airtel strategic management

St. joseph’s college of business administration

AIRTEL

Corporate Strategy Review

8/17/2010

Submitted By

Das Anthony Jeanne

Lai Ainee

Natasha Gopinath

Sandeep George

Vinay Prakadan

Strategic Management AIRTEL

COMPANY VISION & PROMISE

By 2010 Airtel will be the most admired brand in India:

Loved by more customers

Targeted by top talent

Benchmarked by more businesses

“We at Airtel always think in fresh and innovative ways about the needs of our customers and

how we want them to feel. We deliver what we promise and go out of our way to delight the

customer with a little bit more”

INDUSTRY PROFILE

The Indian telecommunication industry is one of the world's fastest growing industries; with

653.92 million telephone (landlines and mobile) subscribers and 617.53 million mobile phone

connections as of May 2010 .It is the second largest telecommunication network in the world

in terms of number of wireless connections after China. The telecom industry in India is

regulated by 'Telecom Regulatory Authority of India' (TRAI).The key players in this industry

may be broadly classified into,

State owned companies like - BSNL and MTNL.

Private Indian owned companies like – Reliance Communications

Foreign invested companies like - Vodafone-Essar, Bharti Airtel, Idea Cellular, Aircel

etc

Telecom companies predominantly divide their business into 4 major sub-segments i.e.

Mobile, Fixed Line, Internet and Enterprise. Described below is a brief overview of the

sources of revenues as well as costs for a telecom company:

REVENUE ANALYSIS

I. Mobile/Cellular services

Cellular mobile service providers (CMSP) derive revenues by way of tariff charges for

outgoing calls made by subscribers on its network. So basically, the revenue for a CMSP is

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simply a multiple of average revenue per subscriber per month (ARPU) and number of

subscribers.

Subscribers: Growth in a CMSP's subscriber base is dependent on several factors,

the key amongst them being:

Economic growth: With growth in the economy, and the consequent increase

in activity, it requires people to be in constant touch. Thus, with the

tremendous growth in economic activity in India there are more and more

people subscribing to telecom services, thus leading to growth in subscriber

base for CMSPs.

Rising income level: As the real income levels in a society rise, more and

more people are able to afford usage of cellular phone and so the consumer

does not feel the pinch of rising telephone bill, thus having the propensity to

talk more, thus leading to higher MOUs for telecom services providers.

Affordability: The affordability is interplay of lower tariff charges and

availability of cheaper handsets. While lower handset costs make mobile more

affordable at the entry level thus allowing more people to be a part of the

mobile community, lower tariffs allow for an increased usage of telecom

services, while not having such an overbearing impact on telephone bills.

II. Fixed line services

The fixed (wire line) services are dominantly provided for BSNL and MTNL. Although this

had been a dominant mode of telecommunication in the past, it is fast being replaced with

mobile telephony, which has the advantage of connectivity on the move. The fundamental

business of a fixed line operator is almost similar to that of a CMSP, in terms of ARPU and

Subscriber base.

III. Internet/Broadband

The Internet services are provided either by telecom service providers or independent Internet

service providers (ISP) who deal exclusively in providing this service. There are two forms of

Internet that are currently popular - the dial-up connections and the broadband connections.

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Apart from the usual - economic growth and rising income levels - the growth of the Internet

business is dependent upon:

PC penetration: Internet penetration in India is currently at very low levels, as

compared to its developing peers. This is set to take off with the rise in PC

penetration, which will again be a consequence of affordability in terms of lower PC

costs and reduced cost of data transfer..

Parental encouragement: Unlike most products where children are targeted to drive

sales of consumer durables, in the case of computers, it is the parents who are going

all out to ensure that their child grows up to be a computer literate.

IV. Enterprise services

These services are used by large and medium corporate for data transfer between their offices

and their suppliers' offices, which may be spread in a city, or a country, or even across

continents. Considering that this business takes care of data transfer needs of corporate, who

are not as 'affordability' conscious as the individuals, companies generally earn higher

margins on Enterprise services than they earn on any of the other three business lines. IT and

BPO sectors, whose business is so data dependent, are the major users of Enterprise services.

COST ANALYSIS

The cost heads can be broken up into regulated and non-regulated costs. Entry fee, access

deficit charge and license fee are regulated. On the other hand, sales, general and

administrative (SG&A) and employee expenses are non-regulated in nature.

Entry fee: The companies providing national and international long distance (NLD

and ILD) services are required to pay a flat entry fee of Rs 25 m each (from earlier

fees of Rs 1,000 m and Rs 250 m respectively). These fees are to be paid to the central

government for obtaining a license for providing these services.

Access deficit charge: The government also collects from the cellular operators an

access deficit charge. The charge payable is 1.5% percent of non-rural annual gross

revenue of the telecom service providers and the amount collected is used to subsidise

the telecom service provided by BSNL in rural areas.

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License fees: Telecom companies are required to pay an annual license fee of 6% of

their AGR to the Government of India. Licenses offered to the telecom players are for

a limited period of time and these are required to be renewed on expiry.

SG&A expenses: Telecom companies incur expenditure in the form of advertisement

costs for enhancing their visibility and also to make their brand more appealing to the

consumers. Expenses are also incurred on customer acquisition and on maintenance of

telecom equipment and network.

Personnel expenditure: These are costs incurred for maintaining the staff for

executing the telecom companies' marketing strategies, for general administrative

purposes, for maintenance and repair of telecom infrastructure, and customer

relationship management in call centres.

Apart from these operating costs, telecom companies also incur cost for servicing debt and

tax payments. Telecom is an operating leverage play indicating that each new subscriber will

come at a higher profitability than the previously added subscriber and, as such, the benefits

of faster subscriber addition are directly seen on companies' improving operating profitability

as fixed costs are apportioned over a larger subscriber base.

PORTER’S FIVE FORCES

Threat of New Entrants

The number of major players in the Indian telecom is 12 companies. This has changed the

tactics followed by companies, it all started by TATA DoCoMo bringing about the concept of

per second billing. This made the companies to shift focus from Average revenue per

user(ARPU) to per minute cost. So a smaller company has shaken the foundation of the

sector.

Moreover in the recent days the inclusion of 3G has brought about as is often said the entry of

a 900 pound gorilla in the telecom industry as a major competitor. The newer players are

turning the tide. Uninor’s variable pricing too has left feathers ruffled. This shows the

increasing threat being offered by new entrants into the market.

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Power of Suppliers

At first glance, it might look like telecom equipment suppliers have considerable

bargaining power over telecom operators. Indeed, without high-tech broadband

switching equipment, fibre-optic cables, mobile handsets and billing software,

telecom operators would not be able to do the job of transmitting voice and data from

place to place. But there are actually a number of large equipment makers around.

There are enough vendors, arguably, to dilute bargaining power.

The largest monopoly is the allocation of the bandwidth by the government to the

telecom companies. The concept of bidding should have been transparent but time

and time again have proved to be anything but. This can lead to severe losses as the

allocation of bandwidth is the essence of telecommunication.

The limited pool of talented managers and engineers, especially those well versed in

the latest technologies, places companies in a weak position. This is because the cost

incurred by the company to train these new inductees is high and quite often the

technology changes just as they are inducted.

Reliance Infratel has around 50,000 towers. The largest tower firm Indus Towers has

around 1,00,000 towers and is a combination of Bharti Airtel, Vodafone Essar and

Idea Cellular operating in 16 service areas. This is how the tower firms dictate

conditions to the telecom operators.

Power of Buyers

All this chaos has created one of biggest power in the telecom industry the customer. The

end user will be the happiest as the price wars ensue. This will lead to a change in the

method of revenue generation as the concept of manufacturing minutes goes belly up in

the future.

Telecom in the present day holds low brand loyalty and brand switching is becoming

more and more a norm. This would be more rampant when the clearance of free transfer

of number while changing the service takes place. The end user should now be targeted

more like a retail customer than that of speciality goods.

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Availability of Substitutes

In the recent years with the advent of internet into the domain of mobile, the demarcation

between the two sectors has faded. As high speed internet is made available on the mobile

phones the role of phone calls and short messaging services will diminish, which are a

major source of revenue for the telecom companies in India. The use of software like

SKYPE and Gtalk will be the order of the day. This has created a new theatre for the

telecom companies to look into for revenue generation because if they are not prepared

the losses due to the inclusion of internet based communication devices would be a lot.

Competitive Rivalry

It is said that Indian telecom is a big pie being shared by many people and the rivalry had

been dormant in the past few years when everyone used to follow the antics of the market

leader, case in point Airtel.

But of late the impact made by newer companies has led to a major price war among all

the players. Recent statistics show that the minutes were being sold by the companies at

60p in 2008 but now, are being sold at 35p. This with the cost to the company at 25p (for

Airtel) has hit the bottom line drastically.

Rivalry in this sector has just begun to show up because the changes being brought

forward are too many and those who adapt will survive. Competitors of Airtel are

flanking it from the side by trying out newer ways to woo the customer. This makes an

impact because the main target for the rivals is the youth who ask for low cost.

But Airtel works very similar to a bank which likes to have more money coming in

through valued customers rather than low cost urban connections especially when the cost

in such demography is high for the company.

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KEY SUCCESS FACTORS

Airtel has its presence in all 23 circles of the Indian telecom industry. Some of its key success

factors are

Brand name

One Step Ahead

A market leader can stay as such only if it stays one step ahead of the rest. The multi

dimensional expansion of Airtel through different theatres has made it a step ahead of its

nearest rival. This can only be executed through a stable and visionary management.

Business Process Outsourcing

Airtel follows the strategy of outsourcing the non-core activities and focus on the core. Airtel

is known for being the first mobile phone company in the world to outsource everything

except marketing and sales. The firm outsources many of its most fundamental functions and

infrastructures, including its information technology (IT) operations to IBM, Nortel and

Wipro; its communications networks to Ericsson and Nokia Siemens; and its contact centre

operations to Nortel and Wipro and recently with Cisco and Servion to provide hosted contact

centre services.

Innovations in VAS

Airtel has separate value added services for consumers, small business and business

enterprises. Airtel’s online desktop for airtel broadband users provides free online space

for storing , editing and sharing data and also free antivirus package, free software and

updates on rental basis for small businesses and this is one of the VAS which is not provided

by other service providers.

M-Commerce

Airtel has an idea of introducing m-commerce as one of its value added service. According

to its CEO Sanjay Kapoor there is an 80 to 85 per cent of the population which is still

unbanked and looking to do financial transactions using mobile technologies. By providing

m- commerce Airtel plans to bring a revolution by making mobile phones work as ATM

machines.

Network

Airtel packs a punch when it comes to network coverage. The aim of Sunil Bharti Mittal was

to create a network which is clear even when in the basement. Airtel has done just that and

beyond.

Declining ARPU

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With more than 10 million subscriber additions a month, the Telecom Sector continues to

maintain its growth momentum. Due to the entry of new players in the market a high level of

competition prevails and this has lead to a decrease in the Average Revenue Per User. Thus

in order to sustain its competitive position Airtel has started focusing on increasing the

revenue from Minutes of Usage MoU.

S.W.O.T ANALYSIS

STRENGTHS

1. Largest wireless network among all the

players in the market. Followed by the

largest market share. Customer base of

133 million. High Customer Service and

Quality.

2. The best performing (quality) network

coverage in India.

3. Highly effective Value added services in

form of AppCentral which had a million

plus downloads last month (June 2010).

4. Penetration into the rural market through

collaboration with IMIMobile to launch

‘Cell Shakti’.

5. Partnered with VMware to look forward

into the domain of cloud computing,

which is purported as the future of

information?

6. Employed Ogilvy into African Marketing

operation.

7. Partners with leading Phone

manufacturers for distribution.

WEAKNESS

1. Reduced profit margin due to increasing

cost per minute and falling selling price.

2. Increased debt by acquiring companies in

newer markets.

3. Preparedness towards the changing role

of telecom i.e. shifting focus from calls

and SMS’.

4. Penetration into rural market.

5. Charging for customer care.

OPPORTUNITIES

1. The entry into the newer markets of Africa

as the domestic market goes though a state

of unrest.

THREATS

1. Too many players which can lead to

diluted focus and can give a chance to a

smaller rival to move ahead.

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2. Telecom is slowly looked upon as a

commodity so higher quality at a lesser

price is needed.

3. Large section of the population which is

not exposed to internet and need better

connectivity.

4. The scope of breaching into the sector of

internet and creating an amalgamation of

sorts between the two.

5. Mobile Banking Services.

6. Reaching out to the bottom of the pyramid

2. Internet based services taking over a part

of the telecommunications domain. Likes

of SKYPE and Gtalk.

3. Government regulations over the

bandwidth and other telecom regulations.

4. Presence of Reliance into the theatre of

telecommunication.

5. Customer preference of price over

performance.

6. Failure of expansion operations.

INDUSTRY LIFE CYCLE

Looking at the market condition and regulatory framework policies made by the government

the telecom industry appears to be in a growth stage this would be a long term look at the life

cycle of the industry.

Untapped rural market:

Telecom has penetrated only 44.87% of the Indian market out of which rural market

constitutes only 15%. DoT has called for Private telecom operators for providing wireless

broadband in rural areas and the selected private telecom operator would be provided

financial assistance through its Universal Service Obligation (USO) Fund.

Favourable Regulatory Environment:

The Government’s Telecom Policy initiatives have been growth-oriented and forward

looking. Various incentives such as increase in foreign investment limits up to 74%,

implementation of the

Unified Access Licensing Regime (UASL), availability of the Universal Service Obligation

(USO) fund for enabling expansion in rural areas and introduction of MNP have led to the

proliferation of mobile services in the country. TRAI has slashed the termination fee paid by

operators by 33%, which will help Telecom companies reduce their Local as well as National

Long Distance (NLD) tariffs by up to 20%.

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Decreasing Cost of Subscription:

The fall in subscription costs and rising incomes has increased the affordability of mobile

services. The cost of life-time prepaid cards has fallen from Rs.999 to Rs. 99. The availability

of low denomination pre-paid vouchers, bundled offerings and other product innovations

have made mobile services affordable in semi-urban and rural markets

Technology and increasing subscriber base:

The Indian telecom industry with its intense competition is able to add minimum 10 million

customers every year. The 3G subscriber base is expected to reach 90 million by 2013 with

revenues touching Rs.80,000 crs, and would account for 46% of the total wireless revenues.

Mobile Number Portability feature is to be provided very soon. Because of these factors the

industry appears to be in a growth stage.

Airtel:

Due to the entry of new players in the telecom industry there is an intense rivalry among

established firms and the bargaining power of buyers have also increased. But still there is 50

% (approximate) of untapped market present in India in the telecom industry.

Airtel with its four SBU’s Mobile services, telemedia services, enterprise services and digital

TV services is able to compete in the race against other major players.

Even though the company is in the growth stage there is a slight decline in its net income for

the last two years. The recent acquisitions, the yearly increase in customer base and through

its various renowned strategies it can be concluded that the company is in growth stage.

However, if we take a snapshot of the industry today and analyse the stage in the lifecycle it

is going through then it would be SHAKEOUT. This is so because the industry has too many

players which cannot sustain themselves in the market for long. This situation can change if

the cost per minute reduces which is not the case because the inclusion of 3G will lead to

expenses which will reflect on both of the prices.

Moreover the reach of the technology of 3G in the coming years is limited to small strata of

the country. This is the time when Airtel will have to start contemplation about the role they

are about to play in the years to come. As of now they are in luck because the storage space

of the mobile phones is limited to a few GBs.

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This however will change as the market is keen to explore the area of mobile-internet. This is

also a time when the telecom companies may drift into red as the costs are not coming down

but the sales price is falling as the value of voice and SMS’s are slowly taking a back seat to

pave way to Video.

This stage of trial and error to find an economical yet profitable existence maybe labelled as,

Shakeout of the industry as well as for the company which has to evaluate its operations.

Airtel might not creep into red because they have taken counter measures by spreading out to

either different business or newer markets which are running a generation(telecom

technology) behind.

COMPETITIVE PROFILE MATRIX

Bharti Airtel Reliance Comm. Vodafone Essar

CSF'sWeigh

t

Ratin

g

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Score

Ratin

g

Wt'd

Score

Ratin

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Wt'd

Score

Market share 0.2 4 0.8 3 0.6 3 0.6

Technology 0.05 3 0.15 3 0.15 3 0.15

Sales and Distribution 0.1 3 0.3 3 0.3 2 0.2

Brand Name 0.1 4 0.4 3 0.3 4 0.4

Financial Strength 0.1 4 0.4 3 0.3 2 0.2

Spectrum Allotments 0.05 3 0.15 3 0.15 3 0.15

Customer Service and

Quality0.15 3 0.45 2 0.3 3 0.45

Strategic Alliances 0.08 4 0.32 3 0.24 2 0.16

Growth 0.1 4 0.4 3 0.3 2 0.2

Customer Loyalty 0.07 3 0.21 3 0.21 2 0.14

TOTAL 1 3.58 2.85 2.65

EFE MATRIX

Bharti Airtel Reliance Vodafone Essar

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Comm.

Key External FactorsWeig

htRating

Wt'd Score

Rating

Wt'd Score

Rating

Wt'd Score

Opportunities Expansion into newer

markets 0.75 3 2.25 2 1.5 2 1.5Diversification 0.3 4 1.2 2 0.6 2 0.6Mobile Internet 0.05 3 0.15 4 0.2 2 0.1

Mobile Banking 0.1 2 0.2 2 0.2 2 0.2Rural Market Network 0.15 2 0.3 3 0.45 3 0.45

0.15 2 0.3 3 0.45 3 0.45Total 4.4 3.4 3.3Threats

Effect of too many players 0.05 3 0.15 3 0.25 3 0.15

Effect of Internet based services 0.2 2 0.4 3 0.6 3 0.6

Impact of low tariffs 0.3 1 0.3 4 1.2 4 1.2Government Regulations 0.25 3 0.75 1 0.25 2 0.5

Failures of M&A 0.15 3 0.45 2 0.3 2 0.3Total 2.05 2.6 2.75

The analysis of Airtel tries to understand what steps Airtel must take forward to

sustain the market share. The Indian telecom industry as of now has almost 12 companies

operating. Such a large number has pushed down the rates, this was initiated early by TATA

DoCoMo through its per second rates and has changed the revenue model of Indian mobile

operators ever since.

This led to the fall of the Average Revenue per User(ARPU) but the price of making those

minutes rose. This fall in ARPU, the advent of 3G and acquisitions by companies, have

increased cost of making minutes. Moreover with mobile phones falling under the category of

commodity goods it is not easier to pitch with just a lower price.

The changing tide of mobile phones in form of 3G will hit only a few in the initial years but

they will be that segment with a higher ARPU. They will be exposed to a domain of high

speed internet on mobile phones. This can have serious repercussions because the mode of

communication through internet is free/low fare and high clarity.

This is a major challenge to face early to decide whether or not the company must change its

approach from being something more than just selling the voice service. Because the dark

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side of internet is the ability to find a cheaper and better alternative to everything the mobile

phone has to offer.

It is high time Airtel puts a slight focus on how telecom can change in the years to come. As

of now the storage capacity of the mobile phones is relatively limited but once the capacity

increase so will the speed and if Eric Schmidt is to be believed the ‘Future of Technology’ is

mobile phones powered with high speed internet.

Once that happens the role played by telecom companies would lie beyond the realm of just

being a voice company but that which competes with software too. They will then have to

change their business model to go beyond manufacturing minutes.

Airtel must move ahead with the idea of moving to newer markets. Because making hasty

decisions in a shaky market does not make sense. Innovations such as ‘Senté’ i.e.

rudimentary banking through mobile phones can be implemented. As the urban market gets

saturated the move must be to provide basic communication needs to the bottom of the

pyramid. This can be implemented easily because of the presence of towers in almost all parts

of India; they should just make it affordable.

Almost 80% of the revenue generated by the telecom companies is through voice services.

This is important because it means that a large chunk of these can defect to a product such as

Skype. But sustain the same level of revenue generation through voice the company can enter

into a new market.

Since the presence of the company in the rural demography is already present they can

increase presence in the rural sector through market development. They can however change

the brand name to prevent the association like that of Reliance and ‘aam aadmi’ (common

man). These markets are not developed but do have the potential for growth. “Cell Shakti’s”

initiative is good but it must reach far and wide.

The expansion into Africa makes sense as the market is still developing and rich dividends

can be gained. However the impact of the cost involved will affect the company’s Indian

operation and can reduce their profit here. This would be in addition to the exorbitant price

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paid by the telecom companies for 3G circles. Airtel should not be hit badly since they have

already sprouted few revenue generation portals like AppCentral, though the margin will fall.

COMPETITIVE ADVANTAGE

Bharti Airtel’s competitive advantage can be seen right from the period of 1990’s. Bharti was

the first Indian company to manufacture cordless telephones.

Acquisitions and joint ventures

One of their main competitive advantages is their acquisitions and joint ventures. Starting

from the time they entered this telecom circle in Delhi till today Airtel is clear with the idea

of making strategic alliances. When Airtel initially rolled out its service in the name Bharti

televentures in Delhi it also went into an agreement with Siemens to market telephone

terminals under Siemens and Beetel brand names.

For a company into the telecom service business cannot maintain growth without expansion.

Whenever Airtel entered a new state in India it was only through the acquisition of an

existing player in that state. Airtel entered Andhra Pradesh and Karnatake by acquiring stake

in JT Mobiles. It entered Kolkata by acquiring Spice cell. Airtel entered Tamil Nadu by

acquiring Sky cell in Chennai circle. This is how Airtel is even trying now to make its global

presence by acquiring Zain in Africa.

Outsourcing

Retaining the core business and outsourcing the allied activities is an effective strategy

followed by Airtel. Due to its rapid growing customer base Airtel outsourced its customer

service operations to various BPO’s and signed agreements with major IT companies like

IBM and CISCO to manage the back end operations of its customer service activities.

Supplier Relationships and Integrations

Change is something which any business has to undergo to maintain its competitive

advantage. Providing voice transfer in telecom business has become an outdated model now.

Data transfer is the idea in which all telecom players are concentrating now.

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After the public sector telecom operator, Airtel leads all other players in providing this data

transfer right from the time it started with its GPRS service for mobile phones and now the

largest private player to provide the new 3G service. Airtel also has expanded its business by

entering the broadband service as a part of its forward integration.

It has also acquired stake with Indus and also has its own Bharti Infratel which provides

tower solutions which is a part of backward integration. Also the relationships that Airtel

maintains with its suppliers are all long term relationships. Going back to the initial

agreement with IBM which is a 10 year contract, the contract with Siemens which it still has

right from the time of Airtel’s incorporation.

IFE MATRIX BHARTI AIRTEL

Bharti Airtel

Key Internal FactorsWeigh

tRatin

gWt'd Score

Strengths Network Infrastructure 0.25 4 1

Management 0.3 4 1.2Diversified Portfolio 0.05 3 0.15

Organisational Strucuture 0.1 3 0.3Value Added Services 0.15 2 0.3

Innovation and Adaptation 0.15 3 0.45Total 3.4Weakness

Lack of own core technology team 0.05 2 0.1

Increase in Debt 0.2 3 0.6Decreasing Profit Margin 0.3 4 1.2

Few employees 0.25 2 0.5Lack of experience in Africa 0.15 3 0.45

Total 2.85

SWOT MATRIX

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Key internal Factor Key external factor Resultant Strategy

Capability of taping international markets, and extend the networks.

The entry into the newer markets of Africa as the domestic market goes though a state of unrest.

Employed Ogilvy into African Marketing operation

They are not present in the rural markets in India. They are far away from the Indian rural part and generally this part is covered by BSNL

There is a large market for the telecom sector in the Indian rural market.

Spreading to the rural markets with competitive rates.

Airtel has got various services like that of being a internet service provider

competition from other cellular companies like that of reliance and BSNL

Dropping the call rates to stay on par with the market.Provision of higher transfer rates compared to the other ISPs and lower rates.

Lack of infrastructure to support the modern technology

Internet based services taking over a part of the telecommunications domain. Likes of SKYPE and Gtalk.

Increased expenditure on developmental activities and infrastructure like that of 3G.

BCG MATRIX

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STRATEGIES ROLLED OUT

The major strategies of Bharti Airtel in the past 5 years are as under:

1. Outsourcing all major operations except Marketing, Sales and Finance:

It is known for being the first mobile phone company in the world to outsource

everything except marketing and sales and finance. Its network (base stations,

microwave links, etc.) is maintained by Ericsson and Nokia Siemens Network,

business support by IBM.

Oracle provides Bharti Airtel with real-time financial and human resources

information as well as information for the organization to churn out higher operational

efficiency, along with better visibility and enhanced management over its financial

and HR operations.

All this portray an important strategic move by Airtel which follows the line of the

Rockefeller Principle of ‘give away the lamp and sell the oil’, wherein the company

maintains focus only on the component of service while the tangible component is

outsourced.

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ISP

3G

CELLULAR SERVICE

BASIC TELEPHONE

(Fixed Line)

STARS QUESTION MARKS

COWSDDDDDDOGS

HIGH

LOW

LOW

GROWTH %

Relative Market Share


This is crucial because product and price of the company can be matched by any

competitor in time. But, the service provided by any company creates a layer which

provides the edge and can be constantly improved upon.

2. Bharti Airtel has a joint Venture with Alcatel-Lucent to manage the network

infrastructure for the Telemedia Business.

3. Bharti Airtel and Google announced a strategic partnership, as part of the agreement,

Airtel will bring Google search to the Airtel Live mobile WAP portal. Google will

also incorporate advertising through its Mobile Ads product on the Airtel Live mobile

portal.

This was a good move however, since the advent of faster internet connectivity this

facility has taken a beating as mobile users can now access the whole page on the web

rather than a slimmed down version of the same webpage.

4. M-Commerce

Mobile phone now turns into a virtual wallet – a new innovation in mobile commerce.

Airtel, ICICI Bank & VISA had joined hands to launch mChq – a revolutionary new

service – a credit card on the mobile phone.

This is the first mobile-to-mobile payment option, which enables Airtel customers and

ICICI Bank Visa cardholders to pay for their purchases with their Airtel mobile

phones.

Airtel realised that the role of mobile telephony must surpass the conventional school

of thought, especially in India. Ever since internet banking has kick started in India, it

was just a matter of time before mobile banking started to play the role of a constant

revenue stream.

The only drawback to this initiative is the lack of infrastructure in India when it

comes to cashless purchasing.

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5. Targeting 55 million farmers under its fold, Indian Farmers Fertiliser Cooperative

(IFFCO) have agreed upon a joint venture with telecom major Bharti Airtel to provide

a boost to Indian agriculture and rural economy at large.

The joint venture company, IFFCO Kisan Sanchar Ltd (IKSL), has harnessed the

power of telecom to add value to the farm sector and empower the rural farmer by

giving him access to vital information, which will enhance his livelihood and quality

of life.

This is an innovative way to target the bottom of the pyramid because competitors in

form of Reliance and BSNL function solely as a telecom provider. This move

implements the qualities of both ITC e-choupal and rural telecommunication.

6. Hiring the best or attracting the best (poaching or otherwise)

Airtel has a history of hiring some of the high level officials from other companies to

be an integral part of their business. This is not just the strategy used by Airtel but also

other telecom majors.

Some of the recently hired officials are Shireesh Joshi (previously in PepsiCo) as

Director Marketing head. Bharti Airtel has also recently roped in Joachim Horn, chief

technology officer (CTO), T-Mobile, to help expand its global footprint and interface

with strategic partners.

Andre Beyers (Vodacomm) as the company’s Chief Marketing Officer (CMO) for its

operation in Africa. Earlier, the company also appointed B Srikanth from Unilever

UK as its chief financial officer.

Sriram Jagannathan, Citibank’s e-commerce and m-commerce head in Japan has been

given the role of CEO of its mobile commerce venture in a bid to improve its revenue

stream.

7. Expansion into Africa

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Airtel made rapid strides to expand its presence in Africa first through showing intent

of acquiring MTN, which was called by The Economist as ‘marrying up’ but as the

deal went awry they moved forward by acquiring Zain Telecoms business in 15

countries in Africa.

This is an important move as Africa has a higher consumer spending, $ 1.4 trillion,

average revenue per user of $8 which is much higher than India and only 3 to 5

players in each market making it one key market where Airtel can expand. With the

infrastructure of Zain in place the market share of Airtel is already high in the

continent.

The challenges that they would face would be the element of political turmoil in

almost all these nations. Also the presence of MTN in the same market, because MTN

has learned to function locally, adapting to the ‘street-up’ innovations like ‘Sente’,

which rolls in the concept of rudimentary banking where there is none.

8. Digital TV, the DTH service from Airtel

The implementation of the initially failed concept of Set Top Box led Airtel to enter

this lucrative market to television. Cable connection in India was run by local cable

operators who acted largely in form of cartels. With the crackdown from the

regulatory bodies in India this sector once again became a gold mine.

9. Strategic relationship with VMware

Bharti Airtel has extended of its managed services portfolio by entering into a

strategic relationship with VMware. Bharti Airtel's Managed Virtual Compute

services aims at reduced total cost of ownership (TCO) for customers looking to

transition to next-generation data centre architectures.

This collaboration aims to target the enormous market potential for cloud-based

managed compute services in India by offering external IT infrastructure for

customers, allowing them to increase or reduce compute capacity based on business

demands. Bharti Airtel will offer these cloud services based on the VMware vSphere

platform.

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Bharti Airtel's services will ride on its existing network infrastructure across the

country and be available to enterprise customers on a ‘pay per use' model. Services

would include Web Services, File, Mail, Database, Transaction, Disaster Recovery,

Co-location and other Managed Services.

Bharti Airtel recognises the need of its customers in the virtualisation space and is

happy to be collaborating with VMware in offering cloud based services for our

customers. This being a first-of-its kind initiative in India, brings together strengths of

Bharti Airtel's managed services capabilities and virtualisation technologies from

VMware.

10. Joint venture deal with Wal-Mart, the US retail giant, to start a number of retail stores

across India. This is crucial for Airtel as this would mark its entry into the a new

theatre of retailing. The most important facet of retailing is logistics which is a major

challenge in India for Airtel.

11. Bharti's Agri-Venture with Rothschild family

Bharti ventured into the fresh food business with an agreement with the Rothschild

family to enter the food and beverage (F&B) division with FieldFresh Foods.

However due to the poaching of a 70 member from FieldFresh Foods by Reliance the

Rothschild family sold out its stake to Del Monte Pacific.

The food products of DelMonte in India is being marketed and distributed by a joint

venture under the name of FieldFresh Foods. They face the unique challenge of being

the new entrant in the market. They might have to prove beyond the high quality of

Del Monte Foods due to the presence of many low cost leaders.

Recent developments have shown the presence of Del Monte goods at eye level

locations at retail outlets competing with the likes of Pepsi in the Beverage division

and Unilever, Nestle and ITC in the food division, all who have a strong distribution

network in place.

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This is a great opportunity for the company but they might have to implement suitable

measures to combat the well trenched competitors.

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BUSINESS MODEL OF AIRTEL

Airtel is probably one of the best run companies in the world (most definitely in

India). It is the largest telecom player in the country and has the advantage of both

massive size and a very high-growth industry. It’s worth about $25 billion and

growing fast.

The secret of its success has been its business model. Airtel focuses only and solely

on two things:

Customer acquisition

Servicing (Retention) and business development/expansion

All other functions i.e. hardware, network management, backend applications (billing

etc), value added services and even telecom infrastructure – are outsourced. Airtel

pioneered this in the Telecom game.

In February 2004, Sunil Mittal, the CEO of Airtel took a bold step in outsourcing its

cellular network operations and network management to companies like Nokia

Siemens and Ericsson, IT and backend applications to IBM, billing to someone else

etc.

Innovative Business Model:

Bharti Airtel Limited and IBM India Pvt. Ltd have established an Innovative Business

Model that is now setting new standards across industries around the world. In March,

2004, in what became a globally historic, first of its kind deal, Bharti outsourced all of

its IT to IBM.

Innovation Highlights:

The agreement was the largest ever IT deals in India and at the time of signing, was

estimated to be of an order of US$ 750 million in value.

MIS Asia has awarded this Innovative Business Model three pan-Asia awards in the

last two years including the MIS Asia IT Excellence Award for Best Change

Management in 2005, the MIS Asia IT Excellence Award for Best Bottom Line IT in

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2006 and the MIS Asia IT Excellence Award for Best Knowledge Management in

2006

IBM assumed responsibility for all of Bharti’s IT systems, Applications,

infrastructure, operations and people with the agreement coming into force. The

agreement entailed Bharti paying IBM a percentage of its revenues, which directly

linked IT cost to business performance. The agreement construct was innovative not

only from the Perspective of the remuneration model for IBM, but also in terms of the

Scope of the delivery, which was comprehensive and included practically all of IT—

current and future. It made innovation all pervasive as IBM introduced changes in the

area of processes, people and systems to usher in business transformation improve

operational excellence and efficiency and optimize performance.

Having seen Airtel succeed with this, a number of the other operators are now trying

to follow in some way or the other.

E.g. Hutch followed a similar model by outsourcing their network operations to

Nokia.

It was also the first to divest its hard assets, i.e. – its telecom towers – to a separate

company and lease them back themselves as well as monetize surplus bandwidth by

selling to other operators. This was the ultimate act in putting the faith in the brand

rather than in iron and steel.

Because of focus on customer experience and on business development, Airtel has

been not only the fastest growing but the most innovative of operators. It has realized

the importance of having access to the consumer at all levels, and therefore is going

from core mobile to landline internet, Digital TV (DTH) and even digital cinema

(theatres)

It is also one of the few companies that have realized the importance of value added

services (VAS) early on in the game.

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Projection of Future Financial Position:-

Customer base: The customer base as on 31st March 2010 stood at 137.6 million for the company across India, Sri Lanka and Bangladesh. By the year ending March 2013, the customer base is projected to increase to 450 million.

Revenues: Bharti Airtel posted revenues of Rs 41829.5 crores for the year ended 31st March 2010. The revenues have been increasing but at a decreasing rate. Keeping that in mind, the company should be able to post a net revenue of Rs 58748 crores.

Net profits: For the year ended 31st March 2010, net profits were Rs 9426.2 crores which was a 22% Y-o-Y increase. The projected profits for March 2013 should stand at Rs 16449 crores taking into account an increase of about 25% of profits over sales.

Growth rate: Bharti Airtel grew at 7% for the financial year 2009-2010. It has been projected to maintain an average growth rate of 10-15% in the next 3 years.

Market share: Currently Bharti Airtel operates full-fledged in India, Sri Lanka and Bangladesh. It has recently begun operations in Africa. In India, despite the high competition there is more to look forward, as the penetration levels are way below the global average at 38%. The penetration levels in Africa is also low and with only 4 other pre-dominant competitors in the continent, the company will be able to grow its market share steadily.

Employees: The number of employees should be at around 41000 by March 2013.

(Rs in Crores)

Particulars 2010-2011 2011-2012 2012-2013Revenues Rs 46013 Rs 51534 Rs 58748Profits Rs 11043 Rs 13398 Rs 16449Employees 39000 39600 41200Growth 10% 12% 14%Market Share India- 22%

Africa-30%India-26%Africa-32%

India-28%Africa-37%

Customer Base 220 million 330 million 450 million

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Strategies which should be in the pipeline:

1. Lookout for acquisitions post shakeout

Telecom industry in India has too many players operating. Which is good for the

customer but the price wars will hit smaller players the most. Airtel must be on the

lookout for companies which might fail in due course during this shakeout phase.

They must also make contingencies so as not to fall prey of failing competitors last

gasp strategies.

2. Africa and the El Dorado illusion:

Africa for Airtel looks like a very good market. However it must be careful of the

fickle governmental construct in Africa and constant danger of civil war. Africa over

the years has become attuned to the concept of aid, only few nations like Ethiopia

have tried to focus on their economy. In areas like Democratic Republic of Congo and

Chad where tele-density is low infrastructure should be constructed at one’s own risk.

Zain has cut down 70% of its staff, this could be because of the acquisition by Airtel.

As of now the extensive market share of Airtel in Africa is due to Zain’s initial

presence. They must integrate the whole operation under Bharti as soon as possible.

3. Contingencies to combat recession

The European JV partners of Airtel could be hit once again if Greece fails, they must

already have steps in place to move out of that JV in case of drastic fall in profits or to

create demand to supplement them in case of a crisis.

4. Threat of Internet

Mobile might be the future of devices but the future of connectivity is the internet.

The role of free services like, Skype have created a new threat for the telecom

industry because if the internet gets faster and faster, connectivity through mobile

devices would go beyond WAP and communication would be done through internet.

As of now Airtel has two revenue streams in place in form of mobile internet and PC

internet. But as people move out of laptops into handheld devices like the I-Pad, the

future of communication would no longer be through voice but video for that the

internet is leaps and bounds ahead. Since internet is based on a open source model the

company would only be able to make revenue through its service. This would be

detrimental to its overall operation as under developed nations would continue to

flourish in the obsolete technology.

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SMS services are already hit with the operation of sites which allow free SMS

services. This is harmful for the company because SMS by telecom industries is being

sent as part of the bandwidth which cannot be used and also they are not being

charged for it.

If this moves on to voice or video messages the company will be hit badly. They must

be careful not to combat Skype by going free as a service but fall back to its

Rockefeller Principle.

5. Their strategic alliance with VmWare is crucial and must be played out well because

the storage space within any hand held device is limited. However if cloud computing

is implemented they have to provide faster communication and prevent the disaster of

netbooks.

6. With election coming up in a few years they must make provisions for changes in the

telecom regulations if there is a change at the Centre.

7. The business model implemented in Africa would have to be different from that of

India. They must also be open to ‘street-up’ innovations which largely targets the

bottom of the pyramid. Earning trust is the key in this situation and adopting low cost

innovations and larger local workforce would pay dividends to the company.

8. The segment of Airtel which focuses on broadcasting services must look into the facet

of integrating internet into the television experience. With current laptop users

watching movies online enjoying the experience of television on laptops, they can

implement a way to allow television users to enjoy experience of internet on their

television sets.

9. Their role in cashless banking should be more. With handheld devices already

heading the next wave, it is important for Airtel to be there with its services. They

must collaborate with banks to ease cashless banking. This can be done because in

India the concept of PayPal and other online shopping facilities have failed, so they

do have an angle in this segment. In this segment lies the opportunity for Airtel as

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they will play the role of a secure network provider and the banks will be part of the

finance related construct.

10. Security Threat: With phone numbers becoming more and more an identity of an

individual, case in point in few villages of Ethiopia the house have mobile numbers

for identification. This could mean that in the future the virtual existence of an

individual would be a ten digit number or more and any contact within the six degrees

of separation, for an individual would have to be unique. This is a challenge for

Airtel, as this also means immense work towards network security. Most of the

mobile phones do not possess a firewall or an anti-virus and with the fading lines

between internet and mobile communication, Airtel has to work in improving this

component of its business.

PROPOSED BUSINESS MODEL FOR AIRTEL:

Airtel has already 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.

Bharti Airtel should partner with existing players in Africa to share infrastructure to

reduce operational costs for Zain. They should go for country level discussions for

collaboration on fibre optic sharing and tower sharing. Extension into smaller towns

will be at lower capital expenditure through sharing.

Airtel was among the first operators to start infrastructure sharing in India which has

helped it to sustain a low cost tariff business model. Hence, they should follow a

somewhat similar strategy for Africa.

The idea is to engage with Tier two operators and form a new company and share

Radio Access Network (RAN) and related cost burdens. This move will help at

achieving some leverage against MTN the maket leader in some of these geographies.

Airtel has proven that it will do whatever it takes to make Africa a success and will

not necessarily just replicate its Indian models but use innovation and leverage

wherever possible.

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REFERENCES

1. http://www.ibef.org/industry/telecommunications.aspx

2. http://business.mapsofindia.com/india-industry/telecom.html

3. http://www.thehindubusinessline.com/2010/05/13/stories/2010051352981000.htm

4. http://www.equitymaster.com/research-it/sector-info/telecom/

5. Netcore CEO Rajesh Jain: 'In India, the Future of the Internet Will Be Built around

the Mobile Phone' Published : October 18, 2006 in India Knowledge@Wharton

6. Jan Chipchase – “ Design for future” – T.E.D 2007

7. C.K. Prahalad: 'The Poor Deserve World-Class Products and Services'

Published : January 24, 2008 in India Knowledge@Wharton

8. Michael Porter – “Competitive Strategy”

9. “The End – Telecom industry” – Forbes India June 2010

10. http://www.dnaindia.com/money/report_mukesh-cleans-out-bharti-s-fieldfresh-hires-

almost-70-people_1041543

11. What shape will the wireless Web take? - Jacques Bughin McKinsey Quarterly

12. http://en.wikipedia.org/wiki/Six_degrees_of_separation

13. http://en.wikipedia.org/wiki/Bharti_Airtel#cite_note-3

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