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Bharti Airtel Cases Study IIMK

Bharti Airtel Cases Study IIMK

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Bharti Airtel 2008*
Bharti Airtel Limited was one of the world's fastest growing telecom companies that carved for itself a leadership position in the global telecommunications sector. In October 2007, it achieved thedistinction of becoming the fastest private telecom company in the world to reach the landmark of 50million customers in a single country, within a short period of 143 months of start of operations
1
.It was India’s leading private sector provider of telecommunications services, covering a widespectrum comprising mobile, fixed line, broadband and enterprise services. As of December 2007 itwas India's largest integrated private telecom service provider with 55.16 million mobile subscribersconstituting a market share of 24.09% of the entire mobile telephone industry (refer Exhibit 1a for thesubscriber base of all players in the industry)
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. It was present across 4,855 towns covering 62% of theIndian population
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. Bharti Airtel was the first telecom company to have an All-India footprint bycovering all the 23 telecom circles of India
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. It was one of the five largest companies in India in termsof the market capitalization
5
, and the flagship organization of Bharti Enterprises, one of India’sleading business groups with diverse interests such as telecom, agro products, insurance and retail. Its brand 'Beetel' wass the country’s largest manufacturer and exporter of world class telecom terminals.It was ranked amongst the best performing companies in the world in the Business Week IT 100 list2007.Bharti Airtel was a pioneering force in the telecom sector with many path-breaking initiatives to itscredit. It was instrumental in bringing the mobile communication to the masses by launching severalservices at much lower price levels. It revolutionized the telecom industry by following ARPM model(i.e. Average Revenue Per Minute) rather than the ARPU model (i.e. Average Revenue Per Minute)which was the standard across the globe
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. It adopted a unique business model through its strategic partnerships with Ericsson, IBM, Nokia, and Siemens in IT and network realms which had set a trendin the global cellular industry.
Indian Telecom industry
Indian economy witnessed robust growth levels fueled by favorable demographics and rising incomelevels from nineties onwards. This era of rapid economic growth was accompanied by exponentialgrowth in the telecom sector. This growth began with the liberalization of the Indian Telecom Sector in 1994 (refer to the Exhibit 2 for a summary of the reforms) and the mobile subscriber base in Indiahas since then been increasing manifold. Telephone services in India were provided by thegovernment through its Department of Telecommunications till 1985. In line with the reforms in thegovernment, Mahanagar Telecom Nigam Ltd (MTNL) in 1986 and Bharat Sanchar Nigam Ltd(BSNL) in 2000 were created as public sector organizations out of DoT to offer services in Mumbaiand Delhi and rest of India respectively. A detailed overview of the Indian Telecom industry can beobtained from Exhibits 1a to 1d and Exhibit 2.The Indian mobile telecom market was continuing to attract a lot of attention in the global telecomsector owing to the fact that it was one of the world's fastest-growing telecommunications markets(Exhibit 1b). Despite the significant growth in subscriber base, the mobile penetration level in India
*
Written by S. Jeyavelu and A. Radha, IIM Kozhikode based on secondary data.
 
1
Airtel breaks into world's Top 10 with 50 mn users, Economic times, 2 Oct, 2007
2
http://www.india-cellular.com/Market-Share.html accessed on 6 Feb, 2008
3
 http://www.coai.in/archives_statistics_2007_q2.htmaccessed on 4 Feb, 2008
4
 
Congratulate Sunil Bharti Mittal, Economic Times, 27 Oct, 2007
 
5
Bharti Airtel Limited Annual report 2006-07
6
Lifetime offers may dent ARPUs for operators. http://www.moneycontrol.com/mccode/news/article/news_article.php?autono=195771
 
accessed on 6 Feb, 2008
 
Indian Institute of Management Kozhikode
IIMK/CS/20/OB&HR/2008/01
 
 
 
was still around 20.5% as compared to the world average of 50%, which was amongst the lowest inthe world and was a clear indicator of the huge potential for further growth
7
.The two technologies used for mobile services in India are Global System for Mobiles (GSM) andCode Division Multiple Access (CDMA)
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. GSM and CDMA technologies were not currentlycompatible or interchangeable with each other and required separate types of wireless phones andnetwork infrastructure. In 2008, all the major players in the industry were aggressively investing ininfrastructure, primarily in network upgradation and rollout.
Competitors
The Indian mobile telephony market was highly competitive and the top five players Bharti, RelianceCommunications, Vodafone, BSNL-MTNL and Tata Tele controlled 83% market share. The other  players such as Idea cellular (11 circles), Aircel (9 circles) Spice telecom (2 circles) had lined up plansto expand their presence and become a pan India operator to get a sizeable share of the growingmarket. The growth in both the GSM and the CDMA segments was phenomenal and the total number of GSM subscribers had reached 121.43 million by March 2007. Bharti Airtel was holding a 30.6%share of this market with 37.1 million customers at the end of March 2007, followed by BharatSanchar Nigam Ltd (BSNL) with 27.4 million (22.6% market share). Vodafone’s Hutch-Essar had26.4 million subscribers (21.8%), while Idea had 14 million customers (11.5%). Exhibits 1a, 1a & 1dgives industry statistics.
 Reliance Communications
, the flagship company of the Anil Dhirubhai Ambani Group (ADAG) of companies, was the second largest wireless telecom operator in the Indian telecom industry with presence in both CDMA and GSM segments and also the largest provider of long distance carrier services. It was the leading player in the CDMA market and had a subscriber base of 34.8mn and amarket share of 17.7% with a pan India CDMA and 8 circles GSM presence. The company ownedand operated FLAG telecom, which owned 76,500 km of submarine cable system, the largestsubmarine cable system in the world. There was a stiff competition between RelianceCommunications and Bharti Airtel for market leadership and in March 2006, Bharti Airtel waslagging behind Reliance Communications in terms of market share. But post FY06, Bharti had notonly gained a leadership position in the Indian mobile industry, but also consistently increased itsmarket share, consequently widening the gap between itself and Reliance Communications.
 Bharat Sanchar Nigam Ltd.
was the second largest GSM operator in the country. It was formed outof the former DoT in October 2000 as a public sector unit. It was the World's 7th largestTelecommunications Company providing comprehensive range of telecom services in Indiacomprising Wireline, CDMA mobile, GSM Mobile, Internet, Broadband, Carrier service, MPLS-VPN, VSAT, VoIP services, IN Services etc. MTNL holds the license to provide cellular services inDelhi and Mumbai, and commenced its cellular services during February 2001.
Vodafone Group Plc
was the world's leading mobile telecommunications company, with a significant presence in Europe, the Middle East, Africa, Asia Pacific and the United States through theCompany's subsidiary undertakings, joint ventures, associated undertakings and investments. It waskeen on entering the Indian mobile telephony market and ventured into it through its acquisition of interest in Bharti Airtel. Later, it acquired Hutch, one of the top players in the Indian GSM segment to
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http://www.cellular-news.com/story/28809.php; and http://investing.reuters.co.uk/news/articleinvesting.aspx?type=media&storyID=nL29172095&pageNumber=1&imageid=&cap=&sz=13&WTModLoc=InvArt-C1-ArticlePage1 accessed on 7 Feb, 2008.
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GSM works by dividing a single radio frequency into multiple time slots so it can support multiple calls.CDMA technology works by encoding individual conversations into a series of digits and then spreading thetransmission of the sequence over available spectrum.
 
 
get a firm foothold in the market. It was expected to offload its ownership in Bharti Airtel in thecoming years to avoid any potential conflicts of interest.
 Idea cellular 
, a part of the prestigious Aditya Birla Group, provided mobile telephony services on theGSM platform in 11 out of the 23 circles in India. IDEA Cellular's footprint in 2008 coveredapproximately 45% of India's population and over 50% of the potential telecom-market. It operated inthe circles Delhi, Maharashtra, Goa, Gujarat, Andhra Pradesh, Madhya Pradesh, Chattisgarh,Uttaranchal, Haryana, UP-West, Himachal Pradesh and Kerala. The company had a subscriber base of 21mn and an overall market share of 9.2% in the mobile industry.
 Spice
amongst top 6 private GSM operators in India with a customer base more than 3.0 million. Ithad tie-ups with over 448 international operators across 208 countries and was the first to introduceunique VAS services in India.
History of Bharti Airtel
Bharti was founded by Sunil Mittal in 1976 in his hometown of Ludhiana, after he graduated fromPunjab University. He was a first generation entrepreneur who started his venture with a capital of about Rs. 20,000, borrowed from his father, a congress party politician. He was involved in a varietyof trades before he ventured into the mobile phone business. He started by making crankshafts for local bicycle manufacturers. Within three years he set up two more plants, one that turned out yarnand the other that produced stainless-steel sheets used for surgical utensils. In 1980 he sold both the plants and shifted base to Mumbai, where he reinvented himself as a trader who sold importedstainless steel, brass, plastics, and zip fasteners. Though this business was good, Mittal's first real break came in 1982 when he became the exclusive India agent for Suzuki Motor Company of Japanfor importing portable generators. He took up this business after recognizing that the portablegenerators presented a great business opportunity in India while they did not have a huge market inJapan. The portable generators could attract many buyers in India owing to the frequent and regular  power outages that many regions in the country were subjected to. He was proved right with his business doing very well and within two years Mittal established a national distribution network withoffices in four cities. But the complex industrial licensing regime took its toll on him and his businesswas wiped out all of a sudden when the government banned import of generators in India in order tosupport the large industrial houses that ventured into that business.Mittal viewed this setback too as an opportunity and luckily, by this time, he was already fascinated by the touch-tone phones that he came across in Taiwan. In those days Indians were exposed only tothe rotary phones, and Mittal could see that these sleek phones had a huge potential. Immediately, hesigned a contract with a Taiwanese supplier and months later, he was selling the gadgets to customersin India under the German-sounding brand name Mittbrau, a short form for Mittal brothers
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. But theregulatory environment was still stringent and the government did not allow import of push button phones. So he entered into a tie up with Siemens, to manufacture the company's push-buttontelephone models for the Indian market. In 1986, Mittal incorporated Bharti Telecom Limited (BTL)and his company became the first in India to offer push-button telephones under the brand ‘Beetel’,establishing the basis of Bharti Enterprises.When this business started flourishing, the regulators decided that touch-tone phones should be madein India and they handed out licenses to 52 Indian firms, relegating Bharti to second-tier status behindother larger industrial groups. Since phones weren't a priority for the big groups, his venture continuedto do well and as of 2008 Bharti was the only player existing out of the original 52 licensees. Heexpanded the company’s manufacturing capacity in the telecommunications market and by the early1990s, he also launched the fax machines and cordless telephones in the country for the first time.
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Wireless Wonder, Chandler, Clay, Levinstein, Joan L., Fortune, 00158259, 1/22/2007, Vol. 155, Issue 1

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