Drawing the battle lines

Bharti Airtel's spending spree is preparation for Reliance Jio's imminent launch

The impending launch of Reliance Jio’s 4G technology-based telecom services has been tracked with both keenness and curiosity. It will mark the second foray of Mukesh Ambani into the business, one that he launched with a lot of hype back in 2002 before handing it over to his brother Anil three years later. Reliance Infocomm, as it was known, was the clear disruptor when it slashed mobile tariffs by more than half sending competition into a tizzy and leaving consumers ecstatic.

This time around as well, rivals are bracing themselves for a fierce battle. The difference is that the story has moved to cover not just voice but data as well. Spectrum, the all important ingredient in telecom, continues to remain scarce with players doing just about anything to get it. The much touted 4G story depends heavily on spectrum availability and the biggest telecom player, Bharti Airtel, which boasts of 249 million subscribers, has, between March and April this year, spent over ₹7,900 crore on this resource.

In March, it bought over Videocon’s 4G spectrum in six circles for ₹4,428 crore. That was quickly followed by lapping up Aircel’s4G spectrum in eight circles for ₹3,500 crore. Bharti’s inorganic spectrum growth story was actually initiated four years ago when Qualcomm sold a 49% stake to it for ₹907crore. That came with spectrum in four key circles including Delhi and Mumbai. In 2013, Qualcomm exited its holding completely in favour of Bharti for an estimated ₹2,000 crore. With its own spectrum in four circles, Bharti is a pan-India 4G player apart from Reliance Jio.

Of course, all this comes at a price. Ever since Bharti acquired Zain Telecom’s African assets for $10.7 billion in early 2010, its balance sheet has been loaded with debt and these big ticket investments will only add to it. While there has been a concerted effort to reduce that by selling some of the African assets, the debt story continues to be worrying.However, in what promises to be an intense battle, Bharti may not have had a choice but to make these investments for acquiring spectrum.

Romal Shetty, national head (telecom), KPMG, points out a big plus is that the telco can now move its existing 3G consumers straightaway to 4G. “Making that a seamless transition is something that Bharti can capitalise on. Besides, it has managed a critical first mover advantage, where it has a captive subscriber base with 4G spectrum as well,” he says. While Jio may have spectrum, there is no subscriber base yet and Bharti will need to protect its turf against what promises to be a serious onslaught.

While Bharti Airtel’s key competitors, Vodafone and Idea, themselves have a large subscriber base (197 million and 175 million respectively), the big difference is in the average revenue per user (ARPU), a key metric. Between Bharti and Idea, the former has an ARPU that is at least 15% more but in key metros, this difference is upwards of 40%.It is this kind of high-value customer that Jio is likely to target and Bharti will need to push itself to the limit to ensure it does not take place.

Clearly, Bharti's big spend assumes that data consumption will take off. For the third quarter of 2016, Bharti had data bringing in 23.1% of the overall India mobile revenue, which was only 19% for the preceding quarter and 16.2% for the same period in FY15. With voice increasingly making way for data as a revenue driver, Bharti Airtel’s calculations are based on its wealthy subscribers spending more.