Up in the air. How Airtel soared with its premiumisation strategy

In late 2016, just a few months after Reliance Jio launched its telecom juggernaut with free data and voice calls, at a high-level meeting of key stakeholders of Airtel, Gopal Vittal, CEO, showed a slide with a picture of a calm sea amid storm clouds hovering above. The meeting was called to discuss the strategy to counter Jio’s onslaught, which was threatening to disrupt the mobile services market.

Vittal’s message was clear: stay calm and follow your strategy instead of any knee-jerk reaction to a new powerful rival. While Jio was focused on the massification of data services, Airtel bet on quality customers and pushed premiumisation. Eight years later, Airtel’s strategy seems to have paid off. While it has lost the market leader tag to Jio when it comes to its subscriber base, Airtel’s revenue jumped from ₹95,600 crore in FY17 to ₹1.50-lakh crore now as a result of which the company’s market cap recently crossed the $100 billion mark.

Strategic leap

“Airtel’s market cap barely moved for an entire decade but since 2017 has expanded 3.3x to $100 billion. Its three key drivers are its high-growth scalable business, strong management and global competitive edge. Leaving aside aberrations, such as investors willing to look beyond Africa currency woes, should reap Airtel’s India growth upside,” CLSA India noted in one of its recent reports.

Other than premiumisation, Airtel did two more things different from what Jio was doing in the market. While Jio’s strategy is built around owning an end-to-end platform — from content to mobile phone hardware to network infra — Airtel has put its bet on partnerships. At a time when Jio bought expensive spectrum in the 700 Mhz band to set up a standalone 5G network, Airtel built a non-standalone 5G network (4G and 5G on the same network). While the premiumsation strategy ensured that Airtel’s average revenue per user (ARPU) crossed ₹200 per month (compared to Jio’s ₹180), the bet on a non-standalone 5G network helped the operator to reduce costs. 

“Bharti is the biggest beneficiary of higher tariffs given the sticky and premium quality of its subscribers. ARPU growth aided by likely moderation in capex will drive Bharti’s free cash flow from FY25 enabling it to get to net cash by FY29 (vs net debt of ₹2,077 billion at end-1QFY24); this will also aid in accretion in equity value,” JM Financial said in a recent note. 

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One of the key factors that helped Airtel is that the level of competition in the Indian telecom sector has come down drastically to make it a duopoly market. Founded in 1995 by Sunil Mittal, Airtel has lived and survived through different phases of heightened competition. Over a dozen mobile companies have shut shop in the last two decades due to various issues including regulatory overhang and unviable market conditions. However, Mittal has steered the company through many such storms to position it at a sweet spot where on the one hand India’s broadband market is growing exponentially and on the other, there are only two strong operators to gain from that opportunity. 

“Mittal has always had to fight competition and regulations in the past. From having to fight 6 to 8 players in each circle, now he has to worry only about one main rival. This comes at a time when data usage is skyrocketing. Mittal and Airtel are at a sweet spot of the telecom market,” said an industry executive.

“The impressive $100 billion market cap is a tribute to Sunil Mittal and his top managers. Right from the early days of private sector entry into India’s telecom sector, Airtel seemed to be setting its sights on bigger things. Its expansion in India through new licences and acquisitions has been matched by its entry into several foreign markets starting with Seychelles and now over 15 other countries in Asia and Africa,” Mahesh Uppal, Director, Com First (India) told businessline.

Innovation and resilience

Airtel, being a relatively small company when it entered the market, took innovative steps to help it scale faster, he said. “It was the first to begin outsourcing its network of international vendors, which its peers emulated soon after. The strategy worked well for Airtel, with results for all to see,” Uppal added.

Mittal has been the backbone while calling the shots and Vittal with his management skills, has been steering the company on a fast track to achieve such milestones.

According to CLSA, the risk of competition from RJio has receded, and Airtel is at the forefront of mobile growth and new opportunities. At the recently concluded spectrum auction, Bharti was the most active telco, securing 97 MHz spectrum at an overall outlay of ₹6,900 crore. This ensures that it has at least 10 Mhz of spectrum in the subGHZ band, which is considered to be ideal for high speed broadband services. “We expect Bharti’s premiumisation focus to drive its ARPU to grow at a CAGR of 9 per cent to ₹300 in FY28 (vs ₹200 in 1QFY24); of this, 3-4 per cent growth could continue to be driven by mobile broadband upgrades and growth data usage while 5-6 per cent growth is likely via regular tariff hikes. This is likely to drive Bharti’s consolidated EBITDA at a CAGR of 13 per cent over FY23-28,” JM Financial said in a report.

No doubt Mukesh Ambani’s RJio disrupted the market with its aggressive pricing strategies, ushering in a wave of affordability previously unseen in the Indian telecom sector, but the Mittal-Vittal combine has made sure that Airtel not only survived but is thriving.