Why Airtel is giving up the Broadband fight

In recent times, ACT Broadband has been taking the fight to Airtel in the broadband sphere, whether it be in terms of pricing, plans or advertising. Huge billboards of ACT broadband proclaim their new fiber internet and cheap plans and there has been a decent migration of sales force from Airtel to ACT Broadband, partly due to the better monetary incentivization of sales personnel as well as the feeling that ACT is growing rapidly.

Initially I was perplexed. As part of Airtel’s plans of being the one stop solution for telecom and internet needs for customers, it would make sense for Airtel to fight this battle tooth and nail, and take down ACT Broadband through clever pricing and sales force approach, much like they had fought against Idea Cellular and Aircel in the past. However , a recent news item highlighting their revenue growth helped explain things.

In the last quarter, Airtel has increased its profits by nearly 60 %. Revenues have grown over 10 %, largely due to improvement in mobile data revenues, which is now contribution to a 3rd of Airtel’s revenues and more in profit. What this tells us, is that Airtel has decided to make the play for being the one stop solution for mobile coverage which makes sense as ARPU (Average Revenue per User) and smartphone penetration has been rising in the Indian market. Not only does this help Airtel move from a voice revenue based model to a data and services based revenue model ( a la Western operators), it also gives them greater information about the usage patterns of customers which was limited in earlier cases. Further, tie ups with leading mobile applications helps Airtel increase network penetration (Earlier examples of Facebook and Twitter tieups come to mind).

Overall, giving up the fight for broadband has few benefits – Its easier to cater to the corporate audience vis a vis the individual customer where ensuring high QoS requires big investments both in terms of infrastructure and personnel. Recent contracts with IBM and other firms show that Airtel is moving out of investment intensive segments such as tower management and customer service and outsourcing them to reduce costs while revenues are being raised in non voice segments through aggressive up selling and pricing. Another benefit of not fighting on pricing terms is ensuring that profits margins of non voice segments are not being hit and at a future point when these customer consider 4G or LTE schemes, it wont result in cannibalization of existing Broadband customers

That said, Airtel will have to invest in improving existing networks. What with sub 10k smartphones increasing in number and capabilities, it requires to make that initial investment in bandwidth and infrastructure to ensure seamless coverage and service. Otherwise it might face the same problem AT&T faced during the launch of the iPHone when the flesh(hardware) was willing but the heart(network) was not .

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One thought on “Why Airtel is giving up the Broadband fight

  1. Pingback: Robbing the poor to feed the rich | UnWired

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