference. He did not reveal by how much would voice rates rise, as the market was “volatile”.  

The country’s largest operator by subscribers believes they would not be able to absorb the costs and have to pass these on to customers. Costs include both capital expenditure like increased spectrum charges and infrastructure investments as well as operating expenditure. The company expects rates to rise despite a talk of Mukesh Ambani’s Reliance Jio starting a price war with its entry.

“We will see how a late entrant would come in. We will look at it intently. There is no point painting a doomsday scenario already,” said Vittal. Telecom analysts believe the trend of slow growth in voice rates in the past few quarters might break if aggressive players enter the market. Bharti was able to improve its voice realised rates by two paise in the past three quarters.

“There is enough disruption in the market, where players are offering voice rates and data rates 50 per cent lower than ours. We have been able to lock in customers within a zone of indifference,” he said. The company is currently at a historic low of 2.7 per cent of churn in subscribers. The churn was at eight per cent during an earlier price war after the entry of new players two years ago. The company is now focussed on increasing margins instead of volumes.

The company had aggressively bid for the scarce and more-expensive 900-MHz band in the Delhi and Kolkata circles, where it had to retain its spectrum, in the auctions. “It is for business continuity. Prices went up in circles where there wasn’t enough spectrum like in Assam,” said Vittal. The company said there was less spectrum on the block and fewer players biting into the capacity.  

The auctions were an “incredible rollercoaster ride”, said Vittal. “I had 10 days to secure the future of the company for 20 years. I had eight clock rounds to discuss, negotiate and make bets. We were all under pressure,” he said. The company acquired as much as 115 MHz of spectrum and will pay Rs 5,425 crore. The balance will be paid over 10 annual installments of Rs 1,310 crore, to start in two years.