For the fourth quarter of financial year 2018-19, the most keenly watched metric in the results of the telecom service provider companies, was their average revenue per user (ARPU). It rose to Rs 123 for Bharti Airtel and Rs 104 for Vodafone Idea, but fell to Rs 126 for Reliance Jio.
What is ARPU?
It is defined as the revenue of the operator divided by its subscriber base. A decline means each new subscriber is adding less to the revenue of the company. So while the company will keep on adding to its capital cost at the same rate to service the new subscriber, the returns from those would be lower.
What does it mean?
- The ARPU numbers indicate after a bruising war between the three companies, which account for over 87 per cent of the wireless subscriber base in the country, a truce is in the offing.
- Not because the companies have asked for it but because the market dynamics are pushing the three towards it.
Worrisome change –
- That telecom war began when Reliance Jio entered the market with deep pockets. To improve their ARPUs, both Airtel and Vodafone have shed plain vanilla customers who do not add much to their revenue.
- The data with the Telecom Regulatory Authority of India shows a contraction in subscriber numbers, both wireless and wireline, in March.
- In a worrying sign, the wireless monthly growth rate declined 1.85 per cent. The trend was visible earlier too, as subscriber additions had begun to taper off with urban markets shunning dual SIM cards and the data taking the centre stage.
Possible implications –
- The outcome of all this is that both revenue market shares and ARPUs of telecom service providers are gravitating closer to each other. So any move to cut prices by any telco will only bleed all.
- Airtel and Vodafone have already introduced variations on minimum recharge plans for their customers, confirming this trend. While Jio is yet to respond, the declining ARPU has sent out a signal as to which way the market is headed.
- These are early days, but the effort to drive profitability, rather than customer addition, could lead to a rise in revenue growth for the industry in the financial year 2020, reversing the current graph.
The current issues –
- Call drops are coming in for regular criticism, while the network speed in the country is one of the lowest in Asia, both adversely impacting the ease of doing business — a focus area of the government.
- It may not be right to assume that spectrum for data and voice is in short supply. In fact, a study shows about a third of it lies unused and one of the reasons for this is underinvestment by telecom companies.
- The revenues of the incumbent telcos are not supporting the scale of capital investments required.
The new government needs to think through this chain carefully instead of rushing to auction high-priced spectrum for 5G services.
Source – Business Standard
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