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Next leg of telecom war may see Bharti Airtel fight RJio on equal footing

MUMBAI: Two years ago, the idea that could catch up with Mukesh Ambani’s Reliance Jio would have drawn chuckles on Dalal Street.

The company was battered by the competitive heat that Reliance Jio had brought to India’s telecom space in 2016. A decline in profits, shrinking average revenue per user (ARPU), and loss of customers and market share — every metric told a story of a dominant leader now brought to its knees by a swashbuckling newcomer.

Somewhere around the December quarter of 2019, Bharti Airtel set on a path to turn the tables on Reliance Jio. The company has not looked back since, despite carrying the albatross of paying past adjusted gross revenue dues to the government.

Bharti Airtel decided to shift its focus towards profitability by culling low-value customers — effectively giving them to Reliance Jio — and increasing tariffs that allowed it to improve its average revenue per user and margins quarter after quarter.

After lagging Reliance Jio in ARPU for nearly three years, last year, Bharti Airtel stole a dominant march on the country’s largest telecom operator, helped by a loyal and high-quality customer base. Today, Bharti Airtel’s ARPU is 6 per cent higher than that of Reliance Jio. Three years ago, it was 24 per cent lower than that of Jio.

Bharti Airtel has gained nearly 400 basis points of revenue market share to 35 per cent. Despite the tariff hike, it has gained both gross and active subscribers, along with market share, said brokerage firm Motilal Oswal Financial Services in a note. “Bharti’s 4G subscriber additions have doubled to 4-5 million on a monthly basis; it is leading the incremental 4G subscriber market share,” the brokerage firm said.

When RIL, at its shareholders’ meeting in July 2020, announced a partnership with Google to develop affordable smartphones with built-in Jio SIMS and plans to launch an indigenously developed 5G stack, Bharti Airtel’s stock tanked nearly 5 per cent. Since then, shares of Bharti Airtel have rallied close to 19 per cent. Analysts’ expectations of Reliance Jio’s value have more or less remained constant, around Rs 4.4 lakh crore, the valuation at which Google bought a small stake in the company.

Bharti Airtel’s plans to raise Rs 21,000 crore via a rights issue is likely to change the equilibrium in the telecom sector. “We believe that the accelerating investments enable Airtel to benefit from further market consolidation and reduce risks of being a laggard in 5G (unlike 4G),” said Ambit Capital in a note.

Brokerage firm Motilal Oswal Financial Services said it sees a potential for re-rating in Bharti Airtel’s stock, given a likely upside in both the India and Africa businesses, on the back of steady earnings growth and attractive valuations. The brokerage firm said the company might not even need tariff hikes and any market share consolidation on Vodafone Idea’s exit to sustain earnings growth for the next two-three years.

Analysts said the only way Reliance Jio can now trump Bharti Airtel in terms of profitability and growth was through a successful launch of its much-awaited JioPhone Smartphone, but even that was unlikely to dampen the prospects of Bharti Airtel. “At this time, we are more positive on Bharti Airtel than anybody else in the sector,” said a city-based analyst covering the sector.

As both Bharti Airtel and Reliance Jio joust for dominance in India’s telecom sector, for the first time, they will do so on an equal footing.

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