CASE STUDY BHARTI AIRTEL LIMITED AND THE INDIAN TELECOM SECTOR
TRIPTI YADAV
Regn No.: 200721594
SYMBIOSIS CENTRE FOR DISTANCE LEARNING, PUNE, 2010
1
INTRODUCTION
In the 2000’s, telecommunications (telecom) company Bharti Airtel Limited (BAL) was the market leader in the Indian telecom market. It has 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 services and an innovative cost effective business model. Analysts also credited Bharti Airtel Limited with negotiating the regulatory in the 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. 2
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.
Brands entering India must understand that ubiquity in diversity is an inherent dynamic of the market. Marketers must always be ready to unlearn and re-imagine their mobile strategies to succeed in India!" - Manish Sinha, Planning Director, Digital & New Media, Bates Asia, in 2008.
"Sunil [Sunil Bharti Mittal, Chairman and Managing Director, Bharti Airtel Limited has built an incredibly successful business from scratch, one which has had a truly transformational 3
impact on our industry, on the customers he serves and on India's economy. His brave and ambitious strategies will continue to resonate across the country, our industry, and the business community globally, becoming a benchmark for emerging markets worldwide." Craig Ehrlich, Chairman, GSM Associations.
EMERGING MARKET CHAMPION
On February 13, 2008, Bharti Airtel Limited, the leading telecommunications (telecom) company in India, crossed the 60 million mark customer mark. BAL has 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. By 2009 it has become the 5th largest telecom company in the world. The wireless segment constituted 96% of BAL’s total customer base
According to the Cellular Operators Association of India (COAI), 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 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 the BAL, said, “ The last journey for first 50 million(customers) was completed within 12 years of starting operations in November 1995.
BAL was the only small initial entrant in the Indian Telecom market which managed to survive consolidation in the sector. Despite tough completion from other private companies Vodafone Essar Ltd (Vodafone), Reliance Communication Ltd (Reliance), Tata Teleservices Ltd (Tata) and the state owned Bharat Sanchar Nigam Ltd (BSNL), it emerged as a undisputed leader in the Indian mobile Telecom market.
MOBILE TELEPHONY IN INDIA
4
The mobile telephony resolution 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 in Delhi, Mumbai, Chennai and Kolkata.
BHARTI AIRTEL LIMITED
The foundation of the Bharti Enterprises (Bharti) was laid when its Chairman and Managing director (CMD) Sunil Bharti Mittal started a bicycle part business in 1976 in his home state Punjab.
THE CZAR OF INDIAN TELECOM
BAL has focused on differentiating itself in the Indian Telecom Market by ensuring customer delight and a cost effective business model of being profitable despite having lowest tariff in the world.
RESULTS
BAL’s various initiatives helped it attained a dominant position in the market. 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 has adopted did not do too well in the Indian Telecom market.
COUNTERING THE THREATS 5
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 40000 base stations for the fiscal year 2007 and thereby cover 70% of the country. Nearly 50% - 60% of the future expansion was to be in the rural areas.
SWOT ANALYSIS OF BHARTI AIRTEL
STRENGTHS
•
Bharti Airtel has more than 65 million customers (July 2008).
•
It is the largest cellular provider in India, and also supplies broadband and telephone services as well as many other telecommunications services to both domestic and corporate customers.
•
Other stakeholders in Bharti Airtel include Sony-Ericsson, Nokia and Sing Tel, with whom they hold a strategic alliance. This means that the business has access to knowledge and technology from other parts of the telecommunications world.
•
The company has covered the entire Indian nation with its network. This has underpinned its large and rising customer base.
6
WEAKNESSES
•
An often cited original weakness is that when the business was started by Sunil Bharti Mittal over 15 years ago, the business has little knowledge and experience of how a cellular telephone system actually worked. So the start-up business had to outsource to industry experts in the field.
•
Until recently Airtel did not own its own towers, which was a particular strength of some of its competitors such as Hutchison Essar. Towers are important if your company wishes to provide wide coverage nationally.
•
The fact that the Airtel has not pulled off a deal with South Africa MTN could signal the lack of any real emerging market investment opportunity for the business once the Indian market has become mature.
OPPORTUNITIES
•
The company possesses a customized version of the Google search engine which will enhance broadband services to customers. The tie-up with Google can only enhance the Airtel brand, and also provides advertising opportunities in Indian for Google.
•
Global telecommunications and new technology brands see Airtel as a key strategic player in the Indian market. The new iPhone will be launched in India via an Airtel distributorship. Another strategic partnership is held with BlackBerry Wireless Solutions.
•
Despite being forced to outsource much of its technical operations in the early days, this allowed Airtel to work from its own blank sheet of paper, and to question industry approaches and practices or example replacing the Revenue- Per-Customer model with 7
a Revenue-Per-Minute model which is better suited to India, as the company moved into small and remote villages and towns.
•
The company is investing in its operation in 120,000 to 160,000 small villages every year. It sees that less well-off consumers may only be able to afford a few tens of Rupees per call, and also so that the business benefits are scalable using its Matchbox strategy.
•
Bharti Airtel is embarking on another joint venture with Vodafone Essar and Idea Cellular to create a new independent tower company called Indus Towers. This new business will control more than 60% of India network towers. IPTV is another potential new service that could underpin the company long-term strategy.
THREATS
•
Airtel and Vodafone seem to be having an on/off relationship. Vodafone which owned a 5.6% stake in the Airtel business sold it back to Airtel, and instead invested in its rival Hutchison Essar.
•
Knowledge and technology previously available to Airtel now moves into the hands of one of its competitors.
•
The quickly changing pace of the global telecommunications industry could tempt Airtel to go along the acquisition trail which may make it vulnerable if the world goes into recession. Perhaps this was an impact upon the decision not to proceed with talks about the potential purchase of South Africa MTN in May 2008. This opened the door for talks between Reliance Communication Anil Ambani and MTN, allowing a competing Indian industrialist to invest in the new emerging African telecommunications market.
•
Bharti Airtel could also be the target for the takeover vision of other global telecommunications players that wish to move into the Indian market. 8
9
doc_434692628.doc
TRIPTI YADAV
Regn No.: 200721594
SYMBIOSIS CENTRE FOR DISTANCE LEARNING, PUNE, 2010
1
INTRODUCTION
In the 2000’s, telecommunications (telecom) company Bharti Airtel Limited (BAL) was the market leader in the Indian telecom market. It has 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 services and an innovative cost effective business model. Analysts also credited Bharti Airtel Limited with negotiating the regulatory in the 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. 2
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.
Brands entering India must understand that ubiquity in diversity is an inherent dynamic of the market. Marketers must always be ready to unlearn and re-imagine their mobile strategies to succeed in India!" - Manish Sinha, Planning Director, Digital & New Media, Bates Asia, in 2008.
"Sunil [Sunil Bharti Mittal, Chairman and Managing Director, Bharti Airtel Limited has built an incredibly successful business from scratch, one which has had a truly transformational 3
impact on our industry, on the customers he serves and on India's economy. His brave and ambitious strategies will continue to resonate across the country, our industry, and the business community globally, becoming a benchmark for emerging markets worldwide." Craig Ehrlich, Chairman, GSM Associations.
EMERGING MARKET CHAMPION
On February 13, 2008, Bharti Airtel Limited, the leading telecommunications (telecom) company in India, crossed the 60 million mark customer mark. BAL has 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. By 2009 it has become the 5th largest telecom company in the world. The wireless segment constituted 96% of BAL’s total customer base
According to the Cellular Operators Association of India (COAI), 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 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 the BAL, said, “ The last journey for first 50 million(customers) was completed within 12 years of starting operations in November 1995.
BAL was the only small initial entrant in the Indian Telecom market which managed to survive consolidation in the sector. Despite tough completion from other private companies Vodafone Essar Ltd (Vodafone), Reliance Communication Ltd (Reliance), Tata Teleservices Ltd (Tata) and the state owned Bharat Sanchar Nigam Ltd (BSNL), it emerged as a undisputed leader in the Indian mobile Telecom market.
MOBILE TELEPHONY IN INDIA
4
The mobile telephony resolution 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 in Delhi, Mumbai, Chennai and Kolkata.
BHARTI AIRTEL LIMITED
The foundation of the Bharti Enterprises (Bharti) was laid when its Chairman and Managing director (CMD) Sunil Bharti Mittal started a bicycle part business in 1976 in his home state Punjab.
THE CZAR OF INDIAN TELECOM
BAL has focused on differentiating itself in the Indian Telecom Market by ensuring customer delight and a cost effective business model of being profitable despite having lowest tariff in the world.
RESULTS
BAL’s various initiatives helped it attained a dominant position in the market. 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 has adopted did not do too well in the Indian Telecom market.
COUNTERING THE THREATS 5
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 40000 base stations for the fiscal year 2007 and thereby cover 70% of the country. Nearly 50% - 60% of the future expansion was to be in the rural areas.
SWOT ANALYSIS OF BHARTI AIRTEL
STRENGTHS
•
Bharti Airtel has more than 65 million customers (July 2008).
•
It is the largest cellular provider in India, and also supplies broadband and telephone services as well as many other telecommunications services to both domestic and corporate customers.
•
Other stakeholders in Bharti Airtel include Sony-Ericsson, Nokia and Sing Tel, with whom they hold a strategic alliance. This means that the business has access to knowledge and technology from other parts of the telecommunications world.
•
The company has covered the entire Indian nation with its network. This has underpinned its large and rising customer base.
6
WEAKNESSES
•
An often cited original weakness is that when the business was started by Sunil Bharti Mittal over 15 years ago, the business has little knowledge and experience of how a cellular telephone system actually worked. So the start-up business had to outsource to industry experts in the field.
•
Until recently Airtel did not own its own towers, which was a particular strength of some of its competitors such as Hutchison Essar. Towers are important if your company wishes to provide wide coverage nationally.
•
The fact that the Airtel has not pulled off a deal with South Africa MTN could signal the lack of any real emerging market investment opportunity for the business once the Indian market has become mature.
OPPORTUNITIES
•
The company possesses a customized version of the Google search engine which will enhance broadband services to customers. The tie-up with Google can only enhance the Airtel brand, and also provides advertising opportunities in Indian for Google.
•
Global telecommunications and new technology brands see Airtel as a key strategic player in the Indian market. The new iPhone will be launched in India via an Airtel distributorship. Another strategic partnership is held with BlackBerry Wireless Solutions.
•
Despite being forced to outsource much of its technical operations in the early days, this allowed Airtel to work from its own blank sheet of paper, and to question industry approaches and practices or example replacing the Revenue- Per-Customer model with 7
a Revenue-Per-Minute model which is better suited to India, as the company moved into small and remote villages and towns.
•
The company is investing in its operation in 120,000 to 160,000 small villages every year. It sees that less well-off consumers may only be able to afford a few tens of Rupees per call, and also so that the business benefits are scalable using its Matchbox strategy.
•
Bharti Airtel is embarking on another joint venture with Vodafone Essar and Idea Cellular to create a new independent tower company called Indus Towers. This new business will control more than 60% of India network towers. IPTV is another potential new service that could underpin the company long-term strategy.
THREATS
•
Airtel and Vodafone seem to be having an on/off relationship. Vodafone which owned a 5.6% stake in the Airtel business sold it back to Airtel, and instead invested in its rival Hutchison Essar.
•
Knowledge and technology previously available to Airtel now moves into the hands of one of its competitors.
•
The quickly changing pace of the global telecommunications industry could tempt Airtel to go along the acquisition trail which may make it vulnerable if the world goes into recession. Perhaps this was an impact upon the decision not to proceed with talks about the potential purchase of South Africa MTN in May 2008. This opened the door for talks between Reliance Communication Anil Ambani and MTN, allowing a competing Indian industrialist to invest in the new emerging African telecommunications market.
•
Bharti Airtel could also be the target for the takeover vision of other global telecommunications players that wish to move into the Indian market. 8
9
doc_434692628.doc