Voda Idea's decline in 4G subscriber base in Q1 could compound its worries

For telcos speed with which they can grab or upgrade more customers to 4G has been the key for improved ARPUs, especially when tariffs have been stable for over 18 months except for some recent tweaks

Post Q1 result announcement, a reason for concern emerged for Vodafone Idea Ltd in the form of its falling 4G subscriber base. The telco, which declared its quarterly results for Q1FY22 on Saturday, has seen its 4G subscriber base shrink, despite its efforts to upgrade the 2G subscribers so that it can improve average revenue per user (ARPU).

According to data, VIL’s 4G subscriber base fell by 1 million in Q1FY22 to 113 million over the previous quarter. The company has always hoped that even while its 2G subscriber base was falling sharply, quarter on quarter, its 4G customers were holding firm and going up (who generate higher ARPUs). The 4G subscriber base increased from 105 million customers in Q1FY21 (2G subscribers were 163 million) to 114 million in Q4FY21, even as 2G  subscriber  base was down to 144 million. However, that process is in reverse gear now. Its broadband subscriber base (3G and 4G) has shrunk from 123.6 million in Q4FY21 to 121.4 million in the reporting quarter.  VIL, however, said that the reason for the overall subscriber fall has been due to the second wave and its attendent impact but its says that its 4G numbers are relatively 'resllient'.

However, its rival Bharti Airtel, which also has a legacy network of 2G subscribers, has ensured that it is able to move more and more of its 2G customers to 4G and push up the ARPU. And it has succeeded in doing so as its 4G subscriber base went up from 280 million in Q1FY21 to 321 million in Q1FY22, an increase of around 15 per cent. Not only that, the 4G subscriber base went up from 179 million in Q4FY21 to Rs 184 in Q1FY22.

For telcos the speed with which they can grab or upgrade more customers to 4G has been the key for improved ARPUs, especially when tariffs have been stable for over 18 months except for some recent tweaks.

So, what explains VIL's fall in its overall subscriber base and also 4G subscriber base? Analysts said that it can be attributed to the reduction in capex, which is needed to upgrade the network. So, according to ICICI Securities VIL's capex as a percentage of revenue has seen a sharp fall from 16 per cent in Q4FY21 to only 10.3 per cent this reporting quarter. And Goldman Sachs points out that compared to competitor Bharti Airtel its capex is lower by 79 per cent.    

So it does not come as a surprise that VIL’s ARPU in Q1FY22 has hit a mere Rs 104, the lowest since the quarter of March 2019 when it hit a similar number. However, during the same period Bharti Airtel’s ARPU went up by 19 per cent and that of Jio by over 9 per cent. And this is despite the fact that while tariffs of VIL and Bharti were in similar territory, Jio was 20 per cent lower, say analysts.

What Airtel has succeeded in doing is to invest heavily in quickly upgrading its 2G customers to 4G. In Q4FY19, Bharti had a mere 30.4 per cent of its customers on 4G, however that number has now hit 57.3 per cent in Q1FY22 despite the fact that its overall customer numbers have gone up by 14 per cent in that period.

It took some key decisions, including announcement of closing down of its 3G services and completed that process last year. It has also refarmed spectrum in the 900 MHz 2G band to 4G to improve services as well as absorb more customers.

In contrast, VIL in the same period was able to move up its 4G customer base from 24.1 per cent to 44.2 per cent of total subscribers, while its overall customer base shrunk by 24 per cent from 334 million to 255 million.

In the case of Reliance Jio, which only offers 4G services, the inability of VIL to hold on to their customers provided the new telco with an opportunity to grab many of VIL’s 2G customers looking for a cheaper upgrade through a subsidised 4G feature phone offering bundled with minutes of data at a mere Rs 1,000. The ploy worked and it was able to woo over 130 million new customers to its fold on its feature phone and its subscriber base went up by 40 per cent between Q1FY19 and Q1FY22.

The erosion of the 4G subscriber base is clearly a warning signal as it leads to ARPU erosion. That is why Sunil Mittal, chairman of Bharti Airtel, has publicly said that their plan is to increase ARPUs and they are aiming at Rs 200.