A telco’s call to action

Bharti Airtel Chairman Sunil Mittal’s clarion call for a tariff hike earlier this week reinforced the relevance of ARPU in any telecom narrative. A key metric to describe the average revenue per user in a month, ARPU has captured the essence of the industry over the years ever since wireless came into our lives. In a do-or-die effort, Mr Mittal’s target is an ARPU of at least ~200 by the end of this financial year and ~300 in the near future, up from the measly ~146 a month currently. In a system where at least 35 per cent of a telco’s revenue goes towards a combination of levies, the need for a higher ARPU to make the telecom business sustainable cannot be disputed. But, a look back at the ARPU trends in the past years throws up many questions as well as answers on the significance of the number of players in the market, the role of a weak third or a fourth player, disruption of the sector through cheap tariffs and price differential between players as well as between circles.

Going 15 years back to the April-june quarter of 2006, the all-india ARPU for wireless services stood at ~346.59, with Delhi topping at ~465.51 and Mumbai next at ~430.97. In the Delhi circle, the differential between the three players was remarkable—bharti Airtel’s ARPU was at ~524.17, followed by Hutch (which later became Vodafone’s business after a mega deal) at ~442.99 and Idea Cellular at ~374.05. In Mumbai — other important telecom market—hutch led with an ARPU of ~527.48, followed by Bharti at ~422.29 and the third player, BPL Mobile, at a much lower ~ 288.51. Clearly, tariff fixing was an individual call then with no player waiting for the other to announce a hike. It was difficult to say who was the disruptor then and which businesses got disrupted because of tariffs.

Then the slide in ARPU started. In the same period in 2007, the all India ARPU was down to ~308.07; in 2008, it was ~246.71; 2009 at ~191.28; 2010 at ~143.69; 2011 at ~113.07, and so on. Let’s pause at 2011. During the April to June quarter of 2011, deep discounting was showing, even with as many as nine telecom operators. In the context of the current debate that every attempt should be made to prevent a duopoly, as more operators will mean a healthy telecom industry, the 2011 numbers present an interesting picture.

There were nine operators in the aftermath of the 2G licence allocations leading up to a scam, and ARPUS were swinging from one extreme to the other. Loop in Mumbai led with the highest ARPU at ~160.95 and Etisalat DB Telecom was as low as ~15.53. Videocon, Stel and Uninor—all products of 2G allocations— were at ~26.03, ~27.27 and ~45.81, respectively. Also present were Bharti at a respectable ARPU of ~143.91, Vodafone Essar at ~122.07 and Idea at ~121.14 in the middle of a bloodbath. Check out the Mumbai circle movement in that period:

Vodafone Essar at ~240.54, followed by Bharti at ~206.65; Loop at ~157.01; Idea at ~119.28; Aircel at ~78.16; Uninor at ~48.88; and Etisalat at ~15.08.

So, the likes of Bharti, Vodafone and Idea remained somewhat focused on business while the wannabes played the tariff game.

In the subsequent years, the mood started changing with the market leaders taking a plunge in the business of low tariffs. Reliance Jio’s entry made discounting an established norm, with no looking back. In the April to June quarter of 2018, Vodafone’s overall ARPU slipped to ~67.11 with Mumbai at ~134.11, Delhi at ~52.04 and as many as 20 circles falling below the ~100-mark. Bharti was no different with an ARPU of ~64.60. While Bharti’s highest ARPU was at ~112.14 in Karnataka, it was the lowest in Gujarat at ~25.35. Not only that, in as many as 21 circles, Bharti’s ARPU dropped to below ~100. That was a telling sign of what might follow in the telecom sector.

The latest composition of ARPU is something like this. On average, a subscriber spends 39 paise towards rental in a month, ~17.84 on calls, 31 paise on SMS and ~89.81 on data, besides the remaining in value-added services, out of a total of ~103.58. So calls, which have been the bread and butter for any operator, make up for only 15.6 per cent of revenue from subscribers, while data usage yields a bulky 78.7 per cent. That partly explains the dilemma of the telecom industry in raising tariffs, with data being more valuable than oil perhaps. Yet, Mr Mittal must walk the talk in raising tariffs, even if his company has to be the first one to do so. The low ARPU trap has been around for far too long.