Bharti Airtel expects modest annual increases in blended ARPU in coming years led by data (assuming rationality on the part of Reliance Jio). Airtel admits voice ARPUs will continue to dip but does not think cannibalization of voice by high-speed data is a risk, likely underestimating this voice ARPU reduction risk. Airtel thinks that higher ARPU subs (post-paid or high-end pre-paid who would be early 4G adopters) hardly churn and that pricing per se is not a factor in churn at the high-end. Additionally, it is rapidly rolling out 4G on a large scale not giving its high-end 3G/4G subs reason to shift to competition. Data traffic will continue to grow at a robust pace driven by increases in penetration and per sub consumption growth. Better data network and newer technologies (such as 4G) itself allows higher consumption on a like-for-like basis.
Plain Vanilla 2G Voice
On the contrary, incrementally new subs are coming from low-ARPU rural areas, total voice ARPU will likely continue to trend down. Urban wireless penetration is already 145%+; hence, rural subs will continue to account for a larger proportion of incremental sub additions (rural wireless penetration <50%). Hence, demography itself will continue to pressure voice ARPUs. Bharti suggests on a like-for-like basis voice ARPUs might not decrease meaningfully, but mix shift will drive the decline. It also believes rural margin profile is not essentially much inferior as incremental costs are relatively low for Airtel.
Airtel’s Take on Data Pricing & VoLTE Threat from Reliance Jio
Reliance Jio Infocomm has already invested USD15 bn and low prices will make it difficult to generate returns on these investments. Hence, logically speaking, for the sake of making the economics work, the quantum of data pricing decline should be limited; but that does not rule out RJio adopting an aggressive price posture to make market share inroads.
Though 4G handset prices have decreased materially, very few of these 4G handsets are VoLTE-enabled. VoLTE-enabled handsets are just a small faction (<10%) of total 4G deliveries shipped to India and continue to be relatively expensive. One reason could be that 4G players the world over are existing players with legacy 2G/3G footprint – so, there is little incentive in fervently embracing VoLTE to the cost of legacy. Reliance Jio is trying to deal with this limitation by bringing out its own brand of VoLTE handsets (christened LYF) but the VoLTE handset population has to reach critical mass for VoLTE to gain ground and the ecosystem to take root. Use of a Mi-fi device (small wireless device to route data traffic through RJio’s network while using incumbent operators’ network for voice) might be a good strategy to drive adoption for RJio data, but subs need to carry an additional device in this case – more so, battery life of such devices is said to be rather limited – so, it remains to be seen if RJio can make an impression through Mi-Fi.
Bharti Airtel is doing well with its higher-end sub segments (say, top-10% subs) but how much growth such segments can impart to the overall company is the moot point one can answer 3 months from now when Reliance Jio will be operational.