Telcos eye loyal customers to boost revenue gains

With telecom disruptor Reliance Jio not raising tariffs, incumbents Bharti Airtel and Vodafone Idea are focusing on the minimum monthly recharge and higher first recharge offers to ensure they retain only loyal and revenue-incremental subscribers, reports Romita Majumdar.

Incumbent telecom services providers are turning gatekeepers to keep out low-revenue subscribers after they witnessed some growth in the average revenue per user (ARPU) through minimum monthly recharge plans.

With telecom disruptor Reliance Jio not raising tariffs, incumbents Bharti Airtel and Vodafone Idea are focusing on the minimum monthly recharge and higher first recharge offers to ensure they retain only loyal and revenue-incremental subscribers.

During the December quarter earnings call, Vodafone Idea's management said that instead of having multiple offers across 22 circles for new SIM cards, they had created a common acquisition plan at Rs 76.

This means that the existing customers get a better deal than the new ones.

Bharti Airtel introduced a similar plan last month at the exact same price point across some circles.

Sources said both Idea and Vodafone India had launched the Rs 76 first recharge plans before their merger last year, but this was the first time the management discussed it.

Analysts see the development as a move to ensure a greater subscriber identity module (SIM) consolidation as users are forced to spend a bulk amount on at least one SIM card.

If a new Vodafone Idea customer wants to get a similar deal, they must buy a SIM card at Rs 76.

"It creates better loyalty with the existing base and stops the population of low-quality acquisitions and, therefore, higher churn.

"So we are kind of arresting the high-growth, high-churn model to bring it down to a better base management, as also a better management of the cost of acquisitions," said Balesh Sharma, CEO, Vodafone Idea.

Both Airtel and Vodafone reported a slight jump in their ARPU in the December quarter after almost two years of constant decline since Reliance Jio's entry.

The ARPU growth, while facilitated by monthly minimum recharge plans, resulted in an exodus of almost 83.6 million low-end subscribers from the two incumbents combined.

While Jio witnessed a slight dip in ARPU, the telco added 28 million subscribers.

"The company (VIL) indicated that subscriber churn on SIM consolidation and minimum recharge will continue in Q4FY19 also.

"However, it indicated that the exited customers had extremely low ARPU (high single digit).

"Therefore, residual ARPU would be higher," noted Bhupendra Tiwary, analyst, ICICI Securities.

While analysts have cheered Vodafone Idea's robust 4G subscriber addition, there have still been concerns about the growth of its 4G base, which is slower than rivals.

Over the past two months, the two incumbents have introduced almost similar plans at comparable price points as they inch the market towards gradual tariff hike.

Airtel has introduced this plan even as the management (and analysts) has given up the hope of organic tariff growth until Jio decides to raise tariffs.

"We believe that we are only about 750 million to 800 million unique mobile customers in India and a small proportion of these customers contributed the bulk of the industry revenues.

"And this is where our focus will be, serving high-quality customers.

"Hence, from last quarter, we launched minimum ARPU plans to ensure that every customer who stays on the network gives us a minimum commitment," said Nilanjan Roy, global CFO, Bharti Airtel, during the Q3 earnings call.

Airtel declined to comment on queries regarding the strategy behind the higher first recharge plans.

Jio has continued to keep its ARPU in Rs 130-135 range over the past few quarters due to high traction across the Rs 99 and Rs 149 plans.

In December, both Vodafone Idea and Airtel made changes to their flagship Rs 399 plan while increasing prices of 28-day validity plan.

The higher validity of Rs 399 recharge plan narrows the price gap with Jio.

The incumbents are, however, trying to expand the penetration of 4G in their subscriber base as they take their 4G network to the hinterland of India.