Airtel may end cheap subscription plans but decision has risks: Analysts

Telecom company discontinues its Rs 99-recharge offer in Haryana and Odisha circles

Bharti Airtel’s decision on Monday to discontinue its Rs 99 recharge plan in the Haryana and Odisha circles could be a precursor to the telecommunications (telecom) company hiking tariffs in some months, according to analysts.

The Rs 99 segment forms 7-8 per cent of the overall mobile revenue for Airtel, which last hiked tariffs a year ago.

Analysts say the company’s latest move could be a way of gauging the impact on the low-end 2G segment that such cheap plans typically serve.

“If Airtel is successful at implementing this change across all its circles, we estimate it could boost its mobile revenue by 2.5-3 per cent, although this could be partially offset by higher subscriber churn, given the price sensitivity of this segment. More pertinently, this could be a precursor to a more broad-based tariff hike round, similar to what was announced a year ago,” said a report by Citi Research on Tuesday.

Airtel replicating the decision nationwide will depend upon subscriber response and competition, observe analysts. “This pilot of a 57 per cent increase with a shorter validity period comes across as a bold move and a key positive surprise. The impact on revenue could, however, be much lesser than this if it becomes the base plan for India,” said Morgan Stanley Research in a report.

The average revenue per user (ARPU) of entry plans for the telecom services could be more than the minimum recharge amount as some consumers could be recharging their subscriptions more than just once, said Morgan Stanley.

Airtel’s competitors

Analysts say other telecom companies may not shadow Airtel’s decision straightaway. “Vodafone Idea (Vi), in its last conference call, talked about an increased churn, following some pricing interventions at the entry level,” said Morgan Stanley Research. Vi and Reliance Jio may want to increase tariffs, but they face individual challenges.

“Vi is already seeing a higher churn, while Jio’s most comparable plan shows a differential of only 20 per cent (Rs 125 versus Rs 155). If one were to adjust for the additional cost of the JioPhone handset, the differential comes down even further, making the case of an increase potentially weaker,” Morgan Stanley pointed out. Airtel runs the risk of having to restore the original minimum recharge plans if competition doesn’t follow suit. The Rs 99 plan gave users limited talktime and 200 megabytes of data. Calls were calculated at the rate of 2.5 paise per second. In the two circles, the new minimum plan is now for Rs 155. The plan has unlimited calling, 1 gigabyte data, and 300 text messages.

Raising ARPU

Airtel’s latest move is thought to have been spurred by the need to raise its ARPU. In the second quarter (Q2) of 2022-23, Airtel’s ARPU grew over 24 per cent year-on-year to Rs 190.

The company’s revenue growth initially got a leg-up after a 20 per cent tariff hike in November 2021, but its recent focus on cornering the 5G market has raised the need for business growth to get sharper. Raising ARPU remains a key priority for the company, Gopal Vittal, Airtel’s managing director and chief executive officer, had said after the company’s Q2 results. ARPU has come into focus for both Airtel and Jio as they launch 5G services in India.

The two companies are looking to quickly offset the huge capital expenditure in setting up network infrastructure.

Indian telecom has one the lowest ARPUs per month. Service providers have said reviving the sector would depend to a large extent on a higher ARPU. The industry’s ARPU average was at Rs 127.12 per month for the quarter ended March, according to the last performance data issued by the Telecom Regulatory Authority of India.

Airtel arm infusing Rs 600 crore

Airtel subsidiary Nxtra Data on Tuesday said the company will invest Rs 600 crore to build a 25 megawatt data centre in Kolkata and will be fully operational by 2024. Billed the largest data centre in East India, once developed, it will serve the underserved markets of the East and Northeast regions, along with South Asian Association for Regional Cooperation countries, said Nxtra Executive Director and Chief Operating Officer Rajesh Tapadia, at the ground-breaking ceremony.

It will also fulfil the growing needs of enterprises and global Cloud players.

Why Haryana and Odisha?

The two circles of Haryana and Odisha were chosen because of a relatively low uptake for the Rs 99 plan there, 

said sources.

As of September, Airtel had 6.3 million subscribers in Haryana, behind Reliance Jio’s 7.9 million subscribers.

It had 11.3 million subscribers in Odisha, behind Jio’s 13.7 million subscribers.

The average revenue per user for prepaid services at an industry level in Haryana stood at Rs 106 per month, while it was Rs 127 per month in Odisha, according to government estimates. It was Rs 121.91 per month for the entire country.