Telecom Tariffs Must Increase & ARPU Should Gradually Reach to Rs 300: Gopal Vittal, Airtel

Struggling with the current market conditions, Bharti Airtel's CEO Gopal Vittal came forward and emphasized that tariffs have to go up. "The question is of right timing, as the telco asserted that ARPU should rise to Rs 200 and eventually to Rs 300 for a sustainable business model," he said.

Speaking at an earnings call post Q1 results, Airtel CEO Mr. Vittal said the indicative reserve price for 5G spectrum, as recommended by the regulator, is "very expensive", unaffordable and does not support business case at those levels.

The 5G ecosystem is "still nascent" and commercial rollout of 5G is still a few years away, he said.

"Fundamental issue on 5G is that cost of the spectrum at Rs 50,000 crore for 100 MHz is way over the top for any kind of business model to work. Cost of spectrum needs to come down and the ecosystem needs to evolve, and it is still early days.

"Device prices are still high for 5G and overtime they will keep coming down, but right now, we don't see it crashing in a hurry," Vittal said.

The company said that it will build 5G solution in the lab and work with disruptive partners to bring innovative solutions to the table. On the issue of Chinese equipment and vendors, Vittal said Airtel works with multiple companies, including Chinese and European partners, and looks at "right commercial model", unique offerings, and "cost structures" while doing so.

"That said, if there is any government notification that emerges, then we will abide by the law of the land," Vittal said. He was replying to a specific question on what would be the impact on rollout plans and cost structure in case of a ban on Chinese telecom equipment vendors.

Bharti Airtel on Wednesday reported widening of losses to Rs 15,933 crore for June quarter -- its fifth straight quarter of loss -- as the telco recorded an incremental provision of about Rs 10,744 crore towards statutory dues it owes to the government.

At the earnings call, Airtel senior management said that the latest provisioning is likely to be "almost full and final" and mark "the closure of provisions" that the telco needs to make, since the AGR (Adjusted Gross revenue) amounts cannot be recalculated or reassessed as per the Supreme Court order.

Bulk of December tariff hike flowed through in the March quarter, Vittal said and termed as "unfortunate" the current pricing structure in the market that offers generous data allowances for low levels of ARPU (Average Revenue Per User).

"At some stage, price architecture in India needs to get more sensible with an opportunity to uptrade as you consume more data. That is currently not the case, and I hope at some point we will be able to make that shift," he said, adding that currently increase in data consumption by an existing user is not translating into "meaningful" rise in revenue.

"We continue to believe that ARPUs need to move up to 200 and eventually to 300 for a sustainable business model...I think tariffs have to go up, and the question really is the right timing for it. We believe that at some stage we should be ready for it, I can't comment on specifics of when," Vittal said.

ARPU, a key metric for telecom companies, improved to Rs 157 from Rs 129 in Q1FY20 for Airtel "led by full impact of tariff hikes" in the previous quarter alongside "continuing focus on quality customers".

ARPU was also better when compared to Q4FY20 level of Rs 154.

Asked if the company was looking at first mover's advantage in rolling out 5G services in the country and the equipment ecosystem it is eyeing, Vittal flagged concerns over the high reserve price of 5G spectrum.

"We will not be able to afford it at those levels. We don't believe there is a business case at those levels. Secondly, the ecosystem for 5G is very nascent, both of applications and devices.

"For most new technologies, we have been out there first off the block... be it 3G or 4G...we need to be ready when the ecosystem is ready (for 5G), but there is no point in being too ahead of the game. We believe that this will be at least a couple of years on before 5G has any meaningful significance in India," Vittal said.

The company is working with several partners, and has invested in R&D team to work with "disruptive partners".

"We are committed to continuing to do so, and we will continue to work with disruptive partners to bring some of those solutions," Vittal said.