Competition? Slowing profits? The head of India’s largest telecom services company doesn’t see these as major hurdles.
Cilantro is the right setting for a leisurely conversation over lunch. There are about a dozen tables. More than half are empty. We take one in a corner. The fare on offer includes Continental and Indian. We start with tomato and basil soup. I start our conversation by asking him if the telecom party is over. Bharti Airtel’s profits have taken a hit in the last couple of quarters; at least one service operator has reported such huge losses that its shareholders want it to pull out of India.
Kapoor throws a flurry of numbers at me. There are 600 million possible customers in the country’s villages, and only 27 per cent of them have a mobile phone. So, there is still a huge upside. There are about 15 million new connections every month; even if 50 per cent are multiple connections, this means that the net accretion is 7.5 million a month. Mobile usage at over 400 minutes per customer per month is amongst the best in the world. And broadband penetration is less than 1 per cent in the country. Meanwhile, his soup, I point out, has grown cold.
He gets started on it, and I say that that explanation still leaves the issue of falling profits unaddressed. “That’s a function of the overheated market that is experiencing hyper-competition,” he replies, adding, “Price points are at a level that is not sustainable for most players because they don’t represent their cost; they represent a different euphoria like future valuations. This is not governed by economics. Eventually, no market can accommodate 14 players. So, there will be consolidation.”
As he sees it, there have been as many as three signals of consolidation in the last one year: One, the incumbents have got the old traffic back; two, several service operators didn’t participate in the auction for 3G spectrum; and, three, some of them have approached the government for a bailout.
Bharti Airtel’s business model, says Kapoor, is built around aggregation. “We are amongst the largest minute factories in the world.” Every day, its network in India produces 2.2 billion minutes of talk time. The economies of scale come from that. He says that though Bharti Airtel has 21 per cent of the mobile connections in the country, it accounts for 31 per cent of the industry’s revenue. “This shows that the quality of our customers is better than others,” he points out. What about the company’s share of industry profits? Kapoor doesn’t have the number but says it could be still higher because Bharti Airtel is one of the few profitable telecom companies in the country.
Kapoor’s implacable enthusiasm is the result of spending 12 years with Bharti Airtel, which roughly coincides with one of the most eventful periods in the evolution of the private telecom industry. He started his career with Jay Engineering Works under Lala Charat Ram and then worked for Xerox before he got a call from Bharti Airtel. How has the company changed since then? At that time, he recalls, the company was entrepreneur-owned and entrepreneur-managed. In the next phase, it became entrepreneur-owned and professionally-managed. The next logical step would have been to make it professional-owned and professionally-managed. But the decision has been taken to retain the entrepreneur-owned and professionally-managed character of the company to keep the entrepreneurial spirit intact. “Despite its size, Bharti Airtel has the soul of a mid-sized company. It shows up in the nimble way we move,” he says.
But what is it like to work under Sunil Mittal who has a larger-than-life image in industrial circles? According to Kapoor, unlike other promoters who hand their CEOs a can-do list, Mittal has a short can’t-do list for his CEOs and it gets shorter every year. What’s on the list now? Some of the items, Kapoor says when I insist, are mergers and acquisitions, brand changes or some fundamental policy matter.
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What was the brief that Mittal gave Kapoor, 48, when he took over a few months back? Four, Kapoor says: One, strengthen the company’s mark-to-market position (revenue share etc); two, grow its footprint in South Asia; three, raise the customer base from 100 million to 200 million (it is at 140 million at present); and four, morph the company from a voice carrier to a lifestyle enabler. “This is the fundamental goal I carry,” says Kapoor but admits that this will happen over the long haul. The conversion will be driven by data. After entertainment, Bharti Airtel (it is already the largest retailer of music in the country) will look at m-commerce (financial inclusion etc), healthcare and advertising.
It’s now time for the main course. We go for the sumptuous Indian buffet: Mutton, prawns, cottage cheese done in a tandoor and rotis. “I find it difficult to eat Indian food with a knife and fork,” Kapoor confesses, so we roll up our sleeve and use our fingers to attack the food.
What form could healthcare take? Kapoor says it could be devices that can read your blood sample and blood pressure, or it could be consultation over the phone. “Right now, doctors don’t know how to bill their patients for phone consultations. We could provide a solution for that,” he says.
For advertising, the idea is to mine the consumer data with the company and then customise marketing programmes for others. “We could tell a film producer that we can send the music of his new film to everybody who downloaded the music of his earlier films. It can be that specific,” he explains.
An analytics team is in place that will soon have foolproof business proposition ready. Meanwhile, the company has decided not to sell bulk SMSes to third-party marketers who pester subscribers with messages. The nuisance value far outweighs the financial gains. This market, Kapoor reckons, is worth Rs 15 crore to Rs 20 crore a month.
Much of the new services, Kapoor knows, will be consumed by the youth. Two years ago, after he came back from an advanced management course at Wharton, Kapoor introduced in Bharti Airtel a programme called reverse mentoring — all senior executives have to take a youth as a mentor to educate them on how young people live, what they’re thinking, their values etc. Kapoor, too, has one. “Also, my two boys are in that age bracket. I learn a lot from them,” he says.
As we turn to the dessert, Kapoor talks of the other challenges he faces. The acquisition of Zain Telecom in Africa and 3G spectrum has raised the debt on Bharti Airtel’s books — something on which investment analysts have raised the red flag. All large telecom companies in growth mode have debt that is three to four times the EBITDA (earnings before interest, tax, depreciation and amortisation). “Ours is just 2.87,” he says.
By now, he’s begun to receive calls from his office informing him that visitors for his post-lunch meeting have arrives. I fire one last question: Hasn’t Bharti Airtel lost the pole position in innovation to new players like Tata DoCoMo? “We have the most robust business model. And we are the most innovative in and customer satisfaction and service. We will not do anything that is not sustainable. If that is innovation, I’d rather stay away from it,” he counters as a gleaming blue BMW swishes into the portico to whisk him back to work.