Airtel says India’s telecom pricing model is ‘broken’ as ARPU growth slows

New Delhi: Bharti Airtel’s management said they are not satisfied with the sluggish growth in industry average revenues per user (ARPU), which is happening due to a “broken” pricing architecture. The company said it will double down on existing growth levers to boost this key performance metric.

While Airtel’s ARPU fell 0.6% sequentially to Rs 257 in the fourth quarter, the management accounted for two missing days compared with the previous three-month period to project a modest Rs 3 growth in the metric.

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“We are not happy with our ARPU increase of only Rs 3 for the quarter. Part of this issue was linked to the West Asia crisis and (its impact on) international roaming revenues. But we are now determined to double down on all our levers on ARPU and grow and accelerate the pace,” executive vice chairman Gopal Vittal told analysts Thursday.

The reason behind the slow growth in ARPU is that the current Indian pricing architecture is “broken”, Sharma said. Because the market relies heavily on unlimited data plans, revenue yields cap out at around Rs 340-350, which is far lower than markets in Europe or the US where unlimited plans start at much higher price points, he said.

To achieve long-term ARPU growth, Sharma said the market needs to shift to a usage-based tiered architecture with small, medium, large and extra-large allowances. This would create a natural pathway for customer upgrade based on their actual consumption, he said.

Sharma said going forward, Airtel will leverage its existing growth levers to boost ARPU. This would include pushing for greater post-paid penetration within the current customer base and encouraging users to upgrade their plans as data consumption grows.

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“Overall upgrade with data consumption and 5G, handset upgrades from feature phones and international roaming offer large headroom for growth. However, we see a very large opportunity in upgrading to post-paid and are determined to accelerate post-paid growth by driving differentiation,” Sharma said.

Airtel’s management said the company will focus more on fibre-based broadband services given the global environment with memory and chipset supply seeing shortages and high prices. Consequently, the company is increasing its capital expenditure on fibre infrastructure.

“Our network priorities are towards building a gold-plated experience and we are investing in strengthening our transport layer and launching advanced capabilities on 5G. Our 5G network is now fully SA (standalone) ready,” Sharma said.

Going forward, Airtel’s investments will go towards future-proofing its business which includes bets on new growth areas. “Over the years, through a very disciplined approach, we have identified new areas which we call adjacencies and operated calibrated experiments on them…These are data centres, financial services and Airtel Cloud,” said Soumen Ray, group chief financial officer.