Airtel targets users Idea and Vodafone may lose in merger process

KOLKATA: Bharti Airtel is planning to pump in Rs 24,000 crore as capex in FY19, offer aggressive tariff plans to customers and incentives to its distributors in a bid to target a major chunk of the subscribers of Vodafone and Idea Cellular who may be up for grabs as the two telcos close their merger and integrate operations, people aware of the matter said.

A company insider said there would be “no compromise on the RMS (revenue market share) front”, adding that Airtel would continue to dish out “very competitive offers to fight Jio in the battle for revenue share amid ongoing sector consolidation”, indicating that the market leader won’t shy away from sacrificing profitability in the short term to gain RMS.

As per latest data by the regulator, Airtel’s RMS is just over 31%, compared with around 37.5% for Vodafone and Idea combines, and 14.5% for Reliance Jio. Analysts estimate that around 400-450 bps RMS of the Vodafone-Idea combined entity could be vulnerable amid likely network disruption during integration of the two telcos. The merger is widely expected to close by May.

Airtel’s efforts to garner additional RMS are likely to be backed by aggressive pricing offers, incentives for distributors and retailers, high decibel marketing campaigns and higher network capex infusions, the people said.

Airtel is likely to splurge Rs 24,000 crore on capex in FY19 — well over the Rs 16,000 crore in FY18 — primarily to bolster 4G networks, drive digitisation and ramp up its content play to ring-fence and grow its share of high-paying data customers in a fiercely competitive telecom market, one of the people said.

MD Gopal Vittal and chief operating officer Ajai Puri have been travelling extensively across states to enthuse Airtel circle heads and field teams to go flat out to achieve RMS gains and fight off Reliance Jio Infocomm’s moves for the same Vodafone-Idea user base.

Airtel’s leadership is learnt to have told its operations and marketing teams to keep the company’s 2G, 3G and 4G networks in top shape and competitive tariff plans ready to target Idea and Vodafone customers who, the market leader believes, will be dissatisfied with coverage, post-merger, especially since merging carriers invariably see network turbulence in the initial months, often resulting in disruptions and a potential decline in coverage quality.

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And the telecom regulator’s efforts to ease and speed up the mobile number portability (MNP) process could drive RMS gains for both Airtel and Jio, said experts.

There’s also an air of expectancy among Airtel’s battery of distributors that the company will step up commissions to induce them to go the extra mile to poach Vodafone and Idea customers in the coming months.

“We are hopeful the company will increase commissions to make the chase for Vodafone and Idea’s customers more lucrative,” a leading metro-circle Airtel distributor told ET.

Such incentives, he said, could be in the form of “lump sum distributor payouts of Rs 10,000-12,000 for achieving higher targets relating to new customer activations, high value first recharges (HVFRC) and even Aadhaar-linked verifications”.

Airtel declined to offer comment, saying it is “currently observing a silent period”, ahead of fourth quarter results. Nitin Soni, director, Fitch, said Airtel could easily “take a short-term profitability dip in its stride to fight Jio and grab bulk of the 350-400 bps RMS” that he expects the Idea-Vodafone combined entity to lose due to “considerable post-merger network integration and branding challenges”.

“Telcos round the world have focused on RMS gains even at the cost of shortterm profitability in a fiercely competitive pricing environment, and Airtel is likely to do the same, especially since recovering lost revenue share is always more difficult,” said Soni.

Deutsche Bank estimates Airtel’s revenue share to rise from 31.8% in FY18 to 35% by FY23, predicting a 450 bps decline in the Idea-Vodafone merged entity’s RMS “due to execution issues in the first few years”.

Source: Economic Times