Bharti Airtel Ltd Partly Paidup Q1 FY2023 Concall Summary

Key Takeaways

• Broad-based growth with margin expansion: Consolidated revenue grew 4.1% QoQ while India EBITDA margins improved to 51%, driven by operating leverage and a war on waste.
• 5G launch imminent, capex stays disciplined: Airtel will launch 5G in August, targeting every town and key rural area by March 2024, but the three-year capex profile remains unchanged as 4G radio spend simply shifts to 5G.
• Enterprise business is a standout performer: Airtel Business grew 4.4% sequentially, accelerating market share to become the #1 B2B player in India, powered by a retooled go-to-market strategy and emerging products like CPaaS and cybersecurity.
• Spectrum strategy creates a structural cost advantage: A large mid-band holding allowed Airtel to skip expensive 700 MHz spectrum, avoiding a cost-per-GB disadvantage of nearly 50% versus the alternative path.
• What to watch next quarter: The pace of 5G rollout execution, any tariff action as the competitive landscape evolves, and whether the enterprise growth trajectory sustains.

5G Rollout & Spectrum Strategy

• Launch timeline: 5G launches in August, extending to a pan-India rollout very soon; detailed network plans for 5,000 towns are already in place, with coverage of every town and key rural area targeted by March 2024.
• Capex is a shift, not a step-up: Over a three-year view, capex stays in the same ballpark as recent years because the bulk of 4G radio rollouts are done; 5G spend displaces 4G spend rather than adding to it. Some advancement of capex into the next 12–24 months will occur, then normalize.
• Spectrum sufficiency secured: The auction added 100 MHz of 3.5 GHz and 800 MHz of 26 GHz, plus mid/low band bolstering, for a total commitment of ₹43,040 crores. Management is confident no material spectrum spend is needed for many years; only a few circles have admin spectrum renewals in 2024, and existing liberalized holdings already cover those.
• The 700 MHz avoidance: Airtel’s large mid-band position meant it did not need to buy expensive 700 MHz spectrum. Had it done so, the cost per GB would have been nearly 50% higher due to extra radios, antennas, power, and rentals, with no coverage improvement over existing 900 MHz.
• Refarming path: As 4G traffic shifts to 5G, mid-band 1800/2100 MHz (20–30 MHz per circle) will be refarmed first, then 2300 MHz, and ultimately sub-GHz bands last. The network can switch seamlessly from NSA to SA mode via software.
• Rollout rationale: Management chose not to wait for the ecosystem to fully mature; the capex would have been spent anyway, and leading the narrative with customers is essential in a competitive market to retain and attract the best quality subscribers.

Vittal: "I think we have debated this. We can evaluate this a lot, we can sort of wait for the ecosystem but ultimately it is just putting the same capex that anyway would have gone. Nothing is getting wasted. It is just putting it there a little ahead of time so that we are present where we need to be."

Mobile & ARPU

• Revenue growth: Mobile revenue grew 3.4% sequentially, with ARPU at ₹183, continuing to lead the industry.
• ARPU trajectory: Management remains confident of reaching ₹200 and eventually ₹300, driven by tariff increases. Tariffs need to go up, but timing is uncommitted; changing plan constructs unilaterally is competitively challenging.
• Smartphone headwind: Industry upgradation fell nearly 15% due to higher entry-level smartphone prices and OEM focus on premium devices; this is expected to normalize over coming quarters.
• 5G pricing undecided: No decision has been made on how pricing will work between 4G and 5G. Globally, 5G has not yet delivered incremental ARPU, but India’s low tariffs mean increases are expected, which would improve return on capital.
• 5G monetization: Management has not yet decided how pricing will work between 4G and 5G.

Vittal: "To change the construct of price plans in industry for us on a unilateral basis is always a challenge competitively. We have to be competitive in the market, ultimately in this business if you grow market share you are in actually a much better long-term position for investors as well as for customers and employees."

Enterprise & B2B

• Growth acceleration: Airtel Business delivered 4.4% sequential revenue growth, outperforming listed peers and accelerating market share to become the #1 B2B player in India. The year-on-year growth trajectory has been upward over several quarters.
• Four-part strategy driving results: (1) A retooled go-to-market for the top 20% of accounts, using a Customer Advisory Board to cross-sell Airtel IQ (CPaaS), Airtel Secure (cybersecurity), and SD-WAN; (2) a dedicated hunting team for the 80% of accounts that contribute 20% of revenue, tracking accounts added and average revenue per account; (3) a digital marketing engine now generating 30–35% of SME leads online; (4) insourcing the SME channel by eliminating commissioned agents and bringing approximately 1,200 people in-house, while removing one organizational layer.
• Emerging products gaining traction: CPaaS, data centres, and cybersecurity are yielding results; IoT is outperforming the market. Private network conversations are underway with a large number of companies, including standalone networks for large distributed enterprises.
• Outlook: Management sees no reason why enterprise growth will not sustain, with new technologies driving adoption. The contribution of enterprise has been rising in the overall company profile over the last decade.

Home Broadband & DTH

• Broadband momentum: 310,000 users were added in the quarter, sustaining a trajectory of 300,000+ additions every quarter. Revenue grew 5.7% sequentially despite a one-off benefit in Q4FY22. Rapid rollouts continue, accelerated through the local cable operator model.
• Growth outlook: Demand is exploding; the business has very low churn and is expected to become very sizable. Sequential revenue growth percentages are declining as the base inflates, but absolute additions remain steady.
• Fixed wireless access: An interesting opportunity, but the cost per router needs to fall below \$50 for it to make sense in India. Until then, the objective is to go very aggressive on fibre rollout. Fibre is always better than wireless because it is a dedicated pipeline with full control over uplink and downlink.
• DTH decline: Revenue declined 0.9%, with the industry brought to its knees by excessive regulation. The New Tariff Order created complexity with no stakeholder benefit, and content arbitrage across mediums plus good free-to-air content added pressure. Despite this, Airtel has consistently grown market share. Recovery is expected in coming quarters, leveraging the broadband explosion and Airtel Black convergence strategy.

Vittal: "the entire industry has been brought to its knees by excessive regulation. The New Tariff order introduced a few years ago created mind boggling complexity for the customer with no benefit to any stake holder."

Financial Position & Leverage

• Margin improvement: India EBITDA margins improved to 51%, driven by a focus on war on waste and improved operating leverage.
• SG&A increase: Other expenses rose approximately ₹400 crores, driven by FLO liability recasting (~₹200 crores), Africa increase (~₹150 crores), and a marginal India business increase (~₹50 crores). Pure sales and marketing expenses remained almost flat.
• Operating free cash flow: Globally, EBITDA less capex yields approximately five billion dollars of operating free cash flow, with interest costs well within two billion dollars and taxes still fairly minimal, allowing leverage to be kept in check and reducing.
• Debt perspective: On paper, debt will grow due to the ₹43,040 crores spectrum payment, but management views spectrum payments as an annual operating cost over 20 years (₹3,600 crores/year). Excluding this from debt and reducing EBITDA accordingly, the debt profile is getting very healthy and leverage is improving every year.
• FX exposure low: The bulk of Indian debt is DoT liabilities, past AGR liabilities, and FLO liabilities; only a smaller amount is external debt, of which a much smaller portion is in FX. Africa bond buybacks have reduced guaranteed bonds from Airtel India significantly from over 11–12 billion dollars.
• Rights issue residual: Over ₹15,000 crores of residual calls remain pending; a decision will be taken in the coming months based on business cash flow profile and capex acceleration dynamics.

Competitive Positioning & 4G Track Record

• 4G experience: In C-category circles where Airtel was late on 4G, it lost some share early but recovered over time. In cities and A-category towns where it launched head-to-head with competition, the outcome was much better.
• 5G competitive advantage: Management cites five reasons for confidence: focus on quality customers, a powerful enterprise business, compelling digital capabilities, a consistent long-term spectrum strategy, and a lower total cost of ownership from avoiding 700 MHz. The best quality customers will move first to networks that roll out 5G.
• Market share philosophy: Growing market share is the better long-term position for investors, customers, and employees. The decision to launch 5G aggressively rather than wait reflects competitive intensity; in a benign market, management might have deferred spectrum purchase.

Vittal: "You are right, if this market was uncompetitive and it was a benign kind of market with very little competitive intensity, we may have said we can even buy the spectrum next year because there is nothing going away. So to that extent the fact is that we believe that we need to be leading the narrative in terms of what we do with our customers, make sure that our best quality customers not just stay with us but we are able to attract good quality customers onto our portfolio."

Guidance & Commitments

Key Metrics