C OV E R S T O RY

Bharti Needs a Meeting

Minimizing nancial over-exposure, dynamic & innovative business models and leadership restructuring should be the key points in the agenda

harti airtel, the countrys largest integrated telecom operator with more than 175 mn mobile subscribers and sizeable xedline and broadband user base paints it as the leader in the Indian telecom space. The companys entry to Africa in 2010 with opera ons in 16 countries in that con nent also makes it the h largest telecom operator (in terms of user base) in the world. The Sunil Bharti Mittal-led telecom behemoth also offers broadband on DSL, IPTV, dedicated enterprise services and a plethora of value added services including mobile money, mobile health, etc, besides oering regular mobile and xedline telecom services. Without any glitch, Bhar is perhaps the only Indian telecom company which has been seen in the world arena as an example to look at and its business model is being discussed at various boardrooms for emula on. Oering mobile services on GSM mode in all the 22 circles in the country, the company last year also got the approval to oer 3G services in 13 circles and is also seen to become the rst operator to launch broadband wireless access on TD LTE technology in the country in the near term. The company also has a separate arm for its infrastructure or tower business with more than 30,000 telecom towers, besides having a major share in Indus Towers, an independent tower company, comprised of telecom infrastructure from Idea Cellular and Vodafone. The company oers ILD and NLD services too, making it a complete integrated telecom rm, as per books. The company also commands a leadership market share, both in terms of volume and revenue, in the Indian telecom business.

No Longer Rosy
However things are no more that rosy as it looks from outside. The company is bleeding, both in its domes c and interna onal opera ons, and in most of its business areas. The company has posted a dip in its net prot for seven quarters in a row and that has raised some eyebrows in the industry and analyst fraternity.
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Theres a deep sense of tension and frustra on inside the company, says a senior execu ve of a consultancy rm, who works closely with Bhar . The execuve, who is working alongwith the top management of Bhar , on the condi on of anonymity, says that Bhar s 1st phase of growth is over and the 2nd phase of the story would be tougher than ever. Bhar board of management needs to think something very disrup ve, maybe it needs to bring back Manoj Kohli to look a er India opera ons, he adds. A er all, Bhar s success story would be more dependent on its India opera ons than global. But Girish Trivedi, founder, Monk Consul ng has a dierent take on this. Bhar is a great rm. The top bosses are the same. But yes, the business is no more voice centric and one needs to embrace a dierent approach for data centric services. Bhar might look at someone from outside, says Trivedi.

BHARTI: PAIN AREAS

Financial Over-exposure: With entry to Africa and on account of 3G and BWA license acquisition, Bharti is over exposed nancially. It had taken a loan of $8 bn from a consortium of banks led by Standard Chartered bank for Zain acquisition worth $10.7 bn. As of December 31, 2011, Bharti Airtel has a net debt of $12.72 bin which impacting Bhartis bottomline. Leadership Crisis: The rm that was held as an example for its leadership qualities a couple of years back is suddenly felt to be in the middle of a leadership crisis. The dynamism of Sunil Mittal is being missed. The dynamism, man-management qualities and technical skills of Kohli are being missed in a big way. Experts believe, that the leadership focus has somewhat shifted to Africa, leaving India vulnerable to losing market share. Even Bharti has not been able to come to terms with restructuring even after 7 months. The condence and the visibility of the top management is at the lowest. Lack of Innovation: Bharti was the rst company to take up outsourcing as a strategic business model in network, IT, call centers, and saw huge success. Now, industry watchers believe in the new game that has to be dominated by data centric services, where Bharti lacks innovation. Analysts believe the rm is swapping quality with cost by not tying up with innovative partners but with low cost counterparts. Change in Business Dynamics: Analysts believe Bharti has somewhat missed the bus. The leader has to be a visionary. With changing dynamics in the telecom space and in a difcult economic scenario, one has to adapt to the changing needs. The rm is still approaching the same strategies that it used to have for voice centric business, but data business and enterprise services are different ball games, and Bharti needs to focus in it in a big way

The Killing Field

No doubt, what kills Bhar inside now is the gradual and consistent fall in its net prot for almost two nancial years at a go, and when? The dip in its net income pinches more when the company has already spent more than $10 bn in acquiring Zains Africa opera ons and coughed up more than $3 bn for acquiring 3G and BWA licenses to oer next genera on telecom services in the country. In June 2010, Bharti completed the $10.7 bn Zain acquisi on deal for which both the companies had entered into an agreement in March the same year. During the process, Bhar announced its 4th quarter results for 2010. It had reported consolidated net prot of `2,055.1 crore as against `2,209.8 crore, de-growth of 7% on q-o-q basis as per US GAAP. However the revenues rose 2.9% to ` 10,749.1 crore versus `9,772.2 crore for the compared period. In the premise of its global expansion, the company had named Sanjay Kapoor as its chief execu ve for India and South Asia, pu ng him in charge of shoring up the sagging revenues and prots of the countrys largest telecom rm and leaving the then incumbent Manoj Kohli free

to spearhead the companys aggressive global play. Kapoor, the deputy CEO of the company then, was elevated from April 1, 2010. Kohli, chief execu ve and joint MD of Indian opera ons, moved on to head Bhar s newly-created interna onal business division. The Zain acquisi on was completed in June 2010. For the June quarter, the company posted a net income of `1,681.6 crore compared to `2,055 core, a dip of more than 18%. The next quarter was no be er. Net income dipped to `1,661 crore, the third quarter net again slumped to `1,303.3 crore. In the fourth quarter ended March 2011, Bhar posted a lowerthan-expected consolidated net income of `1,400.7 crore down 31.48% vis-a-vis the same period last year on account of higher cash ou low for its African operaons. For the full year, Bhar Airtels net prot was down 32.64% at `6,046.7 crore, compared to `8,976.8 crore in FY10. The net income, at `6,047 crore, declined by 32.6% from ` 8,977

crore in the previous year due to increase in net interest outgo (`1,480 crore), forex re-statement losses ( ` 683 crore), re-branding expenses (`340 crore) and increase in spectrum charges in India (`265 crore), the company said. However, the total revenue for FY11 stood at `59,467 crore, as against `41,847 crore in FY10, up 42.1%. The story was no be er for Bhar in the next new scal. In Q1 of 2012, Bhar s net prot again dipped nearly 28% to `1,215.2 crore in the quarter ended June 30 compared to `1,400.7 crore in the previous quarter and `1,681.6 crore in the year-ago quarter. The result also showed that, having consistently lost revenue market share over the last two years, Bhar airtel has now gained back some lost ground. The countrys largest mobile services operator, by revenue and subscriber base, clocked a revenue market share of 30.8 % of the Indian telecom marketa gain of 60 basis points (0.6%) during the April-

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C OV E R S T O RY

June quarter against the three months ended March 2011. However, the data released by telecom industry regulator, Trai, also suggests that Bhar slipped on a y-o-y basis. This market share gain for Bhar comes on the back of the operator restructuring its opera ons in India and South Asia a er a con nuous decline in its prots. During this period Bharti took an industry defying measure. It became the rst operator to increase call taris by about 20% in June, a move that was immediately followed by other leading players. This hike, a bold move by airtel, was intended to address declining profitability in a cut-throat Indian telecom industry, said experts. An airtel spokesperson said that the telco expects the recent hike in taris to have a posi ve impact on its revenues and that the company will wait for the next few months to determine its precise nancial implica ons. In Q2, 2012 Bhar reported a bigger-than-expected 38.17% fall in quarterly prot bringing its consolidated net profit down to `1,027 crore, hit by higher interest costs and foreign exchange losses worth `239 crore. This is the seventh straight quarter in which Bharti airtel has reported a consecutive decline in its net profit. Bhar airtel said that the rollout of its 3G network resulted in a higher amor zaon cost of `164 crore for the quarter, while its net interest cost rose to `115 crore during the repor ng period. For Q3 again, Bhar reported a net prot of `1,011 crore, down 22% over the same quarter last year. The telco reported a net profit of `1,303 crore in the same quarter in the last scal. This me, the drop has been a ributed to higher tax provisioning in the quarter. The tax rate was at 32.5% during the quarter. And this trend is not prevalent only in Bhar s mobile services, the rms telemedia services that includes its broadband and xedline oerings also depicts the same story. The growth of telemedia business has been at in the compared periods.

Bhartis Revenue
(In ` Crore)
18,476.7 1,027.0

150000

100000
2,055.1

10,749.1

12,230.8

1,681.6

15,215.0

200000

1,303.3

1,400.7

1,215.2

Q4-FY10

Q1-FY11

Q2-FY11

Q3-FY11 Net Profit

Q4-FY11

Q1-FY12

Q2-FY12

Q3-FY13

Revenue

User Base
Its not that the company so far has overlooked the pain. More than anybody else outside, the company itself has been feeling the heat, and it has been taking various correc ve measures to maintain an equilibrium. Bhar seems to be ge ng more aggressive in acquiring new subscribers, going by the telecom industrys subscriber addi on gures for the month of January. It added 1.3 mn subscribers last month, a er four successive months of rela vely sluggish subscriber addi on gures of less than 1 mn. Between September and December 2011, the monthly average subscriber addi on gures for the company stood at 0.95 mn, accoun ng for less than 14% of the monthly average subscriber addi on of 6.97 mn for the industry. The companys share of the total subscriber base is the highest in the country at around 28% during this period, indicating that its smaller compe tors were adding new subscribers at a much faster pace. To some extent, the subscriber addition numbers are irrelevant. What matters more is the ac ve subscriber base, a metric that is released by the government periodically, and the revenue market share of telecom companies.

It became evident a er the December quarter results season that Bhar is losing even revenue market share because of the sluggish trend in new subscriber addi ons. The company chose to s ck to the tari hikes it took in mid-2011, at a me when companies such as Idea Cellular were being exible with their pricing strategies in order to attract new customers. Data released by Trai last month shows that Bhar s revenue market share has declined by 110 basis points in the past two quarters to 29.7%. Vodafone India, Unitech Wireless (Uninor), and Idea Cellular gained at the market leaders expense, increasing market share by 71, 66, and 52 basis points, respec vely.

Last Restructuring
Following a sharp drop in revenues, Bhar in August last year had announced restructuring of its Indian and South Asian opera ons to streamline its businesses and reduce costs. The key execu ve of the global consultancy rm said that Bhar was advised in the beginning of 2011 for a restructuring and was suggested a twopronged approach. One, to consolidate the business units, and two, to restructure the top management. The August transformed organiza on structure now

40 | VOICE&DATA | APRIL 2012 | voicendata.com | A CyberMedia Publication

1,011.3

50000

1,661.2

15,756.0

16,265.4

16,974.9

17,269.6

2,055.1

Bhartis Net Prot

(In ` Crore)

1,681.6 1,661.2

1,303.3

1,400.7 1,215.2 1,027.0 1,011.3

Net prot has dipped to `1,044 crore in last 2 years

have two dis nct Customer Business Units (CBUs) with clear focus on B2C (business to customer) and B2B (business to business) segments. The companys B2C business unit will service the retail consumers, homes and small oces by combining the erstwhile business unitsmobile, telemedia, digital TV, and other emerging businesses (like m-commerce, m-health, m-adver sing), the company said. The B2C organiza on will consist of consumer business and market operaons. The consumer business group will lead the overall B2C strategy and will focus on customer experience, product and service innova on, and build an ecosystem around the B2C services. members of the company were the most dissa sed. One of them was made a part of the team that he used to lead. Its like asking the captain to be a team member, the Bhar execu ve said on condi on of not to be quoted. He also said that he is mulling qui ng the rm to pursue other interests. A senior execu ve of one of Bhar s oldest networking partner said that there is a strong need of a dynamic leader in bhar to look at India opera ons. Bhar can not ignore India, and if the case may require, it needs to bring back Manoj Kohli, he added. Take lead in 3G and BWA services: Its almost two years since Bhar got the 3G license but the uptake has been poor so far and ARPU is up to the marks. Again, the lack of innova on in oering 3G services, both in terms of tari and a racve applica ons, rendered the rm with just 2 million 3G subscribers. It has also acquired BWA license to oer services in 6 circles but the company is yet to launch service. Though none of the BWA license holders have launched the service so far, to take the rst mover advantage and retain your potent customers Bhar has to take the lead in launching the service

What Bharti Needs To Do

Restructuring not aligning with company goals: Following a sharp drop in revenues, Bhar in August last year had announced restructuring of its Indian and South Asian opera ons to streamline its businesses and reduce costs. However, industry trackers feel the restructuring was not in line the companys goal. Also, this restructuring has gathered some mixed responses among the employees. Though its not always possible to sa sfy everyone in a business decision, two key

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and bring a new revenue stream. Also, the rm has to comeup with innova ve models to launch the 4G services so that it does not go the 3G way. It should have quality oerings and need to focus on enterprise customers and consumers equally to take the lead. Data revenue need to be increased: In order to be back in the game, the rules of the game has to be changed. The voice market in India is almost saturated with around 80% teledensity and call tari at abysmally low. The opportunity now is with data services and the data driven business is at infancy now. A leader like Bhar has to tap this opportunity with lots of innova ve business models and within no time. Though the company has started focusing enterprise services in a big way, it has no dieren ators than its compe tors. Though everyone is taking about cloud services and the SMEs are the most potent customers of this, Bhar has yet to have dedicated cloud services to cater to the 5 million strong SMEs in India. Trac on in M-commerce and M-banking/M-health: Bhar has more than 175 million mobile subscribers and India has more than 700 million popula on without exposure to banking facili es. But these people have mobile phones. Though Bhar has started oering mobile money services of late, the rm has to take lead in simplifying the service and take the lead in it to reap the benets. Though Bhar s sluggish growth has become a huge area of concern, there is no denying that so far its the market leader and commands a market share of around 30% in a 14-operator market. The companys last few quarter results were also aected due to the huge cash ou low for its interna onal opera ons and on account of 3G & BWA license acquisi on. But experts believe, overlooking all dampening factors, the rm needs to aggressively look at changing its business strategies. There was nothing wrong with Bhar at this stage, but the mes have changed and the rm has to respond accordingly, Trivedi of Monk Consul ng suggests.
Gyana Ranjan Swain

Q4-FY10

Q1-FY11

Q2-FY11

Q3-FY11

Q4-FY11

Q1-FY12

Q2-FY12

Q3-FY12

Gyana Ranjan Swain gyanas@cybermedia.co.in

gyanas@cybermedia.co.in

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