Airtel - Targeting High Paying Customers and Foreign Partners To Offset Declining Revenues and Market Share
Airtel - Targeting High Paying Customers and Foreign Partners To Offset Declining Revenues and Market Share
Airtel - Targeting High Paying Customers and Foreign Partners To Offset Declining Revenues and Market Share
Prepared by:
VJIM Faculty
Dr. N.Padmaja
Dr. Sushma Kaza
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This report contains the following sections:
1. Executive Summary
2. Introduction
3. Client Profile
4. The business and market environment
5. Problem/Opportunity to be studied
6. Background of the problem
7. Defining the company’s objectives
8. Main results
9. Responsibilities held during internship
10. Learnings and skills required
11. Conclusion
12. Bibliography
13. Appendices
Introduction
This report analyses the reasons for the deteriorating financial performance and market
share of Airtel. It identifies the primary reasons as predatory pricing strategy of Jio coupled
with an unfavourable and partial TRAI policy. The report recommends that the solutions to
counter this challenge lies in pursuing twin objectives of customer retention and customer
acquisition. This includes focusing on upgradation of technology, cheap plans – both voice
and data, FDI – continue exploring partnership opportunities with foreign companies such as
Singtel, adopt new telecom technology such as OTT, 5G, value added services, IoT and offer
more cloud-based services. Also, it has to continue to tap high paying customers, rural
subscriber base and postpaid customers.
Executive Summary
1. Airtel is one leading telecom service provider in India. It was founded in 1995 and
operates in 18 countries.
2. The Indian telecommunication services market will likely grow by 10.3 per cent year-
on-year to reach US$ 103.9 billion by 2020.
3. The telecom industry has witnessed intense disruption, shrinking revenue streams,
bankruptcy and, finally, consolidation. The last three years have been monumental
as 4G coverage soared and became a catalyst for the growth of mobile data and new
applications and services, especially in the content ecosystem.
4. The three major challenges of the industry are intense competition, high cost
structure and exorbitant spectrum prices coupled with govt. charges and lowest
ARPU (average revenue per user)
5. Airtel’s financial performance is deteriorating and its market share is declining owing
to new entrant Jio’s aggressive tariff war. This is reflected in its falling revenues,
declining profitability and high debt.
6. Airtel’s revenues declined from Rs. 82,887.6 crores in FY 2018 to Rs. 81,071 crores
in FY 2019. Over the same period, net profit declined substantially from Rs. 1,099
crore in 2018 to Rs. 409.5 crores in 2019.
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7. Jio initiated a price war by offering free voice calls and roaming charges and data
charges at 1/10th of the prevailing rates. As a result of the price war, smaller
companies were either shut down or acquired, leaving just Airtel, Jio and the merged
entity of Vodafone and Idea to compete in the Indian market.
8. High fees, frequent flip-flops, endless tax demands from an unsympathetic
bureaucracy and greedy govt. that treated MNOs as cash cows have driven many
operators aground.
9. Airtel posted its first quarterly loss in 14 years amid a brutal price war unleashed by
Reliance Jio that has destroyed competition and reshaped India’s telecom market.
10. Airtel’s losses owe to cost of managing multiple networks given its users are also on
2G and 3G. This hurts Airtel’s economics in the short run. Unfavorable Supreme
Court verdict and partial govt. policy further worsened the situation for Airtel.
11. The best way forward for Airtel is to focus on Upgradation of technology, customer
acquisition and customer retention strategies that include cheap plans – both voice and
data, FDI – at present Singtel holds 48% equity stake while Mittal holds 52%, adopt
new telecom technology such as OTT, 5G, value added services, IoT and offer more
cloud-based services.
12. The company also needs to continue to tap high paying customers, rural subscriber
base and postpaid customers
Website https://www.airtel.in
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3-year financials:
Org Structure
Business model
Airtel core focus areas are basically two – customer acquisition & servicing (retention) and
business development/expansion. All other functions – hardware, network management,
backend applications (billing etc), value added services and even telecom infrastructure –
are outsourced.
Strategy
The strategy focusses on delivering a range of telecom services to higher revenue generating
customers and to drop low paying customers who pay less than Rs. 35 per month and by
driving data consumption on its wireless as well as wireline networks. This is in the backdrop
of the massive scale and growth upside available in India with a billion potential smartphone
users. As part of its strategy, Airtel will continue its focus on building strong partnerships.
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Chart 2: Wireless subscribers (mn)
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Chart 2: Wireless subscribers (bn) and average data usage (mb)
Problem/Opportunity to be studied
Airtel’s financial performance is deteriorating and its market share is declining owing to new
entrant Jio’s aggressive tariff war. This is reflected in its falling revenues, declining
profitability and high debt.
Airtel’s revenues declined from Rs. 82,887.6 crores in FY 2018 to Rs. 81,071 crores in FY
2019. Over the same period, net profit declined substantially from Rs. 1,099 crore in 2018 to
Rs. 409.5 crores in 2019. Airtel’s consolidated revenue from operations for 4Q’19 grew to
₹20,602.2 crore from ₹19,394 crore in the year ago period. The company posted a loss of
₹1,377.8 crore in 4Q’19, almost triple the ₹482.2 crore loss q-o-q. In comparison, Reliance
Jio generated ₹11,106 crore in operating revenue in 4Q’19.
The company’s net debt also rose 6 percent over 4Q’18 to Rs 1.12 lakh crore. Higher debt led
to a 30 percent increase in finance costs to Rs 2,532 crore. The telecom operators is currently
raising Rs 25,000 crore through a rights issue, the proceeds of which will be used to cut debt.
The fundraise could reduce debt by about 30.5 percent
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Chart 3: Airtel and Jio’s consolidated net profit
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Chart 4: Subscriber base of Airtel and Jio (percent)
The Indian government and telecom operators are disputing how gross revenue should be
calculated. The government has mandated that license and spectrum fee needs to be paid by
operators as a share of their revenue. Telcos have argued that only core income accrued from
use of spectrum should be considered for calculation of adjusted gross revenue. Jio is not
disputing the revenue collection methodology. Since it owes a mere $1.8 million to the
government.
High fees, frequent flip-flops, endless tax demands from an unsympathetic bureaucracy and
greedy govt. that treated MNOs as cash cows have driven many operators aground.
Auction of air waves and sale of licenses is fetching revenue to govt. but resulting in huge
losses for the sector. Spectrum costs in India are among the highest in the world. Airwave
costs as percent of revenues at 7.6% are among the highest in the world. The band allocation
for 5G airwaves of 3,300-3,600MHz has been priced at ₹492 crore per megahertz.
1. To study the financial performance of Airtel in terms of key metrics such as revenues,
profits, market share and ARPU
Sources of data
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1. Secondary sources such as company website, newspapers, journal articles, e-databases
such as Emerald and Euromonitor, search engine such as Google
1. The study pertains to only Airtel and not the entire telecom industry
3. Since the reliance on secondary sources is predominant, the writer does not have
access to sensitive financial information which could throw further light on the
analysis.
4. The study makes specific recommendations for meeting the company’s twin
objectives of customer acquisition and retention,
1. Design strategies to arrest declining revenues, profits, market share and subscriber
base and retain existing customers
2. Develop strategies to acquire new customers and explore new revenue sources
Secondary objectives:
1. Build long term strategy for capturing high revenue paying customers through
customer engagement and customer experience management
2. Switch from voice calls to data consumption to drive revenues and profits.
1. The report identifies that Airtel posted its first quarterly loss in 14 years amid a brutal
price war unleashed by Reliance Jio that has destroyed competition and reshaped
India’s telecom market.
2. Airtel reported a substantial ₹2,866 crore loss in the 3Q’19 from a net profit of ₹97
crore in 3Q’18 as finance costs rose and it incurred a one-time loss of ₹1,445 crore.
This is despite recording higher data and voice consumption.
Causes
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1. Airtel’s losses owe to cost of managing multiple networks given its users are also on
2G and 3G. This hurts Airtel’s economics in the short run.
2. The launch of low-cost tariff plans by Reliance Jio, forced rivals to drop their rates,
hurting profit margins.
3. Unfavourable Supreme Court verdict that upheld the government’s broader definition
of revenue on which it calculates levies on telecom operators. The apex court rejected
the contention of telecom operators to exclude revenue from non-core telecom
operations such as rent, dividend and interest income.
4. Partial Govt. policies – regarding IUC and customs duties on telecom equipment
pricing. Lack of action on Jio’s anti-competitive free plans. Two years ago, TRAI had
cut IUC by about 57%, which resulted in huge savings for Jio and dealt a massive
blow to the incumbents.
Recommendations (mapped to Causes)
1. Upgradation of technology – Airtel needs to urgently upgrade its entire network,
towers and technology to 5G. This could substantially reduce operational costs and
increase profits. For efficient 5G services, a telecom operator would need at least a
block of 75 MHz-100 MHz, which would cost between ₹36,900 crore and ₹49,200
crore. This could push up the company’s capex.
2. The best way to counter Jio is to:
a. focus on call quality, reducing call drops, expanding coverage, strong network
signals and build an ecosystem with low data consumption rates.
b. The company has to focus on increasing ARPU since it is one of its best
metrics, and also tracked closely by the industry
c. Strengthen its rural base where it has a higher market share than Jio by
attractive plans, data subscription plans, advertising and delivering high
quality content
d. Diversify to other services such as ecommerce since it already has the
infrastructure in place. In fact, a similar strategy is being considered by Jio
3. Since judiciary is a regulatory challenge, the company can do little in this regard
4. For this the company has to actively mobilize public opinion and highlight how
customers are being adversely impacted due to partial govt. policies and also
challenge the govt.’s stance in judicial courts and use all legal means such as RTI and
consumer courts.
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3. With RJio signing definitive binding agreements with RCom for buying spectrum,
towers, fibre and media convergence node, it will have more access to the 800 MHz
and 900 MHz spectrum, considered the best to deploy 4G and 2G, respectively. RJio
would have 496.75 MHz of spectrum in these bands as compared to 368 MHz for
Bharti Airtel and 283 MHz for Vodafone-Idea.
Causes
1. RJio is a disruptive market player which reshaped the demand curve of telecom
industry using Ambani’s petro dollars.
2. Postpaid is a weak segment for Jio as also building a content driven ecosystem.
Recommendations
1. Customer acquisition strategies:
a. Cheap plans – both voice and data
b. FDI – At present Singtel holds 48% equity stake while Mittal holds 52%. The
only way Airtel can survive in the market, and get the much needed cash for
customer acquisition and counter Ambani’s deep pockets is to go the Flipkart
way. Unable to withstand the money muscle of Amazon, Flipkart sold itself to
Walmart. Also, the company raised $3 billion through a qualified institutional
placement (QIP) and overseas bonds to pay dues related to adjusted gross
revenue (AGR)
Chart 5: Capex of Telco Majors
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boxes (STBs) that have plagued our living rooms since the 70s might finally
be on the way out.
Conclusion
Airtel has lost 41m customers with the advent of Jio. This is reflected in its falling revenues,
profits and market share. The only way that Airtel can now crawl back is by relying on the
twin strategies of customer acquisition and retention.
In sum, encouraging ultra-low prices may look like a pro-consumer move now, but if this
results in a monopoly situation, it can quickly turn anti-consumer. To start with, it makes
sense for the government to ask CCI to weigh in on the concerns about pricing and give its
recommendations. Airtel must harp on this aspect.
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Further, the industry has an overwhelming debt of over ₹4 lakh crore. The banking industry
currently has NPAs of over ₹4 lakh crore. This means that if these companies fail the NPAs
of banks will double to Rs. 8 lakh crores and the NPA rate will double to 16%. This is a
potential crisis which could destabilize our already slowing down economy.
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