Airtel needs to tackle AGR crisis, tepid revenues before taking on Jio

Airtel needs to tackle AGR crisis, tepid revenues before taking on Jio

Additional AGR provisioning has taken a toll on Bharti Airtel's profit and loss statement, while it still struggles to bring revenues to a desirable level

Even as the telecom sector awaits the Supreme Court decision on staggered payment of Adjusted Gross Revenue (AGR) dues, the second-largest operator in the country - Bharti Airtel - has taken a yet another hit on its profit and loss statement. The additional AGR provisioning of Rs 10,744.4 crore in the first quarter of FY21 takes the company total provisioning to Rs 40,244.4 crore. This is still Rs 3,736 crore short of the DoT's assessment of the AGR dues towards Airtel.

Nevertheless, it seems that Airtel is close to settling the AGR issue unless the Supreme Court, which is slated to hear the Department of Telecommunications (DoT) plea in this matter on August 10, refuses to provide relief on repayments - which seems like the worst-case scenario at the moment.

The Sunil Mittal-controlled telco has sufficient cash on the books (Rs 13,551 crore as on March 31, 2020) to deal with the AGR blow. Then, there's also a marked improvement in the operating scenario, especially since last December when the sector went for a tariff hike. Because of its ability to withstand the hyper-competitive environment in the past, Airtel has no access issues with raising more funds, if needed - like it had raised $3 billion in January to repay AGR dues. It may be noted that Airtel has already paid Rs 18,004 crore to DoT, and the balance will be paid depending on the next SC order.

ALSO READ: Airtel Q1 net loss widens to Rs 15,933 crore on AGR dues payout

That's not all. The telco has more battles to fight. Take tariffs, for instance. Even though, there's a large improvement in average revenue per user (ARPU) in the past one year (Rs 129 in June 2019 to Rs 157 in June 2020), the telco believes that it's still quite low as per the global benchmarks. Last December, Mittal had said that to earn a decent return on capital employed (RoCE), the telco needs to earn Rs 200 per user which should eventually go up to Rs 300.

While Airtel managed to move up its ARPU in the June quarter by Rs 3, but there's nothing to cheer about it. Why? The increase in ARPU was a result of SIM consolidation at the bottom end of its customer profile. A lot of people either threw their SIMs or began using one SIM instead of two or three prior to the COVID phase.

Despite the surge in the data consumption during the COVID period - both on mobile and on fixed broadband - Airtel really hasn't gained from it. In a recent earnings call, Airtel CEO Gopal Vittal said that the telco saw 16 per cent jump in data consumption in the June quarter, but the data allowances in the current plans (both postpaid and prepaid) are so generous that the higher consumption didn't contribute much to the topline.

ALSO READ: Bharti Airtel share price slips 4% on widening of loss in Q1

"Existing users are using a lot more data at homes. They are still not blowing through their full allowance which is given in a generous form. At some stage, the price architecture needs to get more sensible with an opportunity [for telcos] to up-trade as people use more data. The increase in consumption for existing users doesn't translate into more revenues," Vittal said.

In fact, contrary to popular belief that more people were working from home during the lockdowns, and that should have resulted in higher amount of broadband consumption and newer connections, the results on the home broadband segment for Airtel were far from being satisfactory.

The telco added just 34,000 users in June quarter as compared to 63,000 users added in March quarter and 72,000 in June 2019 quarter. The home broadband ARPUs also shrunk marginally to Rs 802. The hit on the broadband segment was felt on the enterprise side as well where the telco witnessed a plenty of disconnections as shops and offices remain shut. "On the enterprises side, we saw a large increase in the need for capacities and bandwidth, but there was pressure on SME [segment] where people have postponed purchases," Vittal told investors.

It's hard for a company like Airtel to continue as a predominantly telecom player, especially at a time when its arch-rival Jio, or Jio Platforms to be precise, is going to town with a new narrative of being a digital company, and grabbing big-ticket investments from leading tech investors. But for now, it seems that Airtel has a lot more on its plate before it can up the ante on digital game.

ALSO READ: Telecom industry loses 82 lakh subscribers in April; Airtel, Voda-Idea biggest losers

Published on: Jul 31, 2020, 11:03 PM IST
Posted by: Vivek Punj, Jul 31, 2020, 11:03 PM IST