Indian Telecom Sector Overview:

Bharti Airtel is one of the established players in the telecommunications market which has its roots
in 16 Asian countries and 14 African countries. Being one of the first movers in the telecom sector,
it is also the largest player in the telecom sector of India.
The company has diversified into many businesses which includes mobile services, data services,
wireless and fixed line telecom services, DTH services while the company also provide B2B
solution to some of the companies in the form of complete integrated telecom solutions.
Furthermore, the company has also ventured into the payments bank market with Airtel Money.
While the company is making revenues equivalent to Rs. 831 Bn but the bottom line of the
company is not doing so well. This is because of the cost structure. The company incurred
operational cost of Rs. 358 Bn in the FY 17-18 making EBITDA Rs. 304 Bn. These are all the
consolidated figures.
While the company is performing well considering the competition in the telecom sector due to
the price war going on, the company’s net profit took a plunge after the entry of new players like
Reliance Jio in the telecommunications market. The revenues are going down which can be seen
comparing the last two financial years. The consolidated revenue went down from Rs. 954 Bn to
Rs. 836 Bn in FY 17-18 from last year showing a downfall of 12.3%, furthermore the consolidated
EBITDA also dropped by 14.5% this year. The company’s net debt also seems to be on a rise as it
increased by USD 517 Mn in FY 17-18 showing the struggle in the telecom market.
With Jio as a new player which gained ~15% market share, the Telecom sector is currently highly
competitive. The price war going on between major players in the Industry is again making the
industry difficult to survive for the small players, while also making it tough for the major players
to derive profits out of their services and operations.

Airtel’s Business Portfolio:

Airtel provides a host services which includes mobile services, Home services and Digital Tv
Services.

Mobile Services: (B2C) Airtel is the leading provider of mobile services and has the largest
subscriber market share in India. Along with this the company also has the highest market share
of 30% India. The low tele-density in India and Africa, with unique users in India being 750 Mn

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and in Africa being 420 Mn, i.e. <60% penetration in India and <50% penetration in Africa, makes
telecommunications market a great opportunity to invest in for Airtel.

Along with this, the telecom market is seeing a major change due to the data explosion due to
affordable smartphones and cheap data plans. This is again leading to increase in the customer
base requiring data services and Airtel but decline in average revenue per customer.

Home Services: Airtel provides home services in the form of fixed line telephone and broadband
services. The Home Services has a 2.2 Mn customer base which is growing at a rate of 2%. The
total revenues from home services is Rs. 25 Bn which is also decreasing at the rate of 8.2% even
with the launch of new superfast home broadband plan of 300 Mbps.

Digital TV services: The Digital Tv market has seen a growth in terms of both customer base and
revenue. The customer base increased by 11% to 14.2 Mn in FY 17-18 generating revenues
equivalent to Rs. 37.5 Bn

Airtel Business B2B: Airtel is one of the well renowned players in providing ICT services. Its
portfolio of services includes data, mobile, network integration, enterprise mobility applications
and digital media. The gross revenue from B2B services provided by Airtel is Rs. 113 Bn which
increased 3% from last year. Additionally, to the services mentioned beforehand, Airtel also
provides advanced customer solutions like IOT to global customers. These kinds of services are
bridging the gap between B2B and B2C services by making them work in a network.

Introduction of 5G into the play:

5G is the next gen mobile service provided by network operators with frequencies ranging from
600 MHz to 6 GHz. With 5G there will be a rise of speed in internet connectivity to around 10
Gbps. This would mean a whole movie could be downloaded in a matter of seconds.
5G networks are going to be installed and in operation by the year 2022 as most of the companies
in the telecom sector are looking at making the first move in the 5G market to gain the first mover
advantage.
5G would mean a lot of benefits to customers in terms of faster download and browsing speed,
faster streaming, higher quality video and voice calls, greater number of devices connected and a

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large amount of data upload in a very less amount of time would mean that devices can easily
communicate without any hindrances giving way to IOT (Internet of Things) technology. Also,
communication between devices would make it easier for advanced technology to expand for e.g.
self-driving cars and smart cities.
From business perspective 5G would mean businesses with a larger product portfolio could expand
and integrate their products and build better connectivity. This would also allow companies to
generate customer loyalty. Companies can also use big data more efficiently and technologies can
communicate faster which can provide cost cutting opportunities to businesses in terms of
operation.

Impact of 5G on Consumers and Businesses

A. B2C:
India is witnessing a sharp growth in the penetration of internet: it is pegged at 64.84% in Urban
areas and about 20.26% in rural areas as of December 2017. The rising popularity of budget
smartphones has propelled the smartphone market into a spell of double digit growth, which has
led to an increase in data consumption per consumer.
Indian consumers are also displaying substantial inclination towards media and entertainment on
mobile devices, as proven by the rise of content houses such as Hotstar, Netflix, etc. which provide
streaming of video content. More consumers are demanding high definition visual content at low
loading times.
Additionally, the State’s push towards digitalization and the rapid acceptance of online payment
points towards an ever-increasing consumption of data for daily usage that goes beyond
entertainment. The Indian consumer is becoming more tech-savvy in all areas of life, from
streaming videos on Youtube, to booking cabs online to conducting major transactions over the
internet.
5G is poised to be the backbone of a speed driven data regime in India. All the above factors are
complemented by the fact that as a consumer migrates from 3G/4G to 5G, they are bound to
consume more data. This phenomenon occurred when consumers moved from 2G to 3G/4G:
network speed increased and so did the consumption of data; and is expected to occur at the time
of migration to 5G as well.

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A report on the Impact of 5G by Ericsson states that globally, telecom providers are expected to
realize a revenue growth of 1.5% - 2%.

B. B2B:
Airtel’s business wing provides 6 primary services according to Wikipedia, namely “cloud and
managed services, digital signage, NLD/ILD connectivity (VSAT/ MPLS/ IPLC and Ethernet
products), Wi-Fi dongles, voice solutions (like toll free numbers, TracMate) and conferencing
solutions (VoIP, audio, video, and web conferencing) serving Industry verticals like BFSI,
IT/ITeS, manufacturing, hospitality and government.”
Going forward, Airtel 5G will be positioned to potentially deal with challenges in the following
industries:
● Manufacturing:
A rise in deployment of IOT tech across manufacturing practices has let to creation of a large
market. The storage volumes of data generated is also poised to move to cloud solutioning.
However, many manufacturers face connectivity issues such as insufficient bandwidth, speed and
latency issues. In fact, Airtel could be an initiator of IOT for Indian as well as global manufacturers.
● Energy and Utilities
A data heavy industry, energy and utilities depends on accurate data collection and analysis
methods. This sector will witness an influx of new technology and integration of the same with
old technology would require a certain level of tech solutioning that Airtel stands to provide.
Utilities under the Smart City vision also display a level of dependency on network solutioning in
the areas of distribution, operations and energy efficiency, to name a few.
● Public Transport
The requirement of high speed internet across all public transport -including airplanes, according
to TC’s latest call on flight wifi- is a market to be actively pursued. More public networks are
being commissioned by GOI and the number of public internet users has been rising. On an
operational front, logistical transport is also witnessing an increased deployment of real time data
collection techniques to streamline operations and cut costs.
● Healthcare
Healthcare as a sector: primarily in the western world, has undergone a rapid wave of digitization.
This wave is making its way to India, with major medical players such as Apollo Hospitals and

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Fortis are currently implementing hybrid cloud computing models for data collection and analysis
across different health equipments.
● Financial Services
A rise in the volume of micro transactions has all the more called for greater internet security in
an ecosystem that involves consumers integrating multiple financing decisions. It is also essential
for customers to receive cost effective and faster financial services. Improved IT infrastructure is
also expected to augment this ecosystem which could be a business opportunity for Airtel 5G.
● Automotive
The automotive industry has witnessed disruption across almost all aspects: cab aggregators like
Uber and Ola have transformed the business aspects while research in self-driving cars has set
vehicle-makers onto a path of highly data intensive technological development. Deploying
network-based solutions such as artificial intelligence and M2M technology is vital for peak
functionality.
A report on the Impact of 5G by Ericsson states that globally, telecom operators will likely attain
a 36% overall growth in B2B through such digitalization activities till 2026 (70% growth till 2023)

Telecommunications: Industry Analysis using Porter’s 5 force model

1. Threat of new entrants: Low
Telecom being an extremely capital-intensive industry, a major barrier to entry to potential
players in the industry is high requirement of funds to set up base. An extremely high
number of licenses required as per the government regulation, also pose a considerable
barrier. The high government regulation body involvement in the functioning of the
business presents a considerable threat to the new entrant. Also, presence of giants like
Airtel and Jio present a formidable barrier for the new entrant.

2. Bargaining Power of suppliers: Medium

Though there are considerable number of players in the form of Ericsson, Huawei, Nokia,
Cisco, etc. fighting for operator’s business, the overall integration issues caused by
selecting multiple vendors for the same operator calls for automatically induced monopoly

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 of sorts for suppliers. The overall competition between multiple suppliers though is enough
to ensure that the bargaining power of all the suppliers doesn’t increase considerably.
3. Bargaining Power of buyers: Low - Medium
The high number of telecom operators in the Indian scenario led to the consumers having
a considerable amount of bargaining power in terms of demanding favourable deals and
pricing structures. But the overall consolidation in the Indian market gives more power in
the hands of operators and thus is reducing the power held by the end consumers
4. Availability of Substitutes: Low - Medium
Considering the extremely important position that mobile devices, through voice and data
operations has created in the life of every individual as well as the lack of suitable
alternatives, the threat caused by substitutes is thus, on the lower side. Over a longer time
frame, potential substitutes in the form of internet/satellite telephony as well as OTT apps
gaining prominence pose marginal threat.
5. Threat of existing competitors: High
With extremely cash-rich competitor in the form of Jio present, the threat posed by the
existing competitors is extremely credible. The predatory pricing strategy used by Jio has
caused a significant change in the operation of the Indian telecom industry. Jio’s entry has
initiated a major consolidation in the industry making sure that only large players, which
can pose a compelling threat remain.

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Diamond Strategy- Introduction of 5G:

Ideal Staging Strategy:

Segments:
After analysing the 5G technology thoroughly, two major axes of segmentation can be:
1. Income: 5G is a new to the world technology. The hardware required to operate it would
also have to be cutting-edge and novel. Hardware of that calibre sound be available only
in mobile phones which are either new or high-end. So, the early adapters to 5G would be
consumers having high-end mobile phones. Consumers who own these high-end phones
are typically those who belong to the slightly higher income segment. Hence, income is a
suitable axis for segmenting the market.

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 2. Age: The tangible value proposition of 5G to the consumer is faster speeds. Since this
technology is an incremental improvement in that direction, consumers would be seeking
the same. And the demographic which has maximum utility for higher internet speeds is
the millennial population since they are most receptive to adapting to new technologies as
compared to an elder demographic. Hence, age has been devised as the second axis of
segmentation

Targeting:
The typical consumer belonging to our TG would be a young, high-income individual. Existing
customers who belong to the same demographic should also be targeted as the switch for them
would be free of cost, since the 5G speeds are being offered at the same price as 4G, following suit
from Airtel’s earlier pricing strategy during the launch of 4G. These customers would have the
highest affinity to adapt to the new technology given their existing relationship with the company.
The third kind of profiling which can be targeted is the average to high income 21+ individuals,
since these individuals have higher disposable income.

Positioning:
The positioning of 5G is best exemplified by the line: “Higher speeds than broadband in your
phone at exactly the same prices.” 4G was launched in India at the same prices as 3G, which
eliminated the major barrier of adopting a new technology: The extra money. Similarly, a similar
modus operandi will be followed for the 5G launch, by positioning it at the same price as 4G.

Marketing Strategy:
B2C:
The focal point of the 5G marketing communication is the high throughputs. Internet speed is a
very tangible quantity for consumers as they have a yardstick for comparison with respect to 4G,3G
and 2G speeds, so the internet speed of 5G should be the communication that the potential
consumers receive. Even during the launch of 4G, the 4G Speed Challenge placed an emphasis on
internet speed in a very innovative manner and the campaign was in-line with the kind of novelty
in campaigns which has come to be expected of Airtel as it has grown as a brand over the years.
The state-of-the-art high speeds can also be used to implement Blockchain and IoT in a very

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unconventional manner. A possible promotional stunt to catch mass media appeal can be use of
self-driving cars equipped by Airtel 5G. The novelty and out-of-the-box nature of the campaign
will garner blocks and heaps of traction, especially from social media as the self-driving car is also
a new to the world, futuristic technology akin to 5G and a coalition of both would be very exciting
for people all over the world to watch.
B2B:
While the objective of the B2C campaign was to drive visibility, the B2B strategy would focus
more on the utilitarian side of things. The benefits of the novel technology and its applications in
various fields like Healthcare, Manufacturing, Automotive, Financial Services, Public Transport,
Energy and Utilities, Governance and Public Safety should be emphasised in the pitch as firms
would seek new technology to improve their performance. For acclimatizing them to the
technology, the best vehicle would be technology shows, business trade shows and expos, where
the latest technology and product innovations of the entire industry are demonstrated.
Besides this, the existing B2B client base can also be leveraged by developing contractual
relationships and proposing innovative and lucrative contract agreements to incentivize them to
continue doing business with Airtel.

Strategy Operations plan:

With Department of Telecommunications possibly lining up bids for 700 and 3500 band, the 5g
initiation process in India is right around the corner. With an extreme sense of competition in the
market, staying up to date with technology will be the way to go.
To ensure seamless integration of 5g into the network ecosystem, a lot of initial investments are
required:
● Purchase of spectrum in 3500 and 700 band
● Addition of Infrastructure suitable for 5G - Deployment of small cells, Radio resource
units, and Baseband unit on enough
● Infrastructure investments to update transmission and core network
● Recruitment of 5G technology specialists + Setting up of trainings for new technologies

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Following are the projections in the above categories:
Inv. (Rs. Cr) 2018 2019 2020 2021 2022 2023

Spectrum 4300 8000 10000

Infrastructure 5400 1200 2933 3585 5842

HR strategy (Recruitment + Training) 10.2 2.1 0.1 0.1 0.1 0.1

Labor expenses 97.5 97.5 97.5 97.5 97.5

Logic used:
● Spectrum: ~INR 2100 cr for 1MHz in 3500 band. Starting with Delhi and Mumbai in 2019,
venturing into other metro cities over next 5 years
● Infrastructure: Expected towers/Metro calculated (~20000), Expected Core units per metro
(2-3 units) are calculated. Using the same, cost of incremental units is calculated over the
years
● HR Strategy: Expected number of new employees*1-month average salary (INR 2.5 LPM)
(Recruitment cost) + Average employees*%age requiring 5g trainings*Cost per training
(Training cost)
● Labor expense: Expected number of new employees*Average annual salary

Financial system forecasts:

After thorough analysis of industry, revenue forecasting was carried out following the
undermentioned criteria to get an approximate idea of the positive impact by the advent of 5G.
Rev Criteria
Stabilized decrease rate till 2020; 2% (organic growth) + 1.5% (5g induced growth)
B2C expected till 2023
Homes Decrease of revenues expected with 5g entry
DTH Poised to grow at a similar rate
Africa Decreased revenue and cost with market consolidation
B2B 30%+ growth over 5-6 years

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Revenue projections:
Rev 17 18 19 20 21 22 23
B2C 565511 462639 415492 423008 437005 451466 466405
Homes 27518 25265 24207 23193 22222 21292 20400
DTH 34306 37570 41145 45059 49346 54041 59183
Africa 219568 201564 189068 177346 166351 156038 146364
B2B 109429 113218 123238 134144 146016 158938 173004
Total 956332 840256 793148 802750 820940 841774 865356

Using the devised operation plan mentioned above, and the possible reduction/increase in capital
and operational expenditure, following projected income statement is created.

Pro-forma income statement:

Year 17 18 19 20 21 22 23

Rev (in mn) 956332 840256 793148 802751 820941 841775 865356

Network opex 209154 197520 145698 143197 148147 152485 158913

Access charges 102786 90446 85311 86344 88301 90541 93078

License fee/spectrum charges 92760 75558 74461 71011 80620 74463 86549

Employee Benefit 43032 39771 36715 37156 37996 38958 40046

Sales & Marketing expenses 66732 55766 55520 56193 57466 58924 60575

Other 86921 77027 72399 73275 74936 76838 78990

Total expense (in mn) 601385 536088 470105 467175 487465 492208 518150

EBITDA (in mn) 354947 304168 323044 335575 333475 349566 347205

In an industry which is struggling with declining revenues and margins due to Jio indulging in and
starting price wars, an increase INR 4500 cr. (3% CAGR over 5 years) presents an extremely good
return opportunity.

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Expected cash required + financing strategy
Total budget Expected Cash Required Financing
required reserve cash Finance strategy instrument

51617 47886 3731 Use of debt and dividend to NCD

maintain D/E ratio
Looking at the cashflows statement of FY 17-18, it is calculated that Airtel will require external
financing of around INR 3700 cr. With the primary target being a D/E ratio around 2.1-2.2, the
same target can be looked while looking at options like Non-convertible debentures, and while
deciding on the dividends to be provided to shareholders. Major reason of considering debt over
equity:

• Government will likely give more debt to avoid monopoly situation (Jio) in the telecom sector

• Entry of capital rich companies into the market has impacted the consumer confidence in other
companies, thus lowering the share price. Use of equity will likely result in higher equity dilution
to get considerable amount of cash.

References:

1. https://www.ericsson.com/assets/local/narratives/networks/documents/report-bnew-18000486-rev-a-
uen.pdf

2. https://www.ericsson.com/assets/local/narratives/networks/documents/report-bnew-17001714-uen-rev-
a.pdf

3. https://medium.com/@adamsconsulting/https-medium-com-adamsconsulting-how-5g-creates-new-
business-opportunities-for-operators-ict-41997f1b302a

4. https://www.mckinsey.com/industries/telecommunications/our-insights/a-future-for-mobile-operators-
the-keys-to-successful-reinvention

5. https://s3-ap-southeast-1.amazonaws.com/bsy/iportal/images/Annual-report-2017-
18_324BCC06D8C6765F2F6C750DD9CD8C63.pdf

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