5G price wars may weigh on Bharti Airtel

The onset of 5G price wars, combined with a lack of significant tariff hikes and limited support from 4G tariff interventions, could slow Bharti Airtel’s average revenue per user (ARPU) growth, some analysts said.

In addition, reduced capex could result in loss of subscriber market share to market leader Reliance Jio with the latter turning aggressive in 5G rollout and using 5G offerings to drive premiumization, they said. Airtel’s stock was trading about 0.5% lower in morning trade on Wednesday. The telco announced its quarterly results the day prior post market hours.

“5G price wars have commenced that can put a ceiling on ARPU from new subs and deflate top-up momentum,” analysts from JP Morgan said in a report.

While both Airtel and Jio are yet to roll out 5G specific mobility tariffs, both have launched their 5G fixed wireless access (FWA) offerings where Jio has bundled content offerings across a range of plans. Airtel, on the other hand, has a single plan currently without any bundling.

Airtel has maintained its focus on premiumization – conversion of 2G customers to 4G and migrating customers to postpaid or higher priced pre-paid plans – to increase its ARPU and has seen benefits over the past few quarters. It added the highest number of postpaid users for two quarters in a row.

“Postpaid subscriber additions of 1 million – the highest in a decade – and data subscriber additions of 7.7 million bode well for further ARPU improvement,” analysts from Jefferies observed.

ARPU growth came in at 1.5% on-quarter, slightly missing Street estimates, for the September quarter at Rs 203.

“ARPU was up only 1.5% QoQ to Rs203, versus UBS estimates of 2.8% growth, likely driven by higher number of days, 2G to 4G migration (7.7m 4G net adds in Q2), and prepaid to postpaid migration (1mn postpaid net adds in Q2),” analysts at UBS said.

Analysts from Goldman Sachs added that the telco has managed to consistently grow wireless revenues at double-digits without any meaningful tariff hike since November 2021.

“(This) is a function of strong subscriber momentum across all customer segments of overall, postpaid and 5G, and mix driving better ARPU,” the brokerage said, though it lowered near-term ARPU growth due to delay in headline tariff hikes.

“We remain cautious on ARPU support from 4G prepaid hikes/smartphone upgrades given slow entry level smartphone supply,” JP Morgan added.

Another blow to Airtel’s ARPU growth could potentially come from losing subscriber market share, considering its lower capex for the quarter.

Airtel’s India mobile capex spending was at Rs 5,685.6 crore, down 27.4% from Rs 7,829 crore in the June quarter.

“The risk of lower capex is potential loss of subs market share to Jio, which has been aggressively rolling out 5G and has pivoted its strategy to premium subscribers across postpaid, broadband via 5G SA, pan India coverage and broadband aggression,” JP Morgan analysts observed.