Airtel gets Mumbai edge with Loop buy

The telco, being one of the first operators in the circle, has a strong base of high-value subscribers; Airtel could leverage that for its top-end services.

Bharti Airtel, the country's largest operator of mobile services with a little over 200 million subscribers, was a distant second to Vodafone in Mumbai: as against Vodafone's 7 million subscribers, it had only 4.2 million. With the acquisition of Loop Telecom's 2.9 million subscribers, reportedly for Rs 700 crore from the Dubai-based Khaitan family, Airtel will inch ahead of its rival. Is this one-upmanship at the core of the acquisition announced earlier this week? Clearly not: mobile telephony is no longer just about adding numbers. The hara-kiri of 2010-11, when telcos acquired customers at a loss, drove home the lesson that the quality of customers matters more than anything else.

Actually, the numbers game is not in play at all. While Loop does have 2.9 million subscribers, only 47.3 per cent are "active" - one of the lowest in the industry. In other words, Airtel will get only 1.36 million active subscribers from the acquisition. But, Loop has a very large pool of post-paid subscribers: 40 per cent. For most other telcos, the average is not more than 20 per cent. These are high-revenue subscribers. "The subscribers that have stayed on with Loop are loyal. It is very unlikely that they would port out," says Alok Shende, principal analyst and co-founder of Ascentius Consulting.

To understand how this happened, one needs to go back in time. When mobile telephony licences were first given out in 1994, two companies had got the lucrative Mumbai circle: Hutch Max (now Vodafone) and BPL Mobile Communications. The second company was owned by BPL Communications (74 per cent) and France Telecom (26 per cent). Rajeev Chandrasekhar was the principal owner of BPL Communications with a 63.07 per cent stake. As it was amongst the first two operators, it got high-value customers and was also able to lock in many companies. That's why Loop boasts of enviable average revenue per user, or ARPU: Rs 350-400 a month for post-paid subscribers and Rs 100-120 for the pre-paid category (which are both higher than Mumbai's average). Its overall ARPU of Rs 225 is higher than Airtel's (Rs 195) and more than double of the national average (Rs 100).

What makes it all the more interesting is that Loop has higher ARPU even though it does not offer high-speed data services like 3G. Airtel, experts believe, will not let these high-quality subscribers remain on 2G data networks. There is, therefore, a strong upside to the business.