CASE STUDY

ON THE GROWTH OF BHARTI AIRTEL

ABOUT BHARTI AIRTEL•In the 2000s, telecommunications (telecom) company Bharti Airtel Limited (BAL) was the market leader in the Indian telecom market.•It had established itself as the leader in the market by differentiating itself with its focus on building a strong brand through innovation in sales, marketing, and customer service, and an innovative cost effective business model. •Analysts also credited BAL with negotiating the regulatory hurdles in this emerging market and competition very effectively.•This enabled it to become profitable despite the Indian telecom market having the lowest tariffs in the world.

• Some analysts opined that BAL's unique business model had become the benchmark for emerging markets.

• Mobile telephony in India was experiencing the fastest growth in the world and India was already one of the leading markets in terms of mobile subscriber base.

• Despite Average Revenue per User (ARPU) figures in the country being quite low compared to many other markets, it was viewed as an attractive market as mobile penetration of the market, particularly in the huge rural areas in India, was still low.

• With the developing market in the West reaching high levels of saturation (70% in US and 100% in some European markets), many global telecom operators were looking at emerging markets for their growth and this made India a prime target market for these firms.

• The market in India was also expected to witness many changes with the introduction of new technologies and mobile number portability.

• Since 2007, BAL had been facing serious threats to its leadership position.

• On the one hand, there was the onslaught from global players such as Vodafone and Virgin Mobile, and on the other, the threat from established Indian companies such as Reliance Communications Ltd., Tata Teleservices Ltd., and the state-owned Bharat Sanchar Nigam Ltd (BSNL).

• Moreover, the market was expected to witness the entry of some more Indian and foreign companies.

• BAL had responded to investing heavily in expanding its network, technology, and marketing.

• It was trying to cover all segments of the population -from the tech-savvy youth population who coveted the latest value-added services (VAS) to the Bottom of the Pyramid (BoP) segment who would be satisfied with a low-cost offering.

• In early 2008, BAL, which still dominated the Indian telecom market and was the world's tenth largest telecom company, was also readying itself to replicate its success story in some other emerging markets.

Issues:» Understand how Bharti Airtel Ltd. tapped the opportunities in the Indian telecom sector and established itself as the market leader.

» Analyze the booming telecom sector in India that was experiencing high growth rates, with special emphasis on the competitive landscape in the sector.

» Understand the opportunities that emerging markets such as India offer to global business enterprises.

» Understand the issues and challenges faced by organizations operating in emerging markets.

• On February 13, 2008, Bharti Airtel Limited (BAL), the leading telecommunications (telecom) company in India, crossed the 60-million customer mark.

BAL had crossed the crucial 50 million subscriber mark in the fourth quarter of 2007 and had become the tenth largest telecom company in the world in terms of subscriber base. The wireless segment constituted 96% of BAL's total customer base.

• BAL retained its leadership position in the Indian telecom market with a market share of 31.88% in 2007. The valuation of BAL stood at US$ 40 billion as of February 2008. BAL's spectacular growth matched the growth in the Indian telecom sector, which was the fastest in the world. The Indian telecom sector was adding 8 million customers per month as of early 2008.

On becoming the tenth largest telecom company in the world, the CEO of BAL Manoj Kohli (Kohli), said, "The last journey for first 50 million (customers) was completed within 12 years of starting operations in November 1995.

• This puts Bharti Airtel among the top telecom companies in the world. Our next target is to reach 100 million mark by 2010.

BAL was the only small initial entrant in the Indian telecom market which managed to survive consolidation in the sector. Despite tough competition from other private companies such as Hutchison Essar Ltd (Hutch), Reliance Communications Ltd (Reliance), Tata Teleservices Ltd (Tata), and the state-owned Bharat Sanchar Nigam Ltd (BSNL), it emerged as the undisputed leader in the Indian mobile telecom market.

• Mobile Telephony in IndiaThe mobile telephony revolution started in India when the government decided to allow private sector participation in the Indian telecom sector. In 1994, the Department of Telecommunications (DoT), Government of India (GoI), issued licenses to private operators to start mobile services in the four Metropolitan cities of Delhi, Mumbai, Chennai, and Calcutta (now Kolkata).

The Czar of Indian Telecom• BAL had focused on differentiating itself in the Indian

telecom market by ensuring customer delight and a cost-effective business model -a business model of being profitable despite having the lowest tariff in the world.

• BAL's various initiatives helped it attain a dominant position in the market (Refer to Table II for the top mobile telecom operators in India) As of March 2008, its ARPU was US$ 10, higher than that of other operators in India.

New Challenges and Competitors• When Vodafone acquired Hutch, BAL faced the first major

threat to its supremacy in the Indian mobile market since the entry of Reliance into this market. Reliance was not able to overtake BAL as the CDMA technology it had adopted did not do too well in the Indian telecom market.

• Countering the Threats

• Network Expansion

BAL focused on expanding its network coverage all over the country before other players could expand on a big scale. In February 2008, it announced an annual investment plan of US $ 2 billion to expand its network over the next 3 years. This was substantially higher than its average annual investment plans of US$ 1.5 billion. BAL planned to add an additional 30,000 base stations to its existing 40,000 base stations for the fiscal year 2007 and thereby cover 70% of the country. Nearly 50 to 60% of the future expansion was to be in the rural areas.

• Ready to Tap Other Emerging Markets?• By early 2008, BAL was not only the dominant

player in the Indian market but also had an international presence in Seychelles through its subsidiary Telecom Seychelles Ltd., and Europe (Channel Islands) through its subsidiaries Jersey Airtel Limited (JAL) and Guernsey Airtel Limited (GAL).

• Analysts felt that its success notwithstanding, BAL faced some challenges to its leadership position in the Indian telecom market. It had to focus on devising aggressive strategies to continue its dominance and grow at the same rate at which it had been growing.

OUTSOURCE TO IBM• Bharti Airtel Limited, India’s leading provider of

Telecommunications services, was awarded the coveted Nasscom IT Innovation Award for the Business Model Innovation for the year 2006.This award is testimony to the pioneering strategy of Bharti Airtel that outsourced its IT function to another leader in its domain, IBM.

• Bharti Airtel Ltd has received this award for the Innovative S1 ITO agreement that it has entered into with IBM during the year. This initiative, which is a first in the telecom industry, is in line with Bharti Airtel’s strategy to achieve business leadership through technology and innovation by achieving operational efficiencies and driving new revenue streams.

• Bharti Airtel’s collaboration with IBM has drawn an IT roadmap with a state-of-the-art infrastructure to support its existing and new business operations. The result is a strategic, on demand, scalable business transformation agreement capable of diligently servicing the needs of millions of customers.

• This business transformation involves outsourcing Bharti Airtel’s hardware, software and IT services requirements to IBM including all customer-facing IT applications as well as all internal-facing applications.

• Bharti Airtel is structured into three strategic business units –

Mobile services, Broadband & Telephone (B&T) services Enterprise services.

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• The mobile business provides mobile & fixed wireless services using GSM technology across 23 telecom circles.

• The B&T business provides broadband & telephone services in 94 cities.

• The Enterprise services provide end-to-end telecom solutions to corporate customers and national & international long distance services to carriers.

All these services are provided under the Airtel brand. Airtel’s high-speed optic fibre network currently spans over 36,000 kms covering all the major cities in the country.

• Bharti Airtel Winning 3G spectrum in 13 licences, Bharti Airtel is set to offer the widest 3G coverage in the country.

• Airtel commands a 2G revenue market share of 35 per cent in the circles where it has won 3G spectrum.

• After its recent acquisition of Zain's African operations, a panIndian 3G licence would have been a financial drag for the company.

OTHERS’ STRATEGIES• Vodafone Essar• Vodafone has won only nine circles but these account for

68 per cent of its current 2G revenues and 57 per cent of its subscriber base. Vodafone's strategy has been to maintain its strong position in Category A and B circles. It has stayed away from the Category C circles, believing that these have a lower revenue potential.

• Idea CellularIdea Cellular has failed to win the coveted Delhi and Mumbai circles. It bid Rs 57.69 billion for the relatively less expensive 11 circles it won.While these circles account for only 49 per cent of the country's telecommunications market, they account for 77 per cent of Idea's subscriber base and 81 per cent of its revenues.

• Idea has been emphasising that the demand for value-added services and telephony is the highest in rural India, and, therefore, it makes sense for the company to bet on these circles.

• Reliance CommunicationsReliance Communications (RCOM) has played its cards very strategically. It has won 3G licences in 13 circles for Rs 85.85 billion. The company has spent 76 per cent of its total investment on the Delhi and Mumbai circles. 3G operations in Delhi and Mumbai would give RCOM the opportunity to catch up with its peers. The company's image, which is identified with low-cost offerings rather than high-end services, may change with its 3G operations.

• RCOM's ARPU in these 13 circles is Rs 119.90 compared to Rs 95.80 in the circles where it has lost.

• Tata Teleservices LimitedTata Teleservices Limited (TTSL) was one of the most aggressive operators when the 3G spectrum auctions started. But once the bid price started escalating, the company stepped back.

• TTSL winning in only nine circles, however, has been surprising, especially because 3G is the strong point of its JV partner NTT DOCOMO.

• AircelAircel has surprised everyone by winning spectrum for 13 circles, which account for 90 per cent and 91 per cent of its subscribers and revenues respectively.

• It concentrated on circles like Tamil Nadu and the Northeast. It has also won 3G licences in the Jammu & Kashmir.

• . Its bidding strategy was centred on the value added services potential of the circles, apart from maintaining the high ARPU subscriber base.

BUSINESS CHALLENGES AND SOLUTION• CHALLENGE 1 Bharti Airtel needed to maximize its future flexibility and

growth potential by adopting a business- driven framework for integration, allowing it to implement and deliver new services rapidly. With competition intensifying in the Indian telecom services market, Bharti Airtel needed to find a way to focus on developing new services that could set it apart from the competition and strengthen its customer relationships.

• CHALLENGE 2Bharti Airtel’s other big challenge was the need to make the major

investments in IT infrastructure required to service its rapidly growing base of subscribers.

Bharti Airtel faced an added financial risk from a steadydecline in India's average revenue per user (ARPU) for mobile telecom services, the result of government-mandated pricing changes that created – at roughly eight dollars a month – one of the lowest ARPUs of the region.

• SOLUTION• Thus, while Bharti Airtel realized that it was

absolutely essential to invest in its future growth, factors unique to the Indian market substantially increased the risks of making these capital investments.

• To address these unique opportunities and challenges, Bharti Airtel established a far-reaching 10 year outsourcing relationship with IBM that substantially mitigates its IT investment risks by giving IBM full control and ownership of Bharti Airtel’s IT infrastructure and associated processes. Its new platform provides a standardized framework for Bharti Airtel to integrate its channels and customer-facing processes – enabling a more seamless customer experience, higher customer satisfaction and more profitable growth.

Key Benefits found• Ability to process 1.5 million new

customers per month.• Outsourcing of technology enables

Bharti Airtel to focus resources on growing the business.

• Efficient total customer experience through end-to-end integration of customer-facing processes.

• Optimization of business through flexible,standardized integration framework.

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