The company said it has done this by removing many of its existing prepaid vouchers and plans, and replacing them with ‘minimum ARPU’ plans.
ARPU refers to average revenue per user, or the amount that a user spends on telecom services per month. Customers will have to spend a minimum of Rs 35 per month to keep their numbers active on Airtel.
The move to deactivate or disconnect users who don’t do the minimum recharge will prove to be particularly vexing for dual-SIM users.
Many users carry two connections on their phones, but have an active plan only on one of the SIMs. The other SIM is used primarily for handling incoming calls.
With operators deciding to enforce the minimum spending rule, these customers will have to have active plans running on both SIMs to continue to use their phones as they do now.
UPDATE: Vodafone Idea too has decided to follow suit and withdraw all its current recharge plans and replace them with limited-validity plans.
The reason behind the latest move may be related to two factors — a sudden fall in the number of competitors in the telecom market, and a cut in mobile termination rates.
Typically, operators make money from their customers in two ways — via the recharges that the customers does to make outgoing voice calls and use data, and via the termination charges that other operators pay for sending their calls to the customer.
In other words, even if an Airtel subscriber makes no outgoing calls in a month, but receives 300 minutes of incoming calls from other networks, Airtel will still generate a revenue of Rs 18 from that customer purely in the form of termination charges.
While this may have been a viable business model in the era of higher termination charges, a six-paise-per-minute termination charge, and the fall in competition seems to have given Airtel the necessary motivation to rethink the earlier strategy.
Moreover, such deadbeat customers are an unnecessary burden in an era when ARPU numbers are keenly watched by investors every quarter.
Airtel CEO Gopal Vittal said that out of around 33 cr mobile customers that the company has in India, around 10 cr were found to be generating very little revenue for the company.
He said Airtel had “around 100 mln customers with very low levels of ARPU, some in the low double-digits.”
These customers will now have to spend at least Rs 35 per month or have their connection deactivated.
“One of the big moves we made in the last one-and-a-half months is in three circles — Tamil Nadu, UP West and Punjab — where we moved in with minimum ARPU-led plans at the low end.
“We dramatically simplified tariffs to just seven tariff plans and introduced these three minimum ARPU-led plan… In the last seven days, we have already rolled (these plans) out across the country,” he said. The minimum price of the monthly plan is Rs 35, he added.
A check on the company’s tariff card for Delhi revealed that it was offering talk time of Rs 26.66 and 100 MB of data for the 35-rupee recharge, which carried a validity of 28 days.
The company seems to be taking a leaf out of the playbook of new entrant Reliance Jio.
Jio too requires its customers to spend at least Rs 98 per month to use its services on a smartphone, and at least Rs 49 per month if they are on a Jiophone.
Because of the policy, Jio has succeeded in generating an average of around Rs 135 per month from each of its customers, while Airtel’s average revenue per user has fallen to Rs 102.
Airtel’s move will force users to stop using their Airtel numbers as a ‘back up’, while they use their Jio numbers for making outgoing calls and data services.
Vittal said his company has already seen some early success with its new strategy.
Historically, cellular companies used to charge a minimum monthly rental if the customer wanted his number to remain active and available for receiving incoming calls.
However, they were forced to abandon this policy about eight to ten years ago due to rising competition in the sector caused by the entry of new players like Tata DoCoMo and Uninor.
However, most of these players have now exited the market, which now has only three private operators — Jio, Airtel and Vodafone Idea.
Vittal said he did not expect any regulatory issues due to the phasing out of the so-called lifetime free incoming plans.
Legally, telecom operators are free to withdraw any tariff as long as it is at least six months old.
“We’ve filed these (new) tariffs with TRAI. These are tariffs that have been filed on the basis of a minimum rental,” he said.