Gimme Credit, an India-based financial research firm, warned Bharti Airtel faces the risk of continued aggressive pricing from Reliance Jio as well as high capex as the second-largest operator targets the attractive broadband growth opportunity.

The company explained in a research note extremely low fixed-line broadband usage, with overall penetration at 2.4 per cent and urban areas at 6.2 per cent, represents a significant upside for Airtel to improve its cash flow growth. Over the past three to four years, both Airtel and Jio have seen a rise in demand for fibre and FWA connections to the home.

A major reason for India’s lack of progress on broadband adoption is the “ridiculously cheap mobile rates”, argued Gimme Credit analyst Saurav Sen. He cited a recent comment by Airtel MD and CEO Gopal Vittal, who stated “the architecture of pricing in India is broken”. Looking ahead, Vittal isn’t optimistic about fixing mobile pricing in the country, he added.

Given the country’s low ARPU, at around $2.50 after increasing for the past two years, Sen noted many people assume the two operators aren’t turning a profit, which isn’t the case. Airtel’s EBITDA margin is more than 50 per cent, while Jio’s is just shy of that. EBITDA growth has been outpacing revenue growth.

Vittal said in an earnings call last week capex was at an elevated level in fiscal 2024 (ending 31 March), with the outlay peaking. The operator expects capex to moderate in the coming years but didn’t provide a guidance for fiscal 2025 and 2026.

Since the beginning of its 5G launch 18 months ago, the operator deployed 43,100 sites nationwide, with plans to add 25,000.

Sen stated that while most of Airtel’s 5G infrastructure investments are completed, it suspects last-mile broadband delivery will continue to “cost a pretty penny”.

Its India capex in fiscal 2024 increased 18.5 per cent to INR333.8 billion ($4 billion), after jumping 25.5 per cent the previous year.