Airtel, Vodafone Idea focus on high revenue customers

While Reliance Jio is becoming a mass market player with its prepaid tariffs almost a third of those offered by incumbents, Vodafone Idea (VIL) and Bharti Airtel have their focus on higher-Arpu (average revenue per user) customers, and it shows in the premium charged in postpaid tariffs compared to that of Jio’s. With this, the segmentation of telecom subscribers in India is becoming clearer now as telcos seem to have fixed their allegiance to their respective customer bases. In November, both Bharti and VIL adopted a minimum recharge scheme through which they fixed a ceiling of Rs 35 as the minimum recharge plan and discontinued all recharges below that. The move was aimed at forcing the incoming-only customers to start paying to stay on the respective networks.

Also, with the post-paid pricing of VIL and Bharti being 100-150% higher compared to Jio, it seems Bharti/Vodafone-Idea are comfortable with the premium. “This implies that they see limited risks of their high-end subs going to Jio,” according to analysts at Bank of America Merrill Lynch. However, in the prepaid market, Jio’s tariffs are 19-33% cheaper compared to its competitors. For instance, implied tariff in post-paid plan of Rs 199 of Jio is Rs 6.6 per day, while VIL’s Rs 399 post-paid plan has implied tariff of Rs 13.3, which is a premium of 101% versus Jio. Similarly, Bharti’s post-paid plan of Rs 499 commands an implied tariff of Rs 16.6, a 151% premium to Jio. While the validity of all plans is 30 days, Jio offers data of 25GB, Bharti is offering 75GB of data and VIL 40GB.

In comparison, on prepaid, Jio’s package price of Rs 399 with 84 days’ validity offering 126 GB data has an implied tariff of Rs 3.2 per GB, which is 33% cheaper when compared to Bharti, which for the same package price of Rs 399 and validity, is offering much lower data of 84GB data and has an implied tariff of Rs 4.8 per GB. While Idea’s offering is the same as Bharti’s, Vodafone’s plan of Rs 458 with 84 days’ validity offers 118GB data and has an implied tariff of Rs 3.9 per GB, which is 19% higher compared to Jio.

Balesh Sharma, chief executive officer, VIL recently said that the company will continue to create value for its postpaid customers base. He said that in the era of unlimited prepaid plans, postpaid is no longer a cheaper proposition compared to prepaid as it used to be two years ago at a particular level of usage. “Postpaid is now a proposition of giving more value to the customer. Giving premiumisation through content, service offering and various kind of bundlings,” he told analysts, making a point that the company is focusing on building content exclusively for postpaid customers.

The strategy, though yet to show up in the subscriber numbers, which are on the downhill for the past two quarters, as an impact of the minimum recharge plans, gains are visible on the uptick in Arpu for both Bharti and VIL.

In the quarter ended March 31, 2019, VIL saw a sharp rise in company’s Arpu to Rs 104 compared to Rs 89 in the previous quarter. The introduction of the minimum recharge scheme on a national basis during Q3 resulted in a decline of 53.2 million low Arpu subscribers for VIL taking the overall subscriber base to 334.1 million versus 387.2 million in the previous quarter.

Bharti arrested the decline in subscriber base sequentially, which remained flat at 283 million subscribers versus 284 million in Q3FY19. As for Arpu, Bharti’s stood at Rs 123 versus Rs 104 in three months of October-December 2018. However, Reliance Jio, which has been having industry ruling Arpu since the time it announced its first full earnings and operating metrics in October 2017 until now, has seen them decline over a period of time. After suffering a sharp decline of 11% q-o-q in the January-March 2018 quarter when the Arpu fell to Rs 137 from Rs 153, the Arpu a year later stands at Rs 126. With Bharti now at Rs 123 Arpu levels, it is inching closer to Jio’s Arpu.

According to analysts, with operating metrics improving, the sector recovery is expected to continue. “With further tariff tweaks by Bharti/Vodafone Idea yet to take effect and 4G penetration still low at 24-31% of incumbents’ subscriber base, the sector’s revenue recovery is set to continue,” analysts at CLSA observed.