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Business

MAGAZINE | FEB 24, 2014

TELECOM: AIRTEL

The Leaning Mobile Towers

The election buzz about him doesnt lighten Mittals burdens
ARINDAM MUKHERJEE

Why Sunil Bharti Mittal Is A Harried Man Today

From business worries to managing the political environment, the telecom-to-retail magnate has plenty on his plate. Eight points:
1. Monstrous Debt Flagship Airtel in a tight financial spot, thanks to purchase of Zain in Africa; has debt of a whopping Rs 57,643 crore.
2. Slipping Patronage Political backing for Mittal has diminished. There have been several run-INS with government and telecom authorities.
3.
4.
5.
6.
7.
8.

Endless Cash Needs Mittal has huge financial needs over the next few years. Just this round of spectrum will put him back by up to Rs 18,500 cr
Bruising Battles Mukesh Ambani is within striking distance of Mittals telecom business with 4G play Reliance Jio, slated to start this year.
Desperate Moves Tie-up with Reliance Jio seen as a desperate move to generate revenue; overseas tower business is apparently on the block.
Poor Performance Barring Airtel, Bharti Infratel and Indus, most group firms yet to break even. Airtel registered its first quarterly profit growth in over four years.
Retail Woes His joint venture with Wal-Mart broke up late last year. Mittals huge investment in Bharti Retail are at serious risk.
Worrying Future Prospect of BJP-led government at centre worrying his closeness to the Congress and differences with BJP are documented
***

The Bharti Group

Bharti Airtel: Has revenues of Rs 80,000 crore, registered Rs 610 crore in profits in Q3 2013-14, the first profit growth in four years.
Bharti Infratel: Has turnover of Rs 12,000 crore, earned profit of Rs 410 crore in Q3 2013-14. Has commanding share in the mobile tower industry.
Bharti Retail: Has over 210 Easyday stores. Its future plans shaky after JV with Wal-Mart broke last year. Estimated revenues: Rs 2,000 crore.
FieldFresh Foods: JV with Del Monte Pacific, markets processed foods, yet to capture the Indian market. Estimated revenue: Rs 250-300 crore.
Beetel Teletech: Originally made push button and mobile phones, now also distributes phones and office products. Estimated revenue: Rs 1,500 crore.
***
For some time now, Sunil Bharti Mittal has been conspicuous by his public silence. It began four years ago, when the 56-year-old telecom-to-retail magnate came out
unscathed from the investigations into the 2G spectrum scam following the outing of the Radia tapes. The joke was that if you wanted to hear what Mittalhead of Airtel,
Indias larg
est private telecom network, with reve
nues of Rs 80,000 crorehad to say, the only way was to catch him at an inte

r
national telecom conference or at Davos.
Actually, Bharti Enterprises has been going through tough times of late, and that is making Mittals reticence more noticeable. Airtel, which accounts for over 90 per cent of
the groups revenue, has a huge debt burden of about Rs 57,000 crore. At Rs 308 on February 12, its stock price has fallen over 15 per cent from January 2012. If Airtel finally
registered a growth in profits in the third quarter of 2013-14, it was for the first time in 16 quarters. And, as a senior source in the company admitted to Outlook , most of the
other companies of the group are not as successful. Airtel and Mittal did not comment for this story.

At the moment,
Mittal is against the
wall. The spend on
the current auction

More than the hard numbers, Indias policy and regulatory regime, under which Mittal flourished for years, has not been particularly supportive
of him. That was evident when, last April, Mittal was summoned by a special CBI court in a case related to alleged excess allocation of
spectrum in 2002. Last year, another partner, Wal-Mart, had a run-in with the law, which led to an inglorious break-up of a high-profile retail
joint venture. Moreover, the imminent entry of Mukesh Ambanis Reliance Jio in the 4G segment has posed a serious challenge to Airteland
led to much speculation about the politics behind the rivalry between the two billionaires.

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the current auction

will prove a drain on
a company in
debt. Kamlesh Bhatia,
Research Director,
Gartner

led to much speculation about the politics behind the rivalry between the two billionaires.

For now, with India set for general elections in a couple of months, there is speculation that Mittal will finally bite the political bullet and stand
for elections. Mittal has pooh-poohed it all, but theres no denying that politics comes to him as a legacy. His father, Sat Paul Mittal, was a
two-time Congress MP in the Rajya Sabha. In fact, in 1992, Mittal and his father were accused of assisting stockbroker Harshad Mehtas
infamous attempt to allegedly bribe then prime minister P.V. Narasimha Rao (the allegations were never proved).

Mittals closeness to the Congress leadership was evident last year when Congress vice-president Rahul Gandhi kept referring to him by his
first name at a meeting with the CII. All this makes it all the more intriguing that in recent times, Mittal has had several run-INS with the
government and with the telecom authorities. By the end of 2013, there were at least eight cases in which Mittals company was battling the governments department of
telecom (DoT). Even though some of regulator TRAIs decisions have helped Airtel, a company source says the present TRAI regime has been extremely rational and difficult
to influence.

Mittal w ith Sonia Gandhi. (Photograph by AFP, From Outlook 24 February 2014)

It wasnt always this way. Mittals closeness to the powers-that-be helped him navigate the system. After all, without any telecom experience,
he got Indias first licence for Delhi. Says business journalist Paranjoy Guha Thakurta, After the government deregulated the telecom sector
and systematically discriminated against BSNL and MTNL, who benefited the most? Who has been supported most by Indias telecom policy
regime? There is no doubt it was Mittals Bharti Airtel. That is why, when Mittal criticised Indias regulatory regime as the worlds worst, many
eyebrows were raised.
Consider this recent flashback from the 2G scam. Mittal was uncomfortable when the DMKs A. Raja was appointed telecom minister. That
was because Raja made it clear he wanted to break the cartel of the big three telecom playersVodafone, Airtel and Ideawho dictated
everything in the Indian telecom industry. It is no secret that Mittal put his weight behind former telecom minister Dayanidhi Marans
candidature for the top job and wanted him at Sanchar Bhawan instead of Raja.

Bank loans are not

so easily available
now for telcos, and
Bharti is trying to
sell tower assets in
South Asia. Jaideep
Ghosh, Partner, KPMG

And as India goes into election mode, Mittal may have the most to worry about, especially if a BJP-led coalition takes charge at the Centre, for Mittals proximity to the
Congress and his differences with BJP ministers in the past are well documented. Take, for instance, his discomfort during the BJP-led NDA regimethere were numerous
instances when then telecom minister Pramod Mahajan publicly chided Mittal.
Even in business, he has not made many friends within his core telecom sector. As revealed in the Radia tapes, he also has had issues with Ratan Tata. Although Vodafone,
Mittals immediate competitor in the telecom area, should be his most fierce rival, his more publicised rivalry has been with the Ambani brothers. This rivalry has continued
through the days of the 2G spectrum scam till date. His rivalry with Mukesh Ambani has sharpened with the latters entry into retail. Also, Ambanis imminent entry into
telecom with Reliance Jios 4G servicesa segment in which Mittals Airtel has invested significantlyand also his inroads in Airtels bread-and-butter voice market.

Mittal at a Vibrant Gujarat meet w ith Narendra Modi

In Africa, it didnt

Operationally, Airtel faces many issues. Its Africa operations are yet to bear fruit and the coming events in the telecom arena, like the
spectrum auctions, are certain to put enormous pressure on its bottomline. Even though top company executives term it as pure business
decisions, some of Mittals recent strategic moves have shown signs of desperation. This includes his reported willingness to exit some of

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In Africa, it didnt
factor in multiple
regulatory regimes.
Manipulating the
regulator, as in India,
doesnt work
there. Lloyd Mathias,
Co-Founder, Green
Bean Ventures

decisions, some of Mittals recent strategic moves have shown signs of desperation. This includes his reported willingness to exit some of
his tower businesses in South Asia, including Sri Lanka and Bangladesh. Recently, he even tied up with archrival Mukesh Ambani for a tower
and network infrastructure sharing agreement. Many experts see this as a desperate move by a company in need of cash inflows.
Company insiders are confident and say that it will be able to square the debt in the next three to four years. Actually, Mittals problems are
expected to multiply with the ongoing spectrum auction, in which prices have gone to unprecedented levels of over Rs 67,000 crore at the time
of going to the press. Airtels Delhi and Calcutta licences will come up for renewal in November. The companys other licences will come up for
renewal between 2016 and 2020. This makes Airtels need for spectrum severe. Says Jaideep Ghosh, partner, KPMG, Bharti Airtel is more
desperate with its licences coming up for renewal. As companies will have to buy spectrum at market prices, it will surely put their business
models under pressure.

Perhaps Mittals biggest gamble was when he acquired Zain Telecoms Africa operations for $10.7 billion. While this acquisition gave Mittal access to 17 countries, it also
brought in tremendous fin
a
ncial strain for his company. Acco
rding to Airtels last quarter results, the companys total debt amounted to Rs 57,643 crore and most of it was
thanks to his African safari. So did he go wrong in Africa? Says Ghosh, The Africa market is quite challenging. They tried the low tariff strategy, which did not work as the
cost of operations is very high. There are also different regulatory regimes, which is not easy to manage. And that is quite different from India which is governed by a single
regulatory regime.
Lloyd Mathias of Green Bean ventures believes that barring Airtel and its telecom towers business, Bharti Infratel, and Indus Towers, Airtels joint venture with Vodafone and
Idea, Mittals other ventures have not seen great success. This includes Field Fresh, Bharti Realty, Bharti Axa Insurance and Centum Learning.
But perhaps Mittals biggest embarrassment was when his tie-up with Wal-Mart ended last year after a five-year affair. While officially it was forced by regulatory issues, the
cracks were gradually becoming visible. Insiders say Bharti Retails expansion plans were getting severely affected as the foreign partner had stopped all expansions, as a
result of which the groups much-publicised expansion and plans to invest $2.5 billion by 2015 were getting stifled.
Now Mittal has the difficult task of justifying his investments in Easyday front-end stores, as Wal-Mart has retai
ned the back-end Best Buy cash-and-carry stores, normally
the backbone of a retail operation. If he expands his retail operations, which he intends to, he has to bring in investments not just to incre
ase his store network but also to
forge back-end linkages with existing cash-and-carry players, or open his own. And that would mean more investment, something the group is stretched for.
Mittals presence at Narendra Modis Vibrant Gujarat meet a few years ago and his praise for the Gujarat chief minister, who is now the bjps prime ministerial candidate, has
not gone unnoticed within Congress ranks. Some would argue that it is normal business practice. But for Mittal, theres too much at stake. Its not business as usual.
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