PCTE GROUP OF INSTITUTES

Synopsis on Airtel & cell phone service industry

SUBMITTED TO: DEAN V.P MISHRA

SUBMITTED BY: BAWA SUNEJA GAGANDEEP KAUR NEHA CHHABRA SHRUTI BANSAL

Indias first provider and the fourth all over, Bharti Airtel commands 250.04 million connections and has a revenue of $3.04 billion. Airtel also operates in 20 countries across South Asia, Africa and the Channel Islands. The company is also the first to achieve Cisco Gold Certification

BHARTI AIRTEL
Bharti Airtel Limited is a leading integrated telecommunications company with operations in 20 countries across Asia and Africa. Headquartered in New Delhi, India, the company ranks amongst the top 5 mobile service providers globally in terms of subscribers. In India, the company's product offerings include 2G, 3G and 4G services, fixed line, high speed broadband through DSL, IPTV, DTH, enterprise services including national & international long distance services to carriers. In the rest of the geographies, it offers 2G, 3G mobile services. Bharti Airtel had over 246 million customers across its operations at the end of February 2012.

SUBSCRIBERS & NET ADDITIONS

200 180 160 140 120 100 80 60 40 20 0 -20 DEC-12

BHARTI 178.78 27.22% 1.82 20.77% -0.09%

VODAFONE 149.44 22.75% 0.84 9.55% -0.18%

RCOM 0 0.00% 0 0.00% 0.00%

IDEA 110.71 16.85% 2.58 29.42% 0.17%

SUBSCRIBERS (mn) SUBSCRIBER'S MARKET SHARE NET ADDITIONS SHARE OF NET ADDITIONS SUBSCRIBER'S MARKET SHARE 27.22% 22.75% 0.00%

IDEA, 12.48% AIRTEL , 19.94%

RELIANCE, 16.58%

VODAFONE, 16.41%

comparison on the basis of revenue,customer base , market share(FY2012)

AIRTEL 172698 196800 153538 203820 REVENUES( Rs mn) 236.9 CUSTOMER BASE(mn) VODAFONE 115.5 153 153 RELIANCE IDEA 12.48% 16.58% 16.41% 19.94% market share

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 .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 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 Internetservice 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.Apart from the usual - economic growth and rising income levels - the growth of the Internetbusiness 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.. 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. 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.

ENVIRONMENTAL ANALYSIS
It is a systematic examination of al 3 levels of the environment with at least three purposes: 1. Detecting important economic, social, cultural, environmental, health, technological, and political trends, situations, and events 2. Identifying the potential opportunities and threats for the institution implied by these trends, situations, and events. 3. Gaining an accurate understanding of your organizations strengths and limitations . STEEP refers to changes in the social, technological, economic, environmental, and political sectors that affect organizations directly and indirectly. STEEP analysis of the macro environment indicates that economic (a phone call being a cheaper way to stay in touch than outstation travel for example) and social factors (working outside the home town) have forced the pace of utilization of technology (Public Cal Offices, mobile phones, networked companies).

Increasing

customer

awareness

has

raised

expectations

and

vocal

demands

are being articulated for consumer rights; such political factors have in turn impacted thecompetitive environment by way of entry of private players, independent regulation, and a policy framework tilted towards a level playing field for new entrants. A near environment analysis indicates that the competitors are becoming active resource rivals (political and financial) apart from applying pressures as customer rivals. The customer has, needless to say, benefited from increased choice from within the communications services basket itself.

PORTERS 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. Uninors variable pricing too has left feathers ruffled. This shows the increasing threat being offered by new entrants into the market. 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, fibreoptic 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 timeand 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

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 KEY SUCCESS FACTORS Airtel has its presence in all 23 circles of the Indian telecom industry. Some of its key success factors are 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. Airtels online desktop for airtel broadband users provides free online space for storing , editing and sharing data and also free antivirus package, free software andupdates 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. Accordingto 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 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.

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 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 Sent 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 Shaktis 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 companys Indian operation and can reduce their profit here. This would be in addition to the exorbitant price paid by the telecom companies for 3G circles. Airtel should not be hit badly since they havealready sprouted few revenue generation portals like AppCentral, though the margin will fall. COMPETITIVE ADVANTAGE Bharti Airtels competitive advantage can be seen right from the period of 1990s. 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 BPOs 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. 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 Airtels incorporation.

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. 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 itcomes to cashless purchasing. 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 moveimplements 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. . 7. Expansion into Africa 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.

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 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.

Future stratergies 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 ones 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 Zains 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. 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 they will play the role of a secure network provider and the banks will be part of the finance related construct. .