A telco's call to action

'In a do-or-die effort, Mr Mittal's target is an ARPU of at least Rs 200 by the end of this financial year', says the author

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 Rs 200 by the end of this financial year and Rs 300 in the near future, up from the measly Rs 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 Rs 346.59, with Delhi topping at Rs 465.51 and Mumbai next at Rs 430.97. In the Delhi circle, the differential between the three players was remarkable—Bharti Airtel’s ARPU was at Rs 524.17, followed by Hutch (which later became Vodafone’s business after a mega deal) at Rs 442.99 and Idea Cellular at Rs 374.05. In Mumbai — other important telecom market—Hutch led with an ARPU of Rs 527.48, followed by Bharti at Rs 422.29 and the third player, BPL Mobile, at a much lower Rs 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 Rs 308.07; in 2008, it was Rs 246.71; 2009 at Rs 191.28; 2010 at Rs 143.69; 2011 at Rs 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 Rs 160.95 and Etisalat DB Telecom was as low as Rs 15.53. Videocon, STel and Uninor—all products of 2G allocations— were at Rs 26.03, Rs 27.27 and Rs 45.81, respectively. Also present were Bharti at a respectable ARPU of Rs 143.91, Vodafone Essar at Rs 122.07 and Idea at Rs 121.14 in the middle of a bloodbath. Check out the Mumbai circle movement in that period: Vodafone Essar at Rs 240.54, followed by Bharti at Rs 206.65; Loop at Rs 157.01; Idea at Rs 119.28; Aircel at Rs 78.16; Uninor at Rs 48.88; and Etisalat at Rs 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 Rs 67.11 with Mumbai at Rs 134.11, Delhi at Rs 52.04 and as many as 20 circles falling below the Rs 100-mark. Bharti was no different with an ARPU of Rs 64.60. While Bharti’s highest ARPU was at Rs 112.14 in Karnataka, it was the lowest in Gujarat at Rs 25.35. Not only that, in as many as 21 circles, Bharti’s ARPU dropped to below Rs 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, Rs 17.84 on calls, 31 paise on SMS and Rs 89.81 on data, besides the remaining in value-added services, out of a total of Rs 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.