Airtel to rely on high tariff to invest: Analysts
Analysts point to telco’s plan to put in $8 billion in 4G expansion, 5G rollout over 3 years.
Rajiv Sharma, co-head of research at SBICap Securities, estimates Bharti Airtel will need to invest “an incremental $5 billion (Rs 35,000 crore) over the first three years even for a selective 5G rollout, and an additional $3 billion (Rs 21,000 crore) for 4G expansion, for which mobile pricing will need to be revised upwards, primarily to support upcoming investments in 5G spectrum and networks.”
The challenge, he said, is that "Bharti doesn’t see mobile tariffs rising anytime soon, and we also believe any meaningful increase in mobile pricing is at least 2-3 quarters away.”
Analysts said Airtel's recent mega fundraise via rights issue, bond sales and an upcoming Africa IPO is expected to address balance sheet concerns and cut leverage, but incremental investment needs towards 5G spectrum and network rollouts would have to be recovered from operating income (read: Ebitda) growth, which can happen once mobile tariffs rise.
New telecom minister Ravi Shankar Prasad on Monday said the government will auction 4G and 5G airwaves in calendar 2019 in what will be the country’s biggest ever spectrum sale. Airtel said it will buy 5G airwaves only if prices are reduced.
Analysts, though, said Bharti Airtel’s 4.2% sequential rise in its India mobile revenue to Rs 10,632.2 crore in the January-March period has significantly narrowed the gap with Jio’s 7% on-quarter growth and outperformed market leader Vodafone Idea, which recorded a modest 0.1% sequential rise in revenue during the period.
Likewise, Airtel’s near 19% on-quarter jump in ARPU (average revenue per user) to Rs 123 in the March quarter was disproportionately driven by the minimum recharge plan strategy, while selective price hikes of its Rs 99/149 packs to Rs 119/169 further prevented further degradation of this key performance metric. In fact, Airtel has almost caught up on this score with Jio, which saw its ARPU dip 4.5% to Rs 126.
Sanjesh Jain, telecom research analyst at ICICI Securities, though, said the Sunil Mittal-led telco could find it “difficult to sustain its March quarter India mobile revenue growth without a tariff hike.”