Indian telecommunications service provider Bharti Airtel has reported the highest industry ARPU (Average Revenue Per User) of Rs 233 in Q2FY25, compared to Rs 211 in Q1, maintaining its industry-leading growth. With the industry-wide tariff revision by private operators effective July 2024, Airtel says it is on track to achieve its immediate ARPU target of Rs 300. However, in the mobile segment, "the full benefit of tariff repair will be reflected in the coming quarter," said Gopal Vittal, Managing Director and Chief Executive Officer of Bharti Airtel Limited, during the company's earnings call for Q2FY25.
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"At the same time, the ROCE (Return on Capital Employed) of the India business is still very low at 11.2 percent. The only way to improve this is further tariff repair," Vittal added.
Airtel ARPU Drivers Remain Intact
Despite the tariff revision, Airtel's CEO emphasised that the underlying ARPU drivers, which include feature phone to smartphone upgrades, prepaid to postpaid upgrades, data monetisation, and international roaming, remain intact.
1. Prepaid to Postpaid Migration
For Airtel, the primary driver of ARPU growth is the migration from prepaid to postpaid, which the company reports has resulted in consistent net additions over several quarters. Airtel has strengthened its position in the postpaid segment by adding 0.8 million customers in Q2 FY25, bringing its total customer base to 24.7 million. In the postpaid segment, Airtel said its focus is on 80 million potential customers whom the company believes could upgrade to postpaid.
2. Data Monetisation
The second driver is data monetisation. Vittal explained that when customers exhaust their data allowance, Airtel encourages them to either purchase data packs impulsively or upgrade to the next available plan, such as the 2GB plan. "That has been a very big driver of our ARPU growth outside of tariff repairs," he said noting that "keeping tariff repair aside that has been a big driver of our ARPU growth."
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3. International Roaming
The third driver of ARPU growth, according to the CEO, is international roaming. Although penetration is still low, it remains a significant growth opportunity.
4. Feature Phone to Smartphone Migration
The fourth driver of ARPU growth is the upgrade from feature phones to smartphones. Vittal noted that the moment a user moves to smartphones, Airtel observes a notable jump in ARPU. He highlighted that the combination of these drivers has led to ARPU growth over several quarters and expressed confidence that this trend would continue, saying, "...do not believe that there will be any change in any way going forward."
Growth Opportunities
The upside or headroom for growth is significant due to the large base of feature phone users transitioning to smartphones and the low penetration of international roaming on prepaid. The potential for growth is massive, according to Vittal.
He further elaborated that prepaid international roaming penetration is currently around 11–12 percent, up from 7 to 11 percent in the last few quarters, leaving substantial room for improvement. The same applies to data monetisation, whether through 2GB plans or users upgrading after exceeding their data allowance.
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Lowest Rates in India
However, Vittal emphasised that both the rate per GB and ARPU in India are much lower than in Sub-Saharan Africa, Bangladesh, and Indonesia. This highlights the significant opportunity to increase tariffs over time.
Future Pricing Architecture
Regarding the tariff structure, Vittal believes that the architecture of pricing needs to change, allowing customers to upgrade across low, medium, high, and super-high plans. This change will naturally drive upgrades and contribute to sustained growth.
"I think the architecture of pricing as I mentioned before needs to change where you do have an ability for customers to upgrade from low, medium, high and super high in terms of plans and I think that is the part that also would change and then that will naturally play to our upgrades."
