Bharti Airtel - Rider of the boom

By turning its weaknesses into virtues, Bharti changed the telecom industry paradigm. Result: In a booming industry, it’s still ahead of the pack.

Sunil Bharti Mittal, Chairman & Group CEO, Bharti Enterprises
Sunil Bharti Mittal
Sunil Bharti Mittal is not usually given to hyperbole, but on a late February evening recently he is in an assertive mood when the question of Brand Airtel comes up. “It’s bigger than Coke and Pepsi in India,” he declares. Bit of a stretch? Actually, not. Ever since Mittal set up Bharti, back in 1994 as a one-circle (Delhi) cellular operator, it has metamorphosed into the biggest player, with 60 million subscribers, revenues of Rs 25,608 crore (annualised, ’07-’08), and a market cap of Rs 1,59,200 crore as on February 26, 2008, making it the most valuable telco in the country. If things work out as per Mittal’s plans, by 2010 Bharti Airtel should have 125 million subscribers— a feat that will make it one of the top 3 (in fact #1 outside China) global telecom companies. Ask Mittal, 49, about the reasons for Bharti’s phenomenal success and he responds: “It has everything to do with the management team we have built over the years. They have created a brand that has been able to connect with our customers.”

A decade-and-a-half ago, when Mittal and his team took their first baby steps in the cellular business, they quickly realised that they knew little of the technology that went behind cellular networks. From that flowed a simple decision, and which was to outsource as much of the business as possible to experts.

And soon enough what was a smart way of making up for a weakness, became a source of competitive advantage for Bharti. That approach has allowed the company to question established industry paradigms and even rewrite the rules of the game. Says Manoj Kohli, Bharti Airtel’s President & CEO: “To begin with, we decided to shed the ARPU (average revenue per user)-based business model. We figured that unlike in the West, it would not work in India.” The logic for this move was simple: In India, as mobile operators moved into the smaller towns and villages, ARPU had to come down as affordability would be a key factor in roping in new subscribers.

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Bharti then decided to adopt a different formula. It focussed instead on a per-minute accounting model based on realisation and cost per minute. The company, then, subscribes to per-minute effective rate, cost and margin. Says Kohli: “The idea is, if you are our customer you should give us some margins. We are a very efficient minute manufacturing company.”

Significantly, Bharti devised a different strategy even though its ARPUs are better than those of its rivals (its higher ARPUs are a result of the company encouraging customers to use its services more through calls and SMS. “We sponsored shows like Kaun Banega Crorepati and Indian Idol, all of which help in increasing ARPUs,” says Kohli).

Then, Bharti’s business strategy of covering the entire country through its network has clearly paid off in a big way, and this has resulted in a steady and consistent increase in its subscriber base. After tapping the high-potential metro areas first, it has slowly but surely moved further down the pyramid into the other circles of the country.

Says Harit Shah, an analyst with Angel Broking: “The company’s network roll-outs have been highly consistent and have always moved according to plan. That has been the primary reason why Bharti has managed to grow faster than its peers.” From 2000-01 onwards, with the exception of 2003-04 when Reliance very briefly overtook Bharti, the company has managed to retain its leadership position.

Diving deeper

In the Indian telecom sector, which is the fastest-growing in the world, the need to have a countrywide presence is important. Bharti, in fact, has been the all-India market leader despite the fact that it was only in 2005-06 that it actually managed to become a leader in any one telecom circle in India (‘A’ category in this case). The company has managed to maintain strong positions in each of the circles where it is present, and the fact that it started from the top of the pyramid where the potential is higher, enabled it to maintain its countrywide market leadership.

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Being one of the operators that had a presence in the maximum number of circles in the country also helped it to a great extent. When the higher level circles began to get saturated, the company started to show strong subscriber additions in the smaller circles. Says Akhil Gupta, Group MD, Bharti Enterprises: “We realised at the outset that if the telecom business was to flourish, it had to be volume-based. So, we kept expanding at every opportunity.”

Simultaneously, Bharti has been expanding its network coverage in the smaller towns and villages. It’s already present in more than three lakh villages and is adding 30 to 40,000 villages to its network every quarter. Says Kohli: “In the next phase, growth will come from the villages. When it comes to our distribution, we follow the ‘matchbox’ strategy. We should be present wherever a matchbox is available.”

Entering markets where the average customer can afford only a few tens of rupees of prepaid airtime, requires a cost structure that’s equally lean and scalable. That’s where Bharti’s strategy of outsourcing helps. Ericsson is a longterm Bharti partner, operating its GSM/GPRS network in 15 out of 23 regions. It has also tied up with Nokia to ensure a better networking facility in some of the circles. Says D. Shivakumar, Vice President and MD, Nokia India: “The telecom market in India is possibly the most competitive and to be ranked #1 is a truly super achievement.” Bharti’s IT needs, including billing and customer management systems, have been outsourced to IBM. Such initiatives have enabled Bharti to focus on its core business, save costs and improve efficiency. Says Mittal: “It’s an attempt to involve experts in our operations which will translate into higher efficiencies for our business.

Also, we did not have the time to do everything ourselves.” Turning your telecom network over to another firm went against the prevailing wisdom in the telecom industry at the time. But the Bharti management clearly realised that outsourcing would help the company to cut down on its capital expenditure (capex) and operating expenditure (opex) in the long term and lead to better margins.

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Bharti’s lean structure could get leaner still. It has joined hands with two other leading GSM operators— Vodafone Essar and Idea Cellular—to set up an independent tower company Indus Towers. The three companies will merge their existing passive infrastructure, including towers, in 16 telecom circles.

The new company will control around 60 per cent of the over 120,000 towers in the country. Says Gupta: “This will help in reducing capex. We believe there is no need to duplicate resources.”

 Bharti & the stakeholders

The company’s CSR activities are focussed primarily on education.

Talk to Bharti’s leaders and they will tell you that the company’s values strongly reflect their own “middle-class” values. “We have an obligation to fulfil to society and the communities in which we operate, and that is to help improve the quality of life for everyone, today and in the future,” says Manoj Kohli, President & CEO of the company. From creating funds for the tsunami-struck victims of Tamil Nadu to organising relief for the flood-struck victims of Assam, Bihar and Bengal, Bharti employees support community-based initiatives, either individually or in groups. But education is closest to Chairman Sunil Bharti Mittal’s heart, and his Bharti Foundation, set up with a corpus of Rs 200 crore from the promoter family and associates, has ambitious plans of funding primary schools (called Satya Bharti Schools) across the country. In the short term, it plans to set up 150-odd schools in northern India and Rajasthan, and eventually 500 primary and 50 secondary schools. That apart, it plans opening computer centres, and the Bharti School of Telecommunications Technology & Management. “When we have got so much from the society, we must not forget our duty towards it,” says Kohli. Indeed, that’s another thing that makes Bharti a best managed company.

Bharti Infratel, the company which holds the tower assets of the Bharti group, has a presence in 23 circles with around 50,000 towers. While it will transfer its towers in 16 circles (some 30,000 of them), it will run the business on its own in the seven remaining circles (20,000 towers). Says Sumit Modi, Analyst, Emkay: “The separation of the tower business into a separate entity (Bharti Infratel), focussed on tower sharing, would create additional shareholder value.”

The road ahead

Airtel’s larger ambition, however, is to become a global one-stop shop for all communication requirements. Therefore, “unmatched” broadband (8 Mbps speed is being upgraded to 16 Mbps) in 100 cities will be a key part of its future initiatives.

On that will ride its iPTV plans, which should see the service getting launched in the National Capital Region (NCR) in November this year. Besides, it is expanding itself as a long-distance carrier by increasing its 50,000 km backbone by another 40 per cent. Also, in the next two years, Bharti will be laying three more submarine cables for international access, launching mobile TV and even DTH. Says Kohli: “In fact, the next big growth after mobility will come from these businesses.”

To facilitate this, Bharti Airtel has been structured into three individual strategic business units (SBUs)—mobile services, telemedia services (ATS) & enterprise services. The mobile services group provides GSM mobile services across India in 23 telecom circles, while the ATS business group provides broadband & telecom services in 94 cities. The enterprise services group has two sub-units—carriers (long distance services) and services to corporates. All these services are provided under the Airtel brand. The Airtel management board is on top of all these SBUs and has three presidents, who are helped by a battery of nine functional directors.

Clearly, then, the Bharti Airtel management is pushing ahead with ambitious growth plans over the next few years. It is unfazed by increased competition in telecom circles and fresh policy initiatives like “number portability”. Mittal says customers would always prefer Airtel given its proven track record of providing quality services and low tariffs. Adds Kohli: “You know, we are not even into our teens yet. What makes us different is that despite our phenomenal growth we have retained the work culture of a small company—a company which is swift and agile, which takes care of its employees and which nurtures positive energy.” Indeed, retaining that culture will be key to Bharti’s future.