From ARPU to CIR, Airtel Plots the Future
Airtel is moving into asset-light business model by shedding out non-core assets. This is one way to manage cashflow. The company wants to get out of the tower business as competition heats up and telcos look for new operational models.
“Our position is very clear: towers are steel and concrete. They are not the domain of mobile companies,” said the 60-year-old Chairman Sunil Bharti Mittal, whose family fortune Forbes Magazine puts at $8.8billion. Simply, ‘Bharti Airtel wants to get out of tower business, committed to Africa’.
As Airtel departs from tower business, Helios and others find glory in it.
A firm called Helios Towers is the latest owner of telecoms towers in sub-Saharan Africa planning to go public. Helios is looking to raise over $2 billion on the London and Johannesburg stock exchanges for the 6,500-plus towers that it operates in four African markets. It joins fellow tower firms Eaton and IHS in tapping the public markets this year. The business model of these tower companies, or towercos, in industry parlance, is to create a portfolio of properties in a region and then lease space on the towers to telco operators
The mobile sector in Africa would be radically transformed over the next three years. Cost-to-income ratio (CIR), legendary in banking would make huge way into telcos. Yes, we are used to ARPU (average revenue per user), but that is a non-optimal way of looking at operations. You can spend $90 to get someone to buy something valued at $100. Yes, you can count the ARPU to be $100. But that misses the whole point as it is possible that you spent $110 to pursue that $100 with all the ceaseless promotions. CIR offers a better way to see how telcos are indeed managing assets by looking at cost and revenue simultaneously. Just like airlines hedge fuel costs, I expect telcos to reinvent to find ways to reduce product costs in Africa.
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It's high time service based businesses moved away from asset-heavy or complex business operations; in order to focus on their core business, and allow other entities to take care of what happens behind the scene.
Apple has demonstrated overtime that's it's the most brilliant way to run business, without excess baggage, and still find glory. It's not just about the tower operations, the optic fibre cables and submarine cables should be entirely outsourced; telcos don't really have any reason to be the ones directly overseeing these heavy investments and their complex operations.
This is the time to redesign the entire telecom business architecture, making it leaner and more profitable too. Ofcourse CIR represents a better value proposition than ARPU.
