A Strategic Study about a

Telecommunication Company

in India

Analysed amp Compiled by

NAME PRN

Kashyap Shah 14020841136 Anubhuti Gupta 14020841123

Vrinda Jain 14020841171 Vinita Goswami 14020841170

Harsh Jain 14020841132

2 | P a g e

Index

Sr No Chapter Name Page No

1 Introduction of a

company and its business 03

2 External Analysis

Opportunity amp Threat 04

3 Analysis Porterrsquos Five

Forces Model 05

4 Internal Analysis

Strength amp Weakness 08

5 PESTEL Analysis 11

6 Industry Environment 13

7 Game Theory 16

8 Strategy in Global

Environment 19

8 Corporate Level Strategy 21

10 Corporate Governance amp

Ethics 23

11 BibliographyReferences 25

3 | P a g e

Introduction

Bharti Airtel Limited commonly known as Airtel is an Indian multinational

telecommunications Services Company headquartered in New Delhi India It operates in 20

countries across South Asia Africa and the Channel Islands Airtel has a GSM network in all

countries in which it operates providing 2G 3G and 4G services depending upon the

country of operation It is the largest cellular service provider in India with 19222 million

subscribers as of August 2013 Airtel is the Second largest Asia-Pacific mobile operator by

subscriber base behind China Mobile

Airtel is the largest provider of mobile telephony and second largest provider of fixed

telephony in India and is also a provider of broadband and subscription television services

It offers its telecom services under the airtel brand and is headed by Sunil Bharti Mittal

Bharti Airtel is the first Indian telecom service provider to achieve Cisco Gold Certification It

also acts as a carrier for national and international long distance communication services

The company has a submarine cable landing station at Chennai which connects the

submarine cable connecting Chennai and Singapore

Bharti Airtel added 510 lakh subscribers to take its base to 2097 crore at the end of

July2014 Its market share in India is highest with a value of 2841Airtel is credited with

pioneering the business strategy of outsourcing all of its business operations except

marketing sales and finance and building the minutes factory model of low cost and high

volumes The strategy has since been adopted by several operators Its networkmdashbase

stations microwave links etcmdashis maintained by Ericsson and Nokia Siemens Network

whereas IT support is provided by IBM and transmission towers are maintained by another

company (Bharti Infratel Ltd in India) Ericsson agreed for the first time to be paid by the

minute for installation and maintenance of their equipment rather than being paid up front

which allowed Airtel to provide low call rates of INR1minute (US$002minute)

Mission Statement

ldquoWe at Airtel always think in fresh and innovative ways about the needs of our customers

and how we want them to feel We deliver what we promise and go out of our way to

delight the customer with a little bit morerdquo

Vision Statement

ldquoBy 2015 Airtel will be the most loved brand enriching the lives of millionsrdquo

4 | P a g e

External Analysis Opportunity amp Threats

Opportunities

1 Untapped voice market ndash Despite many believing that the voice market in India is close to saturation hundreds of millions remain without a phone Recently VLR (Visitor Location Register) numbers released by the regulator TRAI showed that around 730 million out of the total 870 million are active connections Given many people in India use multiple SIMs it is safe to say that mobile phone penetration in the country is less than 50 The opportunity for Airtel is huge especially in the rural segment

2 3G and data revenue ndash Airtelrsquos 3G subscribers constitute less than 5 of its total subscriber base Apart from getting new 3G customers to join Airtel there is immense room for growth within its existing customers The operator should be more aggressive in marketing the benefits of high speed data access on phone Simultaneously it must ensure faster and consistent data speeds on its network

3 LTE ndash The whole wireless world is moving towards LTE LTE for mobile broadband can be a good solution for India where fixed broadband penetration is otherwise low Airtel has taken the lead with this version of LTE in 4 cities but deployment needs to catch up pace Despite a weak LTE ecosystem in India Airtel should portray itself as the embracer of that technology It must pursue the device manufacturers to produce LTE capable phones for India and then take the lead in the deployment of LTE for cellular networks too

4 Mergers and Acquisitions ndash Unfortunately the MampA rules in India are yet to formally declared although recent media reports have suggested that companies may be allowed to merge as long as their market share in every circle is less than 50 Airtel with a market share of 222 should be good to acquire smaller telcos to reduce competition and add subscribers and spectrum Such acquisitions will incur huge spectrum costs but it could be well worth it in the long term

Threats

Unfriendly regulatory environment ndash The telecom industry in India has been

plagued by a hostile and unstable regulatory scenario This has adversely affected

the industry sentiment and the wireless service providers While some clarity has

begun to emerge many guidelines are far from certain Airtel has not remained

untouched from this chaos And this threat would continue to linger for the next

few years

Spectrum Auctions and Refarming ndash Government of India and TRAI kept a high

reserve price for 3G BWA and the recent 1800 MHz auction Airtel had spent Rs 123

billion ($27 billion per rupee to dollar conversion back then) for 3G airwaves Since

the returns are slow due to low tariffs buying the spectrum at high price is

detrimental for the telcos Refarming 900 MHz is another terrible idea which would

5 | P a g e

negatively impact Airtelrsquos finances given that it will have to repurchase those

airwaves to continue 2G operations

Mobile Number Portability ndash MNP gives the customer independence to change the

service provider while retaining the number With similar tariffs across various telcos

and satisfaction with the current service provider being low consumers are willing to

jump ship The larger incumbent operators are losing millions of customers to the

newer players who attract these customers with their freebies and innovative offers

ANALYSIS Porterrsquos five forces Model

1 Intensity of Competition among Rivals

Bharti Airtel has strong rivals in telecommunication sector of India like BSNL and Vodafone

Initially it had only two competitors but now this figure has jumped to more than ten All

these companies are providing similar services with the same capabilities Although it has

enhanced its investment in last few years and working hard to expand its network yet the

presence of strong competitors is a major threat for its successful survival

The price war is really very fierce in this industry Price war in telecom industry has

commoditized the market that branding has taken a backseat New players are reducing

their tariffs to get better hold in the market and in turn the existing big players like Airtel

also have to compete by introducing low tariff new plans such as youth plan for younger

generation ladies special etc

2 Bargaining Power of Buyer

Although subscribers are not concentrated not purchase in bulk but still can easily switch

for better quality coverage and rates In this context subscribersrsquo position is strong Bharti is

the leading operator in Access segment in terms of number of subscribers However in term

of net additions during the quarter Idea recorded the highest growth of 766 million

followed by Bharti (629 million) and Vodafone (488 million)

The following points influence the buyer power

Lack of differentiation among the service provider As telephone and data

services does not vary much regardless of which companies are selling them

Cut throat competition Competition level has increased a lot with increase in

new foreign as well as domestic players in the industry Operators are engaging

in an intense price war which is benefitting to the buyers in every way

6 | P a g e

Customer is price sensitive Every operator is offering low tariffs with better

services due to high level of competition among the operators which has made

customer more sensitive to price

Low switching costs from one operator to other operator

The consumer now has access to several means of communication like email

instant messaging which are diminishing the importance voice services

Attractive Schemes for new connections

Availability of all operators everywhere

3 Threats from Substitutes

Presence and easy availability of substituted products is a great threat for the successful

survival of any organization since it can enforce the company to cut the price of its product

The growth rate of reliance is more than Bharti and that of Vodafone is almost comparable

to Bharti

The potential major substitutes for telecom industry are as follows

Products and services from non-traditional telecom industries pose

serioussubstitution threats Cable TV and satellite operators now compete for

buyers The cable guys with their own direct lines into homes offer broadband

internet services and satellite links can substitute for high-speed business

networking needs

Wireless phones are also getting cheaper each year over the last decade this has

provided consumers with more convenience and mobility to the extent that the

younger demographic now considers a fixed line phone redundant

Just as worrying for telecom operators is the internet VOIP ie voice over ip

telephony is becoming a viable vehicle for cut-rate voice calls Delivered by ISPs -

not telecom operators - internet telephony could take a big bite out of telecom

companies core voice revenues Applications like Skype have been extremely

popular among younger generation users and are fast emerging as preferred

means of communication

4 Potential Entry of New Competitors Since current telecom technologies involve heavy

capital investment so chances of success for new entrants are very limited Still it is seen

that few new entrant like Idea is growing very rapidly and the growth rate is much higher

than the top service providers

The most common forms of entry barriers except intrinsic physical or legal obstacles are as

follows

7 | P a g e

Economies of scale In telecom industry the economies of scale exists from the

supplier side That is why companies try to increase their subscriber base at

drastic rate

Distribution channels Distribution channels are also providing a major

determining factor These channels are not loyal to any company and

competitors can easily access them and make out work for them

Though huge licence fee to be paid upfront and high gestation period reduces

the threat of new entrant and discourages investment and infrastructure in the

telecom sector

Limited Spectrum availability Regulatory issue which again leads to high licence

fee also restrict new players from entering into the market

Rapidly changing technology and setup the efficient Infrastructure for the same

accordingly is also the major factor which stops new player to enter into the

telecom sector

New entrants are ready to enter huge capital considering the attractiveness of

the market

Increase in FDI limits to 74 is bringing competition from foreign players Huge

investments are being made by the foreign companies to setup better

infrastructure and getting latest technology into the country

Threat from the non-telecom background brand which could foray into the

telecom industry by the ease of outsourcing

Customer switching cost is very low as cost of new connection is really low And

new connection offers more benefits to the customers

5 Bargaining Power of Suppliers

As far as the suppliers are concerned the pros and cons to all service providers are equal

that may be in human resource or products

Large number of suppliers The industry basically has a large number of suppliers

which helps them to choose from a lot of options So they try to select the best

option to deliver the value to the customers and to have a competitive

advantage from their competitor

Shared tower infrastructure Technology has helped them to share the tower

infrastructure This basically helps them to reduce the initial investment a lot

Limited pool of skilled managers and engineers especially those well versed in

the latest technologies which put companies into weaker side in terms of hiring

and salaries

Medium cost of switching since changing their hardware would lead to additional

cost in modifying the architecture

8 | P a g e

Table Analysis of the Porterrsquos Five Forces

Internal Analysis Strength amp Weakness

Strengths

1 Biggest mobile service provider in worldrsquos second largest telecom market ndash Mobile

phone subscriptions now follow the normal population trends around the world

With about 870 million wireless subscriptions India ranks second after China in the

wireless market Airtel has a 222 share of that market

2 Well-established nationwide infrastructure ndash Airtel has been in the market for 18+

years and thus has towers and backhaul all over the country This is a major

advantage Deployment of new technologies or increasing capacity at times requires

software and minimal hardware upgrade Having infrastructure already on the

ground makes that process much faster and smoother Secondly it is easier to

capture new customers if a telco already has a network in place

3 High brand equity ndash Airtel is among Indiarsquos most visible brands omnipresent in most

parts of the nation through television print and various other forms of advertising

Celebrity endorsements and innovative advertising that understand the pulse of

market are some of the assets of the Airtel brand

4 Superior overall network quality and reliability ndash Bharti Airtel (along with Vodafone)

runs one of the better mobile networksrsquo in India They have nationwide penetration

and although there is no dearth of consumer complaints regarding dropped calls and

slow data against Airtel it still offers a higher quality telecom service experience as

compared to most other telcos

5 Has established assets

a Physical assets Nationwide presence of offices has over 34000+ towers and

telecommunication equipmentrsquos and hardware This gives an easier

deployment of new technologies and softwares Also helps in easier

customer acquisition when infrastructure is already in place

9 | P a g e

b Intellectual and Human assets An employee base of about 20000

c Financial Assets

i Bharti Airtel PvtLtd went public in 2002

ii Listed on NSE and BSE

iii 141598B Market Capital

10 | P a g e

Weaknesses ndash

High competition in the telecom market ndash Airtel like all other service providers in

India has been adversely affected by the extreme price competition Although the

average voice call rates have gone up recently they were as low as Rs 06min (1

centmin) a few years ago The story is similar with data and 3G tariffs As a result

the company has been reporting declining profits for many years ARPU had been

decreasing too although it is showing signs of bottoming out now

Debt and finances ndash According to their latest quarterly report Airtel is burdened by

$97 billion in net debt which is a lot of money when converted to rupees How can

Airtel repay this debt is the question Possibilities include stake and equity sale or

spike in revenue Depreciating rupee is also an issue since it results in foreign

exchange losses and increases the financing cost

Africa acquisitions and operations ndash Airtel acquired Zainrsquos Africa business for $9

billion in 2010 Since then it has struggled to turn around those operations reporting

repeated losses from the continent While the Africa operation has widened the

companiesrsquo geography it continues to be a drag on its balance sheet

Late adoption of 3G and advanced wireless technologies ndash Due to various

regulatory uncertainties and delayed spectrum auctions India and Airtel were late to

the 3G party 3G services were launched by Airtel only in early 2011 The data tariffs

were high speeds were unsatisfactory and customer acceptance of 3G was slow The

company lacks nationwide 3G license with spectrum in 13 out of 22 telecom service

areas Airtelrsquos LTE network for mobile broadband is still confined to only 4 cities in

India

11 | P a g e

PESTEL Analysis of Bharti Airtel Limited

Political

The ministry of telecom industry hiked FDI limits from 49 to 74 which enabled

Indian promoters of telecom sector to spark off the competition and consolidation

by selling their stakes to foreign entities Airtel already have tie up with foreign

partner SINTEL which is going to help in investing more in infrastructure and latest

technology to provide the best services to their subscribers Also due to this increase

in foreign direct investment in telecommunication market Airtel will be able to

modulate the foreign stakes in their companies that have already acquired a range

between 67-69 percent of their assets

With the increase in globalisation and tremendous growth of Indian

telecommunication sector Airtel launched its mobile services in Srilanka in Jan 2009

and investing to

Recently Airtel have also acquired Zain for Africa operations which is the second

biggest overseas purchase by an Indian company

Economical

In telecom budget 2008 raw materials for the manufacture of specified electronic

hardware items have been exempted from excise duty which lowers the network

equipment costs to benefit major mobile services provider so Airtel can expand

their network coverage to more rural areas at much cheaper cost)

During the recession period government policy to reduce the custom duty on

convergence product from 10 to 5 helped in establishing parity devices used in

communication sector so this will help Airtel in lowering their cost for DTH

expansion

Government has announced per second billing tariff for the subscriber along with

the per minute billing plan Though the per second plan is not beneficial for the

telecom operators as this could reduce the sectors annual revenue by 10-

15Operators are already struggling with the low Average Revenue Per user

(ARPUs) due to high taxes (30 of the gross revenue earned by the operators goes

as various taxes) levied by government will now struggle more with this new plan To

overcome this situation Airtel has launched low tariff per minute plans along with

per second plan As majority of the subscribers make longer duration calls and the

per second call could be detrimental for them with the new reduced per minute

plan Airtel could also launch pay per character for SMS services to increase the VAS

revenue

12 | P a g e

Social

Government has hiked FDI limits which would lead to better infrastructure in

telecom due to intake of more investment by the foreign investors As 70 of Indian

population still resides in rural areas improvement in telecommunication

infrastructure and services will reduce isolation increase business viability farming

productivity and access to educational and medical services Airtel has already

announced to set up 100000 service centres and telecom infrastructure in rural India

by march 2010

Rollout of national rural employment scheme to all 596 districts in India with a

provision of Rs160 billion to aid faster penetration of mobiles and consequently

faster growth of Airtel as they hold major Indian telecom market with 24 growth at

the end of 31st March 2009

Government has announced the auction for 3G and BWA spectrum and Airtel is one

of the qualified bidders for the same and Airtel has already signed a deal with

Ericsson to upgrade their network for 3G It will help Airtel to undertake social

initiatives of the government such as e-education tele medicine and e-health and e-

governance providing affordable broadband and mobile services to sub urban and

rural areas

As demand for the value added services and high speed broadband is increasing

among the youth Airtel being the leading private broad band service provider in the

country has introduced the ultra fast speed of 50 Mbps for the broadband users on

next generation VDSL2 technology which will allow users the convenience to

download a full feature film in less than 3 minutes Along with it is providing free

value add services like parallel ringing website builder (Basic) PC secure (Anti-Virus

software) online storage unlimited gaming on games on demand

Increasing competition with the entry of many new operators in the telecom

industry has forced in reduction of tariffs So consumers get more options and can

change their network operator according to their need In this Airtel has introduced

many low tariff plans like youth Plan for young people ladies special and friends

prepaid plan family celebration plan according to the requirements of the different

customer segments Segmentation strategy aims towards understanding the need

gaps of specific consumer segments and creating special segmented products for

them

Technological

Increase in FDI limits also benefited inflow of latest technology with improved

infrastructure as AIRTEL is well established with better infrastructure so it can

provide better services to its customers in urban and can expand its network in more

rural areas

Introduction of Mobile Number Portability (MNP) which allows the consumer to

retain their existing mobile number even when they change the service provider

13 | P a g e

This will increase the competition among the service providers as the subscribers can

change their network if they are not happy with the services of the existing service

provider Airtel has the edge over his competitors as their services are much better

than other service providers

Government has announced the auction for 3G and BWA spectrum which will allow

telecom companies to offer additional valued services like high resolution video and

multimedia services with high data rate transmission capabilities Airtel has already

qualified to bid for the auctionAlso Airtel has signed a 13 billion deal with Ericsson

to expand and upgrade its network for 3G services in 15 of Indias 22 telecom circles

Environment and Legal

Radio frequency waves emitted from the mobile phones harms body cells and

damages the DNA This is not yet proved that such changes were risk to human

health

Mobilenumber portability (MNP) implementation would enable subscribers to move

to different service provider retaining the original number This implementation

would hamper Bharti Airtel as customers would keep switching to any possible

networks available

In India legal obligations are defined regarding 3G auction and bidding which proves

to be in favour of Bharti Airtel as this auction is not available to the new entrants

This political factor forbids the entry of new companies in to 3G services

Due to rising terrorist activities and hacking of confidential data on air India

Department of Telecommunication (DoT) has made amendments related to security

features which states that telecom companies should have good policies for security

and they should be responsible for the security of the network

Industry Environment

INDUSTRY STAGE

The industry growth stage lasted from 2005-2012 At this point the industry is almost at the

shakeout stage The industry is rapidly approaching the matured market stage But another

theory refutes the claim The economic growth in India currently the market is growing

more on the Network area growth providers are moving to smaller cities from big cities

demand is generated from Blsquo class amp Clsquo class cities ndash middle class population A major

section of middle class population of India in smaller cities couldnlsquot enjoy the advantages of

Telecom service due to the Govt monopoly poor capacity regulations they are the

immediate customers of the Mobile operators

14 | P a g e

The Landline is no more the preferable choice for the new telecom users people like to use

mobile phones because of its added advantages and easy subscription Also the middle class

size is expected to grow in India in next decades so the Mobile market in India will be

probably in Growth ndash Shakeout phase for a longer period 8 Indian mobile operators

offerings are segmented in two broad categories ndash Pre-paid and Post-paid Although mobile

market is growing positively the Post-paid market is declining and prepaid market is

increasing by leaps and bounds

The Indian telecom sector has witnessed tremendous growth over the past decade Today

the Indian telecom network is the second largest in the world after China A liberal policy

regime and involvement of the private sector have played an important role in transforming

this sector The total number of telephones as on 31st April 2013 was 89702 million The

telecom industry has witnessed significant growth in subscriber base over the last decade

with increasing network coverage and a competition-induced decline in tariffs acting as

catalysts for the growth in subscriber base The growth story and the potential have also

served to attract newer players in the industry with the result that the intensity of

competition has kept increasing Internet subscribers in India grew to 16481 million as of

March 31 2013 with as many as seven out of eight net users in the country accessing the

services via their mobile phones according to telecom regulator TRAI The total number of

mobile internet subscribers stood at 1432 million at the end of the last fiscal

The number of broadband subscribers increased to 1505 million as of March 31 2013 from

1498 million as of December 31 2012 The number of non-mobile internet subscribers in

the quarter ended March 31 2013 grew to 2161 million from 2157 million registering a

quarterly growth rate of 016 per cent

15 | P a g e

GROWTH IN TELECOM

Growth Drivers - Key factors which will fuel the growth of the sector include increased

access to services owing to launch of newer telecom technologies like 3G and BWA better

devices changing consumer behaviour and the emergence of cloud technologies A majority

of the investments will go into the capital expenditure for setting up newer networks like 3G

and developing the backhaul among other things

Subscriber Base - The mobile subscriber base in India is estimated rise by 9 per cent to 696

million connections this year according to technology researcher Gartner The mobile

service penetration in the country is currently at 51 per cent and is expected to grow to 72

per cent by 2016

Mobile Value Added Services (MVAS) - Indias current MVAS industry has an estimated size

of US$ 27 billion The industry derives its revenues majorly from the top five to six products

such as game based applications music downloads etc which continue to form close to 80

per cent of VAS revenues The Indian MVAS industry estimated to grow to US$ 108 billion

by 2015 with the next wave of growth in subscriptions expected to come from semi-urban

and rural areas

Mobile Number Portability (MNP) - Mobile Number Portability requests increased from

8970 million subscribers at the end of March 2013 to 9173 million at the end of April 2013

Handsets - The mobile handset markets revenues in India will grow from US$ 57 billion in

2010 to US$ 78 billion in 2016 according to the study India is the second largest mobile

handset market in the world and is set to become an even larger market with unit shipment

of 2084 million in 2016 at a CAGR of 118 per cent from 2010 to 2016The Indian mobile

handset market posted revenue of Rs 35946 billion in 2012-2013 compared to Rs 31330

billion in the earlier fiscal year on the back of increasing sale of Smartphonersquos In 2012-2013

Karbonn grew 731 per cent Samsung ended the year with revenue of Rs 11328 billion

compared to Rs 7891 billion last year showing a growth of 436 per cent The iconic Apple

16 | P a g e

posted revenue of Rs 1293 billion in FY 2013 in the country compared to Rs 250 billion in

the previous financial year

GAME THEORY

Indiarsquos telecom Industry an oligopoly has witnessed significant price-cutting since 2005 A

metric called Average Revenue per user (ARPU) which defines a companyrsquos per subscriber

monthly revenue has fallen from ₹37001 in Decemberrsquo05 to ₹12825 in Decemberrsquo13 This

implies that either people lowered usage of cell phones drastically or call rates fell over the

period

TABLE 1

The former is unlikely in a growing economy and the phenomenon actually resulted due to

aggressive price cutting by firms during this period

Currently Airtel Vodafone and Idea control 70+ of the industryrsquos market share Table 1

shows the ARPU and subscriber base (in Crores) of these 3 over the past 6 years The

average subscriber base for a particular year is shown in the table Table 2 shows change

in ARPU of the three companies over the past 5 years and their respective individual share

of the total subscriber base of these 3 companies

Quarter Ended December

Airtels ARPU (in ₹)

Airtels subscribers

Vodafones ARPU (in ₹)

Vodafones subscribers

Ideas ARPU (in ₹)

Ideas subscribers

2008 26059 611737305 22792 4323223725 21541 2689632113

2009 20058 7982973638 17055 597358665 17209 3668136038

2010 15398 1049672524 13005 8423015475 12782 5366251725

2011 1364 1282383818 11742 1074420281 11486 7323344775

2012 13667 1399592696 12192 1148899553 1072 8723590463

2013 14354 1441124333 1385 1164663934 12249 9457361213

17 | P a g e

TABLE 2

TABLE 3

Why are the companies cutting their prices Game theory is at work here Airtel (A)

Vodafone (V) and Idea (I) respectively had 47 33 and 20 market share in 2008 During

this period all companies in the industry were reducing their rates Given this scenario I

assume that companies that didnrsquot reduce their rates during this period would not have

gained more customers (they would have actually lost customers but for sake of simplicity I

donrsquot take this into account) Also I assume that proportional price cuts by all companies

would have resulted in no change in their relative market shares during these years

Airtel Vodafone Idea

Year Change in ARPU

Relative Market Share ()

Change in ARPU

Relative Market Share ()

Change in ARPU

Relative Market Share ()

2009 -2302851222

452942479 -25171113 338932742 -2011048698

20812478

2010 -2323262539

432213148 -23746702 346826077 -2572491138

220960776

2011 -1141706715

415126672 -97116494 347805789 -1013925833

237067538

2012 0197947214 40913579 383239653 335851943 -6668988334

255012268

2013 5026706666 405776274 135990814 327933531 142630597 266290195

Situation V reduces rates V doesnrsquot reduce

A Reduces Rates A and V retain market share V loses market share

A doesnrsquot Reduce A loses market share A and V retain market share

18 | P a g e

In such a case A and V would have faced the following situation at the beginning of 2009

This is a variant of the classical prisonerrsquos dilemma (say A and B) wherein two prisoners are

separately asked about the true culprit The situations that A and B face is shown below

TABLE 4

In this scenario no prisoner can trust the other one and the optimal solution for each one

would be to betray the other Similar is the case in Telecom industry No company can trust

the others In a bid to save their respective market shares companies kept cutting their own

rates Each set of companies each year would have faced a situation similar to the one in

table 3 If A didnrsquot reduce its rates in 2009 its market share could have fallen to 388

under the assumptions made at the beginning of analysis Hence A decided to cut prices

Similarly all firms in the industry decided to reduce rates Another question that I seek to

answer is what the ideal action for these firms would have been during this period Did they

make a mistake due to these price wars

In the case of the prisonerrsquos dilemma discussed above each prisonerrsquos ideal choice is to stay

silent and spend a year in jail instead of 3 that would result if they betray each other Would

the telecom companies also have achieved better results if they had not indulged in price

wars No The subscriber base of the 3 companies discussed above increased at a

compounded rate of 37 from 2008-2012 (Table 1) It would be reasonable to attribute this

change to the falling prices given that the economy was performing poorly during this

period Again taking into account the assumptions made in deriving Table 3 the revenues of

A and V in 2013 could be demonstrated by the following table

TABLE 5

Situation V reduces rates V doesnrsquot reduce

A Reduces Rates ( 2068 1400) (2068 984)

A doesnrsquot Reduce (1590 1400) (1590 984)

Situation B betrays A B stays silent

A Betrays B A and B imprisoned for 2 years A goes free and B imprisoned for 3 years

A stays silent B goes free and A imprisoned for 3 years A and B imprisoned for 1 year

19 | P a g e

Table 5 shows the approximate monthly revenues (in Rupees Crores) of the two firms under

different situations with respect to price In the above table both the Nash equilibrium (the

action point from which no company has an incentive to deviate given the action of the

other company) as well as the ideal equilibrium is for both companies to reduce rates Thus

the telecom industry didnrsquot necessarily suffer due to price cuts at least in terms of

revenues However this strategy would have remained profitable as long as the price

elasticity of the industryrsquos demand remains greater than 1 In 2012 a rise in prices

(indicated by ARPU) led to an increase in the three companiesrsquo revenue Thus this year

marked an end to the telecom industryrsquos price-cutting strategy

Why is it that the automobile Industry in India another oligopoly has not faced similar price

wars It is so because companies cut prices only if the price-cut doesnrsquot result in economic

losses for them Return on assets is already low in automobile industry (about 10) The

telecom industry has also had very low (9-10) returns during the past 2 years This also

explains why that the effect of game theory has disappeared in 2012 and 2013 Young

Industries (such as e-commerce) earning economic profits may witness a similar price-

cutting and erosion of economic profits in the future

Strategy in Global Environment

BALs telecom model was considered as the new model for telecom and effective for

emerging markets like India BAL had established itself as a dominant player in India with its

innovative business processes and strong brand but was witnessing tapering growth

because of increasing competition and saturation of the more lucrative urban markets

While more and more players were eyeing the fast-growing Indian mobile market which was

experiencing high growth BAL put its sight on foreign shores BAL realized that its extensive

experience in India coupled with its unique business model would help it tap the

20 | P a g e

opportunity provided by other developing and emerging markets and create value for its

customers

Acquisition of Zain Groups telecom business in fifteen African counties gave it a boosted

start in the African continent There were talks about BAL having paid higher for the deal

Even though BAL was in the process of giving shape to its strategy for the African markets

the critical success factors in emerging markets

raquo BAL was trying to understand the importance of business process innovation and strategic

partnerships

raquo Appreciate the role of tailoring strategy to fit a specific industry and business

environment

raquo Analyze BALs internal and external environment

raquo Understand and discuss cross-country differences in Cultural demographic and market

conditions and its possible impact on business

raquo Probe the role importance and pros and cons of legal and regulatory framework

raquo Explore the ways a business can be successful in international markets

Though BAL was able to acquire a global footprint and a much larger customer base through

this deal industry experts believed it would be difficult for it to leverage on the business

model and strategies which had kept it afloat and ahead of the competition in India

Jaydeep Ghosh Executive Director of KPMG 7 said Bharti has replicated the low-cost

model through outsourcing in India but depending upon different geographies (in Africa) it

will not be easy

BAL also acquired stake in Bangladeshrsquos Warid Telecom The Company has used its

successful lsquominute factory modelrsquo (lowest-costmin) in these territories Bharti Airtel has

about 2712 million subscribers worldwide ndash 1996 million in India 62 million in Bangladesh

17 million in Sri Lanka and 637 million in Africa as of the end of March 2013Telecom

penetration is low in Africa and hence huge opportunities are available for Bharti Airtel So

far turning around the African operations has been a challenging task for the company in

the past three years This is due to the high competition currency movements and political

unrest in some countries and regions However the African operations offer good

opportunities and it can be expected that these acquisitions will enhance the companyrsquos

global presence in telecom space and will help it to increase its profitability in the coming

years

2 | P a g e

Index

Sr No Chapter Name Page No

1 Introduction of a

company and its business 03

2 External Analysis

Opportunity amp Threat 04

3 Analysis Porterrsquos Five

Forces Model 05

4 Internal Analysis

Strength amp Weakness 08

5 PESTEL Analysis 11

6 Industry Environment 13

7 Game Theory 16

8 Strategy in Global

Environment 19

8 Corporate Level Strategy 21

10 Corporate Governance amp

Ethics 23

11 BibliographyReferences 25

3 | P a g e

Introduction

Bharti Airtel Limited commonly known as Airtel is an Indian multinational

telecommunications Services Company headquartered in New Delhi India It operates in 20

countries across South Asia Africa and the Channel Islands Airtel has a GSM network in all

countries in which it operates providing 2G 3G and 4G services depending upon the

country of operation It is the largest cellular service provider in India with 19222 million

subscribers as of August 2013 Airtel is the Second largest Asia-Pacific mobile operator by

subscriber base behind China Mobile

Airtel is the largest provider of mobile telephony and second largest provider of fixed

telephony in India and is also a provider of broadband and subscription television services

It offers its telecom services under the airtel brand and is headed by Sunil Bharti Mittal

Bharti Airtel is the first Indian telecom service provider to achieve Cisco Gold Certification It

also acts as a carrier for national and international long distance communication services

The company has a submarine cable landing station at Chennai which connects the

submarine cable connecting Chennai and Singapore

Bharti Airtel added 510 lakh subscribers to take its base to 2097 crore at the end of

July2014 Its market share in India is highest with a value of 2841Airtel is credited with

pioneering the business strategy of outsourcing all of its business operations except

marketing sales and finance and building the minutes factory model of low cost and high

volumes The strategy has since been adopted by several operators Its networkmdashbase

stations microwave links etcmdashis maintained by Ericsson and Nokia Siemens Network

whereas IT support is provided by IBM and transmission towers are maintained by another

company (Bharti Infratel Ltd in India) Ericsson agreed for the first time to be paid by the

minute for installation and maintenance of their equipment rather than being paid up front

which allowed Airtel to provide low call rates of INR1minute (US$002minute)

Mission Statement

ldquoWe at Airtel always think in fresh and innovative ways about the needs of our customers

and how we want them to feel We deliver what we promise and go out of our way to

delight the customer with a little bit morerdquo

Vision Statement

ldquoBy 2015 Airtel will be the most loved brand enriching the lives of millionsrdquo

4 | P a g e

External Analysis Opportunity amp Threats

Opportunities

1 Untapped voice market ndash Despite many believing that the voice market in India is close to saturation hundreds of millions remain without a phone Recently VLR (Visitor Location Register) numbers released by the regulator TRAI showed that around 730 million out of the total 870 million are active connections Given many people in India use multiple SIMs it is safe to say that mobile phone penetration in the country is less than 50 The opportunity for Airtel is huge especially in the rural segment

2 3G and data revenue ndash Airtelrsquos 3G subscribers constitute less than 5 of its total subscriber base Apart from getting new 3G customers to join Airtel there is immense room for growth within its existing customers The operator should be more aggressive in marketing the benefits of high speed data access on phone Simultaneously it must ensure faster and consistent data speeds on its network

3 LTE ndash The whole wireless world is moving towards LTE LTE for mobile broadband can be a good solution for India where fixed broadband penetration is otherwise low Airtel has taken the lead with this version of LTE in 4 cities but deployment needs to catch up pace Despite a weak LTE ecosystem in India Airtel should portray itself as the embracer of that technology It must pursue the device manufacturers to produce LTE capable phones for India and then take the lead in the deployment of LTE for cellular networks too

4 Mergers and Acquisitions ndash Unfortunately the MampA rules in India are yet to formally declared although recent media reports have suggested that companies may be allowed to merge as long as their market share in every circle is less than 50 Airtel with a market share of 222 should be good to acquire smaller telcos to reduce competition and add subscribers and spectrum Such acquisitions will incur huge spectrum costs but it could be well worth it in the long term

Threats

Unfriendly regulatory environment ndash The telecom industry in India has been

plagued by a hostile and unstable regulatory scenario This has adversely affected

the industry sentiment and the wireless service providers While some clarity has

begun to emerge many guidelines are far from certain Airtel has not remained

untouched from this chaos And this threat would continue to linger for the next

few years

Spectrum Auctions and Refarming ndash Government of India and TRAI kept a high

reserve price for 3G BWA and the recent 1800 MHz auction Airtel had spent Rs 123

billion ($27 billion per rupee to dollar conversion back then) for 3G airwaves Since

the returns are slow due to low tariffs buying the spectrum at high price is

detrimental for the telcos Refarming 900 MHz is another terrible idea which would

5 | P a g e

negatively impact Airtelrsquos finances given that it will have to repurchase those

airwaves to continue 2G operations

Mobile Number Portability ndash MNP gives the customer independence to change the

service provider while retaining the number With similar tariffs across various telcos

and satisfaction with the current service provider being low consumers are willing to

jump ship The larger incumbent operators are losing millions of customers to the

newer players who attract these customers with their freebies and innovative offers

ANALYSIS Porterrsquos five forces Model

1 Intensity of Competition among Rivals

Bharti Airtel has strong rivals in telecommunication sector of India like BSNL and Vodafone

Initially it had only two competitors but now this figure has jumped to more than ten All

these companies are providing similar services with the same capabilities Although it has

enhanced its investment in last few years and working hard to expand its network yet the

presence of strong competitors is a major threat for its successful survival

The price war is really very fierce in this industry Price war in telecom industry has

commoditized the market that branding has taken a backseat New players are reducing

their tariffs to get better hold in the market and in turn the existing big players like Airtel

also have to compete by introducing low tariff new plans such as youth plan for younger

generation ladies special etc

2 Bargaining Power of Buyer

Although subscribers are not concentrated not purchase in bulk but still can easily switch

for better quality coverage and rates In this context subscribersrsquo position is strong Bharti is

the leading operator in Access segment in terms of number of subscribers However in term

of net additions during the quarter Idea recorded the highest growth of 766 million

followed by Bharti (629 million) and Vodafone (488 million)

The following points influence the buyer power

Lack of differentiation among the service provider As telephone and data

services does not vary much regardless of which companies are selling them

Cut throat competition Competition level has increased a lot with increase in

new foreign as well as domestic players in the industry Operators are engaging

in an intense price war which is benefitting to the buyers in every way

6 | P a g e

Customer is price sensitive Every operator is offering low tariffs with better

services due to high level of competition among the operators which has made

customer more sensitive to price

Low switching costs from one operator to other operator

The consumer now has access to several means of communication like email

instant messaging which are diminishing the importance voice services

Attractive Schemes for new connections

Availability of all operators everywhere

3 Threats from Substitutes

Presence and easy availability of substituted products is a great threat for the successful

survival of any organization since it can enforce the company to cut the price of its product

The growth rate of reliance is more than Bharti and that of Vodafone is almost comparable

to Bharti

The potential major substitutes for telecom industry are as follows

Products and services from non-traditional telecom industries pose

serioussubstitution threats Cable TV and satellite operators now compete for

buyers The cable guys with their own direct lines into homes offer broadband

internet services and satellite links can substitute for high-speed business

networking needs

Wireless phones are also getting cheaper each year over the last decade this has

provided consumers with more convenience and mobility to the extent that the

younger demographic now considers a fixed line phone redundant

Just as worrying for telecom operators is the internet VOIP ie voice over ip

telephony is becoming a viable vehicle for cut-rate voice calls Delivered by ISPs -

not telecom operators - internet telephony could take a big bite out of telecom

companies core voice revenues Applications like Skype have been extremely

popular among younger generation users and are fast emerging as preferred

means of communication

4 Potential Entry of New Competitors Since current telecom technologies involve heavy

capital investment so chances of success for new entrants are very limited Still it is seen

that few new entrant like Idea is growing very rapidly and the growth rate is much higher

than the top service providers

The most common forms of entry barriers except intrinsic physical or legal obstacles are as

follows

7 | P a g e

Economies of scale In telecom industry the economies of scale exists from the

supplier side That is why companies try to increase their subscriber base at

drastic rate

Distribution channels Distribution channels are also providing a major

determining factor These channels are not loyal to any company and

competitors can easily access them and make out work for them

Though huge licence fee to be paid upfront and high gestation period reduces

the threat of new entrant and discourages investment and infrastructure in the

telecom sector

Limited Spectrum availability Regulatory issue which again leads to high licence

fee also restrict new players from entering into the market

Rapidly changing technology and setup the efficient Infrastructure for the same

accordingly is also the major factor which stops new player to enter into the

telecom sector

New entrants are ready to enter huge capital considering the attractiveness of

the market

Increase in FDI limits to 74 is bringing competition from foreign players Huge

investments are being made by the foreign companies to setup better

infrastructure and getting latest technology into the country

Threat from the non-telecom background brand which could foray into the

telecom industry by the ease of outsourcing

Customer switching cost is very low as cost of new connection is really low And

new connection offers more benefits to the customers

5 Bargaining Power of Suppliers

As far as the suppliers are concerned the pros and cons to all service providers are equal

that may be in human resource or products

Large number of suppliers The industry basically has a large number of suppliers

which helps them to choose from a lot of options So they try to select the best

option to deliver the value to the customers and to have a competitive

advantage from their competitor

Shared tower infrastructure Technology has helped them to share the tower

infrastructure This basically helps them to reduce the initial investment a lot

Limited pool of skilled managers and engineers especially those well versed in

the latest technologies which put companies into weaker side in terms of hiring

and salaries

Medium cost of switching since changing their hardware would lead to additional

cost in modifying the architecture

8 | P a g e

Table Analysis of the Porterrsquos Five Forces

Internal Analysis Strength amp Weakness

Strengths

1 Biggest mobile service provider in worldrsquos second largest telecom market ndash Mobile

phone subscriptions now follow the normal population trends around the world

With about 870 million wireless subscriptions India ranks second after China in the

wireless market Airtel has a 222 share of that market

2 Well-established nationwide infrastructure ndash Airtel has been in the market for 18+

years and thus has towers and backhaul all over the country This is a major

advantage Deployment of new technologies or increasing capacity at times requires

software and minimal hardware upgrade Having infrastructure already on the

ground makes that process much faster and smoother Secondly it is easier to

capture new customers if a telco already has a network in place

3 High brand equity ndash Airtel is among Indiarsquos most visible brands omnipresent in most

parts of the nation through television print and various other forms of advertising

Celebrity endorsements and innovative advertising that understand the pulse of

market are some of the assets of the Airtel brand

4 Superior overall network quality and reliability ndash Bharti Airtel (along with Vodafone)

runs one of the better mobile networksrsquo in India They have nationwide penetration

and although there is no dearth of consumer complaints regarding dropped calls and

slow data against Airtel it still offers a higher quality telecom service experience as

compared to most other telcos

5 Has established assets

a Physical assets Nationwide presence of offices has over 34000+ towers and

telecommunication equipmentrsquos and hardware This gives an easier

deployment of new technologies and softwares Also helps in easier

customer acquisition when infrastructure is already in place

9 | P a g e

b Intellectual and Human assets An employee base of about 20000

c Financial Assets

i Bharti Airtel PvtLtd went public in 2002

ii Listed on NSE and BSE

iii 141598B Market Capital

10 | P a g e

Weaknesses ndash

High competition in the telecom market ndash Airtel like all other service providers in

India has been adversely affected by the extreme price competition Although the

average voice call rates have gone up recently they were as low as Rs 06min (1

centmin) a few years ago The story is similar with data and 3G tariffs As a result

the company has been reporting declining profits for many years ARPU had been

decreasing too although it is showing signs of bottoming out now

Debt and finances ndash According to their latest quarterly report Airtel is burdened by

$97 billion in net debt which is a lot of money when converted to rupees How can

Airtel repay this debt is the question Possibilities include stake and equity sale or

spike in revenue Depreciating rupee is also an issue since it results in foreign

exchange losses and increases the financing cost

Africa acquisitions and operations ndash Airtel acquired Zainrsquos Africa business for $9

billion in 2010 Since then it has struggled to turn around those operations reporting

repeated losses from the continent While the Africa operation has widened the

companiesrsquo geography it continues to be a drag on its balance sheet

Late adoption of 3G and advanced wireless technologies ndash Due to various

regulatory uncertainties and delayed spectrum auctions India and Airtel were late to

the 3G party 3G services were launched by Airtel only in early 2011 The data tariffs

were high speeds were unsatisfactory and customer acceptance of 3G was slow The

company lacks nationwide 3G license with spectrum in 13 out of 22 telecom service

areas Airtelrsquos LTE network for mobile broadband is still confined to only 4 cities in

India

11 | P a g e

PESTEL Analysis of Bharti Airtel Limited

Political

The ministry of telecom industry hiked FDI limits from 49 to 74 which enabled

Indian promoters of telecom sector to spark off the competition and consolidation

by selling their stakes to foreign entities Airtel already have tie up with foreign

partner SINTEL which is going to help in investing more in infrastructure and latest

technology to provide the best services to their subscribers Also due to this increase

in foreign direct investment in telecommunication market Airtel will be able to

modulate the foreign stakes in their companies that have already acquired a range

between 67-69 percent of their assets

With the increase in globalisation and tremendous growth of Indian

telecommunication sector Airtel launched its mobile services in Srilanka in Jan 2009

and investing to

Recently Airtel have also acquired Zain for Africa operations which is the second

biggest overseas purchase by an Indian company

Economical

In telecom budget 2008 raw materials for the manufacture of specified electronic

hardware items have been exempted from excise duty which lowers the network

equipment costs to benefit major mobile services provider so Airtel can expand

their network coverage to more rural areas at much cheaper cost)

During the recession period government policy to reduce the custom duty on

convergence product from 10 to 5 helped in establishing parity devices used in

communication sector so this will help Airtel in lowering their cost for DTH

expansion

Government has announced per second billing tariff for the subscriber along with

the per minute billing plan Though the per second plan is not beneficial for the

telecom operators as this could reduce the sectors annual revenue by 10-

15Operators are already struggling with the low Average Revenue Per user

(ARPUs) due to high taxes (30 of the gross revenue earned by the operators goes

as various taxes) levied by government will now struggle more with this new plan To

overcome this situation Airtel has launched low tariff per minute plans along with

per second plan As majority of the subscribers make longer duration calls and the

per second call could be detrimental for them with the new reduced per minute

plan Airtel could also launch pay per character for SMS services to increase the VAS

revenue

12 | P a g e

Social

Government has hiked FDI limits which would lead to better infrastructure in

telecom due to intake of more investment by the foreign investors As 70 of Indian

population still resides in rural areas improvement in telecommunication

infrastructure and services will reduce isolation increase business viability farming

productivity and access to educational and medical services Airtel has already

announced to set up 100000 service centres and telecom infrastructure in rural India

by march 2010

Rollout of national rural employment scheme to all 596 districts in India with a

provision of Rs160 billion to aid faster penetration of mobiles and consequently

faster growth of Airtel as they hold major Indian telecom market with 24 growth at

the end of 31st March 2009

Government has announced the auction for 3G and BWA spectrum and Airtel is one

of the qualified bidders for the same and Airtel has already signed a deal with

Ericsson to upgrade their network for 3G It will help Airtel to undertake social

initiatives of the government such as e-education tele medicine and e-health and e-

governance providing affordable broadband and mobile services to sub urban and

rural areas

As demand for the value added services and high speed broadband is increasing

among the youth Airtel being the leading private broad band service provider in the

country has introduced the ultra fast speed of 50 Mbps for the broadband users on

next generation VDSL2 technology which will allow users the convenience to

download a full feature film in less than 3 minutes Along with it is providing free

value add services like parallel ringing website builder (Basic) PC secure (Anti-Virus

software) online storage unlimited gaming on games on demand

Increasing competition with the entry of many new operators in the telecom

industry has forced in reduction of tariffs So consumers get more options and can

change their network operator according to their need In this Airtel has introduced

many low tariff plans like youth Plan for young people ladies special and friends

prepaid plan family celebration plan according to the requirements of the different

customer segments Segmentation strategy aims towards understanding the need

gaps of specific consumer segments and creating special segmented products for

them

Technological

Increase in FDI limits also benefited inflow of latest technology with improved

infrastructure as AIRTEL is well established with better infrastructure so it can

provide better services to its customers in urban and can expand its network in more

rural areas

Introduction of Mobile Number Portability (MNP) which allows the consumer to

retain their existing mobile number even when they change the service provider

13 | P a g e

This will increase the competition among the service providers as the subscribers can

change their network if they are not happy with the services of the existing service

provider Airtel has the edge over his competitors as their services are much better

than other service providers

Government has announced the auction for 3G and BWA spectrum which will allow

telecom companies to offer additional valued services like high resolution video and

multimedia services with high data rate transmission capabilities Airtel has already

qualified to bid for the auctionAlso Airtel has signed a 13 billion deal with Ericsson

to expand and upgrade its network for 3G services in 15 of Indias 22 telecom circles

Environment and Legal

Radio frequency waves emitted from the mobile phones harms body cells and

damages the DNA This is not yet proved that such changes were risk to human

health

Mobilenumber portability (MNP) implementation would enable subscribers to move

to different service provider retaining the original number This implementation

would hamper Bharti Airtel as customers would keep switching to any possible

networks available

In India legal obligations are defined regarding 3G auction and bidding which proves

to be in favour of Bharti Airtel as this auction is not available to the new entrants

This political factor forbids the entry of new companies in to 3G services

Due to rising terrorist activities and hacking of confidential data on air India

Department of Telecommunication (DoT) has made amendments related to security

features which states that telecom companies should have good policies for security

and they should be responsible for the security of the network

Industry Environment

INDUSTRY STAGE

The industry growth stage lasted from 2005-2012 At this point the industry is almost at the

shakeout stage The industry is rapidly approaching the matured market stage But another

theory refutes the claim The economic growth in India currently the market is growing

more on the Network area growth providers are moving to smaller cities from big cities

demand is generated from Blsquo class amp Clsquo class cities ndash middle class population A major

section of middle class population of India in smaller cities couldnlsquot enjoy the advantages of

Telecom service due to the Govt monopoly poor capacity regulations they are the

immediate customers of the Mobile operators

14 | P a g e

The Landline is no more the preferable choice for the new telecom users people like to use

mobile phones because of its added advantages and easy subscription Also the middle class

size is expected to grow in India in next decades so the Mobile market in India will be

probably in Growth ndash Shakeout phase for a longer period 8 Indian mobile operators

offerings are segmented in two broad categories ndash Pre-paid and Post-paid Although mobile

market is growing positively the Post-paid market is declining and prepaid market is

increasing by leaps and bounds

The Indian telecom sector has witnessed tremendous growth over the past decade Today

the Indian telecom network is the second largest in the world after China A liberal policy

regime and involvement of the private sector have played an important role in transforming

this sector The total number of telephones as on 31st April 2013 was 89702 million The

telecom industry has witnessed significant growth in subscriber base over the last decade

with increasing network coverage and a competition-induced decline in tariffs acting as

catalysts for the growth in subscriber base The growth story and the potential have also

served to attract newer players in the industry with the result that the intensity of

competition has kept increasing Internet subscribers in India grew to 16481 million as of

March 31 2013 with as many as seven out of eight net users in the country accessing the

services via their mobile phones according to telecom regulator TRAI The total number of

mobile internet subscribers stood at 1432 million at the end of the last fiscal

The number of broadband subscribers increased to 1505 million as of March 31 2013 from

1498 million as of December 31 2012 The number of non-mobile internet subscribers in

the quarter ended March 31 2013 grew to 2161 million from 2157 million registering a

quarterly growth rate of 016 per cent

15 | P a g e

GROWTH IN TELECOM

Growth Drivers - Key factors which will fuel the growth of the sector include increased

access to services owing to launch of newer telecom technologies like 3G and BWA better

devices changing consumer behaviour and the emergence of cloud technologies A majority

of the investments will go into the capital expenditure for setting up newer networks like 3G

and developing the backhaul among other things

Subscriber Base - The mobile subscriber base in India is estimated rise by 9 per cent to 696

million connections this year according to technology researcher Gartner The mobile

service penetration in the country is currently at 51 per cent and is expected to grow to 72

per cent by 2016

Mobile Value Added Services (MVAS) - Indias current MVAS industry has an estimated size

of US$ 27 billion The industry derives its revenues majorly from the top five to six products

such as game based applications music downloads etc which continue to form close to 80

per cent of VAS revenues The Indian MVAS industry estimated to grow to US$ 108 billion

by 2015 with the next wave of growth in subscriptions expected to come from semi-urban

and rural areas

Mobile Number Portability (MNP) - Mobile Number Portability requests increased from

8970 million subscribers at the end of March 2013 to 9173 million at the end of April 2013

Handsets - The mobile handset markets revenues in India will grow from US$ 57 billion in

2010 to US$ 78 billion in 2016 according to the study India is the second largest mobile

handset market in the world and is set to become an even larger market with unit shipment

of 2084 million in 2016 at a CAGR of 118 per cent from 2010 to 2016The Indian mobile

handset market posted revenue of Rs 35946 billion in 2012-2013 compared to Rs 31330

billion in the earlier fiscal year on the back of increasing sale of Smartphonersquos In 2012-2013

Karbonn grew 731 per cent Samsung ended the year with revenue of Rs 11328 billion

compared to Rs 7891 billion last year showing a growth of 436 per cent The iconic Apple

16 | P a g e

posted revenue of Rs 1293 billion in FY 2013 in the country compared to Rs 250 billion in

the previous financial year

GAME THEORY

Indiarsquos telecom Industry an oligopoly has witnessed significant price-cutting since 2005 A

metric called Average Revenue per user (ARPU) which defines a companyrsquos per subscriber

monthly revenue has fallen from ₹37001 in Decemberrsquo05 to ₹12825 in Decemberrsquo13 This

implies that either people lowered usage of cell phones drastically or call rates fell over the

period

TABLE 1

The former is unlikely in a growing economy and the phenomenon actually resulted due to

aggressive price cutting by firms during this period

Currently Airtel Vodafone and Idea control 70+ of the industryrsquos market share Table 1

shows the ARPU and subscriber base (in Crores) of these 3 over the past 6 years The

average subscriber base for a particular year is shown in the table Table 2 shows change

in ARPU of the three companies over the past 5 years and their respective individual share

of the total subscriber base of these 3 companies

Quarter Ended December

Airtels ARPU (in ₹)

Airtels subscribers

Vodafones ARPU (in ₹)

Vodafones subscribers

Ideas ARPU (in ₹)

Ideas subscribers

2008 26059 611737305 22792 4323223725 21541 2689632113

2009 20058 7982973638 17055 597358665 17209 3668136038

2010 15398 1049672524 13005 8423015475 12782 5366251725

2011 1364 1282383818 11742 1074420281 11486 7323344775

2012 13667 1399592696 12192 1148899553 1072 8723590463

2013 14354 1441124333 1385 1164663934 12249 9457361213

17 | P a g e

TABLE 2

TABLE 3

Why are the companies cutting their prices Game theory is at work here Airtel (A)

Vodafone (V) and Idea (I) respectively had 47 33 and 20 market share in 2008 During

this period all companies in the industry were reducing their rates Given this scenario I

assume that companies that didnrsquot reduce their rates during this period would not have

gained more customers (they would have actually lost customers but for sake of simplicity I

donrsquot take this into account) Also I assume that proportional price cuts by all companies

would have resulted in no change in their relative market shares during these years

Airtel Vodafone Idea

Year Change in ARPU

Relative Market Share ()

Change in ARPU

Relative Market Share ()

Change in ARPU

Relative Market Share ()

2009 -2302851222

452942479 -25171113 338932742 -2011048698

20812478

2010 -2323262539

432213148 -23746702 346826077 -2572491138

220960776

2011 -1141706715

415126672 -97116494 347805789 -1013925833

237067538

2012 0197947214 40913579 383239653 335851943 -6668988334

255012268

2013 5026706666 405776274 135990814 327933531 142630597 266290195

Situation V reduces rates V doesnrsquot reduce

A Reduces Rates A and V retain market share V loses market share

A doesnrsquot Reduce A loses market share A and V retain market share

18 | P a g e

In such a case A and V would have faced the following situation at the beginning of 2009

This is a variant of the classical prisonerrsquos dilemma (say A and B) wherein two prisoners are

separately asked about the true culprit The situations that A and B face is shown below

TABLE 4

In this scenario no prisoner can trust the other one and the optimal solution for each one

would be to betray the other Similar is the case in Telecom industry No company can trust

the others In a bid to save their respective market shares companies kept cutting their own

rates Each set of companies each year would have faced a situation similar to the one in

table 3 If A didnrsquot reduce its rates in 2009 its market share could have fallen to 388

under the assumptions made at the beginning of analysis Hence A decided to cut prices

Similarly all firms in the industry decided to reduce rates Another question that I seek to

answer is what the ideal action for these firms would have been during this period Did they

make a mistake due to these price wars

In the case of the prisonerrsquos dilemma discussed above each prisonerrsquos ideal choice is to stay

silent and spend a year in jail instead of 3 that would result if they betray each other Would

the telecom companies also have achieved better results if they had not indulged in price

wars No The subscriber base of the 3 companies discussed above increased at a

compounded rate of 37 from 2008-2012 (Table 1) It would be reasonable to attribute this

change to the falling prices given that the economy was performing poorly during this

period Again taking into account the assumptions made in deriving Table 3 the revenues of

A and V in 2013 could be demonstrated by the following table

TABLE 5

Situation V reduces rates V doesnrsquot reduce

A Reduces Rates ( 2068 1400) (2068 984)

A doesnrsquot Reduce (1590 1400) (1590 984)

Situation B betrays A B stays silent

A Betrays B A and B imprisoned for 2 years A goes free and B imprisoned for 3 years

A stays silent B goes free and A imprisoned for 3 years A and B imprisoned for 1 year

19 | P a g e

Table 5 shows the approximate monthly revenues (in Rupees Crores) of the two firms under

different situations with respect to price In the above table both the Nash equilibrium (the

action point from which no company has an incentive to deviate given the action of the

other company) as well as the ideal equilibrium is for both companies to reduce rates Thus

the telecom industry didnrsquot necessarily suffer due to price cuts at least in terms of

revenues However this strategy would have remained profitable as long as the price

elasticity of the industryrsquos demand remains greater than 1 In 2012 a rise in prices

(indicated by ARPU) led to an increase in the three companiesrsquo revenue Thus this year

marked an end to the telecom industryrsquos price-cutting strategy

Why is it that the automobile Industry in India another oligopoly has not faced similar price

wars It is so because companies cut prices only if the price-cut doesnrsquot result in economic

losses for them Return on assets is already low in automobile industry (about 10) The

telecom industry has also had very low (9-10) returns during the past 2 years This also

explains why that the effect of game theory has disappeared in 2012 and 2013 Young

Industries (such as e-commerce) earning economic profits may witness a similar price-

cutting and erosion of economic profits in the future

Strategy in Global Environment

BALs telecom model was considered as the new model for telecom and effective for

emerging markets like India BAL had established itself as a dominant player in India with its

innovative business processes and strong brand but was witnessing tapering growth

because of increasing competition and saturation of the more lucrative urban markets

While more and more players were eyeing the fast-growing Indian mobile market which was

experiencing high growth BAL put its sight on foreign shores BAL realized that its extensive

experience in India coupled with its unique business model would help it tap the

20 | P a g e

opportunity provided by other developing and emerging markets and create value for its

customers

Acquisition of Zain Groups telecom business in fifteen African counties gave it a boosted

start in the African continent There were talks about BAL having paid higher for the deal

Even though BAL was in the process of giving shape to its strategy for the African markets

the critical success factors in emerging markets

raquo BAL was trying to understand the importance of business process innovation and strategic

partnerships

raquo Appreciate the role of tailoring strategy to fit a specific industry and business

environment

raquo Analyze BALs internal and external environment

raquo Understand and discuss cross-country differences in Cultural demographic and market

conditions and its possible impact on business

raquo Probe the role importance and pros and cons of legal and regulatory framework

raquo Explore the ways a business can be successful in international markets

Though BAL was able to acquire a global footprint and a much larger customer base through

this deal industry experts believed it would be difficult for it to leverage on the business

model and strategies which had kept it afloat and ahead of the competition in India

Jaydeep Ghosh Executive Director of KPMG 7 said Bharti has replicated the low-cost

model through outsourcing in India but depending upon different geographies (in Africa) it

will not be easy

BAL also acquired stake in Bangladeshrsquos Warid Telecom The Company has used its

successful lsquominute factory modelrsquo (lowest-costmin) in these territories Bharti Airtel has

about 2712 million subscribers worldwide ndash 1996 million in India 62 million in Bangladesh

17 million in Sri Lanka and 637 million in Africa as of the end of March 2013Telecom

penetration is low in Africa and hence huge opportunities are available for Bharti Airtel So

far turning around the African operations has been a challenging task for the company in

the past three years This is due to the high competition currency movements and political

unrest in some countries and regions However the African operations offer good

opportunities and it can be expected that these acquisitions will enhance the companyrsquos

global presence in telecom space and will help it to increase its profitability in the coming

years

3 | P a g e

Introduction

Bharti Airtel Limited commonly known as Airtel is an Indian multinational

telecommunications Services Company headquartered in New Delhi India It operates in 20

countries across South Asia Africa and the Channel Islands Airtel has a GSM network in all

countries in which it operates providing 2G 3G and 4G services depending upon the

country of operation It is the largest cellular service provider in India with 19222 million

subscribers as of August 2013 Airtel is the Second largest Asia-Pacific mobile operator by

subscriber base behind China Mobile

Airtel is the largest provider of mobile telephony and second largest provider of fixed

telephony in India and is also a provider of broadband and subscription television services

It offers its telecom services under the airtel brand and is headed by Sunil Bharti Mittal

Bharti Airtel is the first Indian telecom service provider to achieve Cisco Gold Certification It

also acts as a carrier for national and international long distance communication services

The company has a submarine cable landing station at Chennai which connects the

submarine cable connecting Chennai and Singapore

Bharti Airtel added 510 lakh subscribers to take its base to 2097 crore at the end of

July2014 Its market share in India is highest with a value of 2841Airtel is credited with

pioneering the business strategy of outsourcing all of its business operations except

marketing sales and finance and building the minutes factory model of low cost and high

volumes The strategy has since been adopted by several operators Its networkmdashbase

stations microwave links etcmdashis maintained by Ericsson and Nokia Siemens Network

whereas IT support is provided by IBM and transmission towers are maintained by another

company (Bharti Infratel Ltd in India) Ericsson agreed for the first time to be paid by the

minute for installation and maintenance of their equipment rather than being paid up front

which allowed Airtel to provide low call rates of INR1minute (US$002minute)

Mission Statement

ldquoWe at Airtel always think in fresh and innovative ways about the needs of our customers

and how we want them to feel We deliver what we promise and go out of our way to

delight the customer with a little bit morerdquo

Vision Statement

ldquoBy 2015 Airtel will be the most loved brand enriching the lives of millionsrdquo

4 | P a g e

External Analysis Opportunity amp Threats

Opportunities

1 Untapped voice market ndash Despite many believing that the voice market in India is close to saturation hundreds of millions remain without a phone Recently VLR (Visitor Location Register) numbers released by the regulator TRAI showed that around 730 million out of the total 870 million are active connections Given many people in India use multiple SIMs it is safe to say that mobile phone penetration in the country is less than 50 The opportunity for Airtel is huge especially in the rural segment

2 3G and data revenue ndash Airtelrsquos 3G subscribers constitute less than 5 of its total subscriber base Apart from getting new 3G customers to join Airtel there is immense room for growth within its existing customers The operator should be more aggressive in marketing the benefits of high speed data access on phone Simultaneously it must ensure faster and consistent data speeds on its network

3 LTE ndash The whole wireless world is moving towards LTE LTE for mobile broadband can be a good solution for India where fixed broadband penetration is otherwise low Airtel has taken the lead with this version of LTE in 4 cities but deployment needs to catch up pace Despite a weak LTE ecosystem in India Airtel should portray itself as the embracer of that technology It must pursue the device manufacturers to produce LTE capable phones for India and then take the lead in the deployment of LTE for cellular networks too

4 Mergers and Acquisitions ndash Unfortunately the MampA rules in India are yet to formally declared although recent media reports have suggested that companies may be allowed to merge as long as their market share in every circle is less than 50 Airtel with a market share of 222 should be good to acquire smaller telcos to reduce competition and add subscribers and spectrum Such acquisitions will incur huge spectrum costs but it could be well worth it in the long term

Threats

Unfriendly regulatory environment ndash The telecom industry in India has been

plagued by a hostile and unstable regulatory scenario This has adversely affected

the industry sentiment and the wireless service providers While some clarity has

begun to emerge many guidelines are far from certain Airtel has not remained

untouched from this chaos And this threat would continue to linger for the next

few years

Spectrum Auctions and Refarming ndash Government of India and TRAI kept a high

reserve price for 3G BWA and the recent 1800 MHz auction Airtel had spent Rs 123

billion ($27 billion per rupee to dollar conversion back then) for 3G airwaves Since

the returns are slow due to low tariffs buying the spectrum at high price is

detrimental for the telcos Refarming 900 MHz is another terrible idea which would

5 | P a g e

negatively impact Airtelrsquos finances given that it will have to repurchase those

airwaves to continue 2G operations

Mobile Number Portability ndash MNP gives the customer independence to change the

service provider while retaining the number With similar tariffs across various telcos

and satisfaction with the current service provider being low consumers are willing to

jump ship The larger incumbent operators are losing millions of customers to the

newer players who attract these customers with their freebies and innovative offers

ANALYSIS Porterrsquos five forces Model

1 Intensity of Competition among Rivals

Bharti Airtel has strong rivals in telecommunication sector of India like BSNL and Vodafone

Initially it had only two competitors but now this figure has jumped to more than ten All

these companies are providing similar services with the same capabilities Although it has

enhanced its investment in last few years and working hard to expand its network yet the

presence of strong competitors is a major threat for its successful survival

The price war is really very fierce in this industry Price war in telecom industry has

commoditized the market that branding has taken a backseat New players are reducing

their tariffs to get better hold in the market and in turn the existing big players like Airtel

also have to compete by introducing low tariff new plans such as youth plan for younger

generation ladies special etc

2 Bargaining Power of Buyer

Although subscribers are not concentrated not purchase in bulk but still can easily switch

for better quality coverage and rates In this context subscribersrsquo position is strong Bharti is

the leading operator in Access segment in terms of number of subscribers However in term

of net additions during the quarter Idea recorded the highest growth of 766 million

followed by Bharti (629 million) and Vodafone (488 million)

The following points influence the buyer power

Lack of differentiation among the service provider As telephone and data

services does not vary much regardless of which companies are selling them

Cut throat competition Competition level has increased a lot with increase in

new foreign as well as domestic players in the industry Operators are engaging

in an intense price war which is benefitting to the buyers in every way

6 | P a g e

Customer is price sensitive Every operator is offering low tariffs with better

services due to high level of competition among the operators which has made

customer more sensitive to price

Low switching costs from one operator to other operator

The consumer now has access to several means of communication like email

instant messaging which are diminishing the importance voice services

Attractive Schemes for new connections

Availability of all operators everywhere

3 Threats from Substitutes

Presence and easy availability of substituted products is a great threat for the successful

survival of any organization since it can enforce the company to cut the price of its product

The growth rate of reliance is more than Bharti and that of Vodafone is almost comparable

to Bharti

The potential major substitutes for telecom industry are as follows

Products and services from non-traditional telecom industries pose

serioussubstitution threats Cable TV and satellite operators now compete for

buyers The cable guys with their own direct lines into homes offer broadband

internet services and satellite links can substitute for high-speed business

networking needs

Wireless phones are also getting cheaper each year over the last decade this has

provided consumers with more convenience and mobility to the extent that the

younger demographic now considers a fixed line phone redundant

Just as worrying for telecom operators is the internet VOIP ie voice over ip

telephony is becoming a viable vehicle for cut-rate voice calls Delivered by ISPs -

not telecom operators - internet telephony could take a big bite out of telecom

companies core voice revenues Applications like Skype have been extremely

popular among younger generation users and are fast emerging as preferred

means of communication

4 Potential Entry of New Competitors Since current telecom technologies involve heavy

capital investment so chances of success for new entrants are very limited Still it is seen

that few new entrant like Idea is growing very rapidly and the growth rate is much higher

than the top service providers

The most common forms of entry barriers except intrinsic physical or legal obstacles are as

follows

7 | P a g e

Economies of scale In telecom industry the economies of scale exists from the

supplier side That is why companies try to increase their subscriber base at

drastic rate

Distribution channels Distribution channels are also providing a major

determining factor These channels are not loyal to any company and

competitors can easily access them and make out work for them

Though huge licence fee to be paid upfront and high gestation period reduces

the threat of new entrant and discourages investment and infrastructure in the

telecom sector

Limited Spectrum availability Regulatory issue which again leads to high licence

fee also restrict new players from entering into the market

Rapidly changing technology and setup the efficient Infrastructure for the same

accordingly is also the major factor which stops new player to enter into the

telecom sector

New entrants are ready to enter huge capital considering the attractiveness of

the market

Increase in FDI limits to 74 is bringing competition from foreign players Huge

investments are being made by the foreign companies to setup better

infrastructure and getting latest technology into the country

Threat from the non-telecom background brand which could foray into the

telecom industry by the ease of outsourcing

Customer switching cost is very low as cost of new connection is really low And

new connection offers more benefits to the customers

5 Bargaining Power of Suppliers

As far as the suppliers are concerned the pros and cons to all service providers are equal

that may be in human resource or products

Large number of suppliers The industry basically has a large number of suppliers

which helps them to choose from a lot of options So they try to select the best

option to deliver the value to the customers and to have a competitive

advantage from their competitor

Shared tower infrastructure Technology has helped them to share the tower

infrastructure This basically helps them to reduce the initial investment a lot

Limited pool of skilled managers and engineers especially those well versed in

the latest technologies which put companies into weaker side in terms of hiring

and salaries

Medium cost of switching since changing their hardware would lead to additional

cost in modifying the architecture

8 | P a g e

Table Analysis of the Porterrsquos Five Forces

Internal Analysis Strength amp Weakness

Strengths

1 Biggest mobile service provider in worldrsquos second largest telecom market ndash Mobile

phone subscriptions now follow the normal population trends around the world

With about 870 million wireless subscriptions India ranks second after China in the

wireless market Airtel has a 222 share of that market

2 Well-established nationwide infrastructure ndash Airtel has been in the market for 18+

years and thus has towers and backhaul all over the country This is a major

advantage Deployment of new technologies or increasing capacity at times requires

software and minimal hardware upgrade Having infrastructure already on the

ground makes that process much faster and smoother Secondly it is easier to

capture new customers if a telco already has a network in place

3 High brand equity ndash Airtel is among Indiarsquos most visible brands omnipresent in most

parts of the nation through television print and various other forms of advertising

Celebrity endorsements and innovative advertising that understand the pulse of

market are some of the assets of the Airtel brand

4 Superior overall network quality and reliability ndash Bharti Airtel (along with Vodafone)

runs one of the better mobile networksrsquo in India They have nationwide penetration

and although there is no dearth of consumer complaints regarding dropped calls and

slow data against Airtel it still offers a higher quality telecom service experience as

compared to most other telcos

5 Has established assets

a Physical assets Nationwide presence of offices has over 34000+ towers and

telecommunication equipmentrsquos and hardware This gives an easier

deployment of new technologies and softwares Also helps in easier

customer acquisition when infrastructure is already in place

9 | P a g e

b Intellectual and Human assets An employee base of about 20000

c Financial Assets

i Bharti Airtel PvtLtd went public in 2002

ii Listed on NSE and BSE

iii 141598B Market Capital

10 | P a g e

Weaknesses ndash

High competition in the telecom market ndash Airtel like all other service providers in

India has been adversely affected by the extreme price competition Although the

average voice call rates have gone up recently they were as low as Rs 06min (1

centmin) a few years ago The story is similar with data and 3G tariffs As a result

the company has been reporting declining profits for many years ARPU had been

decreasing too although it is showing signs of bottoming out now

Debt and finances ndash According to their latest quarterly report Airtel is burdened by

$97 billion in net debt which is a lot of money when converted to rupees How can

Airtel repay this debt is the question Possibilities include stake and equity sale or

spike in revenue Depreciating rupee is also an issue since it results in foreign

exchange losses and increases the financing cost

Africa acquisitions and operations ndash Airtel acquired Zainrsquos Africa business for $9

billion in 2010 Since then it has struggled to turn around those operations reporting

repeated losses from the continent While the Africa operation has widened the

companiesrsquo geography it continues to be a drag on its balance sheet

Late adoption of 3G and advanced wireless technologies ndash Due to various

regulatory uncertainties and delayed spectrum auctions India and Airtel were late to

the 3G party 3G services were launched by Airtel only in early 2011 The data tariffs

were high speeds were unsatisfactory and customer acceptance of 3G was slow The

company lacks nationwide 3G license with spectrum in 13 out of 22 telecom service

areas Airtelrsquos LTE network for mobile broadband is still confined to only 4 cities in

India

11 | P a g e

PESTEL Analysis of Bharti Airtel Limited

Political

The ministry of telecom industry hiked FDI limits from 49 to 74 which enabled

Indian promoters of telecom sector to spark off the competition and consolidation

by selling their stakes to foreign entities Airtel already have tie up with foreign

partner SINTEL which is going to help in investing more in infrastructure and latest

technology to provide the best services to their subscribers Also due to this increase

in foreign direct investment in telecommunication market Airtel will be able to

modulate the foreign stakes in their companies that have already acquired a range

between 67-69 percent of their assets

With the increase in globalisation and tremendous growth of Indian

telecommunication sector Airtel launched its mobile services in Srilanka in Jan 2009

and investing to

Recently Airtel have also acquired Zain for Africa operations which is the second

biggest overseas purchase by an Indian company

Economical

In telecom budget 2008 raw materials for the manufacture of specified electronic

hardware items have been exempted from excise duty which lowers the network

equipment costs to benefit major mobile services provider so Airtel can expand

their network coverage to more rural areas at much cheaper cost)

During the recession period government policy to reduce the custom duty on

convergence product from 10 to 5 helped in establishing parity devices used in

communication sector so this will help Airtel in lowering their cost for DTH

expansion

Government has announced per second billing tariff for the subscriber along with

the per minute billing plan Though the per second plan is not beneficial for the

telecom operators as this could reduce the sectors annual revenue by 10-

15Operators are already struggling with the low Average Revenue Per user

(ARPUs) due to high taxes (30 of the gross revenue earned by the operators goes

as various taxes) levied by government will now struggle more with this new plan To

overcome this situation Airtel has launched low tariff per minute plans along with

per second plan As majority of the subscribers make longer duration calls and the

per second call could be detrimental for them with the new reduced per minute

plan Airtel could also launch pay per character for SMS services to increase the VAS

revenue

12 | P a g e

Social

Government has hiked FDI limits which would lead to better infrastructure in

telecom due to intake of more investment by the foreign investors As 70 of Indian

population still resides in rural areas improvement in telecommunication

infrastructure and services will reduce isolation increase business viability farming

productivity and access to educational and medical services Airtel has already

announced to set up 100000 service centres and telecom infrastructure in rural India

by march 2010

Rollout of national rural employment scheme to all 596 districts in India with a

provision of Rs160 billion to aid faster penetration of mobiles and consequently

faster growth of Airtel as they hold major Indian telecom market with 24 growth at

the end of 31st March 2009

Government has announced the auction for 3G and BWA spectrum and Airtel is one

of the qualified bidders for the same and Airtel has already signed a deal with

Ericsson to upgrade their network for 3G It will help Airtel to undertake social

initiatives of the government such as e-education tele medicine and e-health and e-

governance providing affordable broadband and mobile services to sub urban and

rural areas

As demand for the value added services and high speed broadband is increasing

among the youth Airtel being the leading private broad band service provider in the

country has introduced the ultra fast speed of 50 Mbps for the broadband users on

next generation VDSL2 technology which will allow users the convenience to

download a full feature film in less than 3 minutes Along with it is providing free

value add services like parallel ringing website builder (Basic) PC secure (Anti-Virus

software) online storage unlimited gaming on games on demand

Increasing competition with the entry of many new operators in the telecom

industry has forced in reduction of tariffs So consumers get more options and can

change their network operator according to their need In this Airtel has introduced

many low tariff plans like youth Plan for young people ladies special and friends

prepaid plan family celebration plan according to the requirements of the different

customer segments Segmentation strategy aims towards understanding the need

gaps of specific consumer segments and creating special segmented products for

them

Technological

Increase in FDI limits also benefited inflow of latest technology with improved

infrastructure as AIRTEL is well established with better infrastructure so it can

provide better services to its customers in urban and can expand its network in more

rural areas

Introduction of Mobile Number Portability (MNP) which allows the consumer to

retain their existing mobile number even when they change the service provider

13 | P a g e

This will increase the competition among the service providers as the subscribers can

change their network if they are not happy with the services of the existing service

provider Airtel has the edge over his competitors as their services are much better

than other service providers

Government has announced the auction for 3G and BWA spectrum which will allow

telecom companies to offer additional valued services like high resolution video and

multimedia services with high data rate transmission capabilities Airtel has already

qualified to bid for the auctionAlso Airtel has signed a 13 billion deal with Ericsson

to expand and upgrade its network for 3G services in 15 of Indias 22 telecom circles

Environment and Legal

Radio frequency waves emitted from the mobile phones harms body cells and

damages the DNA This is not yet proved that such changes were risk to human

health

Mobilenumber portability (MNP) implementation would enable subscribers to move

to different service provider retaining the original number This implementation

would hamper Bharti Airtel as customers would keep switching to any possible

networks available

In India legal obligations are defined regarding 3G auction and bidding which proves

to be in favour of Bharti Airtel as this auction is not available to the new entrants

This political factor forbids the entry of new companies in to 3G services

Due to rising terrorist activities and hacking of confidential data on air India

Department of Telecommunication (DoT) has made amendments related to security

features which states that telecom companies should have good policies for security

and they should be responsible for the security of the network

Industry Environment

INDUSTRY STAGE

The industry growth stage lasted from 2005-2012 At this point the industry is almost at the

shakeout stage The industry is rapidly approaching the matured market stage But another

theory refutes the claim The economic growth in India currently the market is growing

more on the Network area growth providers are moving to smaller cities from big cities

demand is generated from Blsquo class amp Clsquo class cities ndash middle class population A major

section of middle class population of India in smaller cities couldnlsquot enjoy the advantages of

Telecom service due to the Govt monopoly poor capacity regulations they are the

immediate customers of the Mobile operators

14 | P a g e

The Landline is no more the preferable choice for the new telecom users people like to use

mobile phones because of its added advantages and easy subscription Also the middle class

size is expected to grow in India in next decades so the Mobile market in India will be

probably in Growth ndash Shakeout phase for a longer period 8 Indian mobile operators

offerings are segmented in two broad categories ndash Pre-paid and Post-paid Although mobile

market is growing positively the Post-paid market is declining and prepaid market is

increasing by leaps and bounds

The Indian telecom sector has witnessed tremendous growth over the past decade Today

the Indian telecom network is the second largest in the world after China A liberal policy

regime and involvement of the private sector have played an important role in transforming

this sector The total number of telephones as on 31st April 2013 was 89702 million The

telecom industry has witnessed significant growth in subscriber base over the last decade

with increasing network coverage and a competition-induced decline in tariffs acting as

catalysts for the growth in subscriber base The growth story and the potential have also

served to attract newer players in the industry with the result that the intensity of

competition has kept increasing Internet subscribers in India grew to 16481 million as of

March 31 2013 with as many as seven out of eight net users in the country accessing the

services via their mobile phones according to telecom regulator TRAI The total number of

mobile internet subscribers stood at 1432 million at the end of the last fiscal

The number of broadband subscribers increased to 1505 million as of March 31 2013 from

1498 million as of December 31 2012 The number of non-mobile internet subscribers in

the quarter ended March 31 2013 grew to 2161 million from 2157 million registering a

quarterly growth rate of 016 per cent

15 | P a g e

GROWTH IN TELECOM

Growth Drivers - Key factors which will fuel the growth of the sector include increased

access to services owing to launch of newer telecom technologies like 3G and BWA better

devices changing consumer behaviour and the emergence of cloud technologies A majority

of the investments will go into the capital expenditure for setting up newer networks like 3G

and developing the backhaul among other things

Subscriber Base - The mobile subscriber base in India is estimated rise by 9 per cent to 696

million connections this year according to technology researcher Gartner The mobile

service penetration in the country is currently at 51 per cent and is expected to grow to 72

per cent by 2016

Mobile Value Added Services (MVAS) - Indias current MVAS industry has an estimated size

of US$ 27 billion The industry derives its revenues majorly from the top five to six products

such as game based applications music downloads etc which continue to form close to 80

per cent of VAS revenues The Indian MVAS industry estimated to grow to US$ 108 billion

by 2015 with the next wave of growth in subscriptions expected to come from semi-urban

and rural areas

Mobile Number Portability (MNP) - Mobile Number Portability requests increased from

8970 million subscribers at the end of March 2013 to 9173 million at the end of April 2013

Handsets - The mobile handset markets revenues in India will grow from US$ 57 billion in

2010 to US$ 78 billion in 2016 according to the study India is the second largest mobile

handset market in the world and is set to become an even larger market with unit shipment

of 2084 million in 2016 at a CAGR of 118 per cent from 2010 to 2016The Indian mobile

handset market posted revenue of Rs 35946 billion in 2012-2013 compared to Rs 31330

billion in the earlier fiscal year on the back of increasing sale of Smartphonersquos In 2012-2013

Karbonn grew 731 per cent Samsung ended the year with revenue of Rs 11328 billion

compared to Rs 7891 billion last year showing a growth of 436 per cent The iconic Apple

16 | P a g e

posted revenue of Rs 1293 billion in FY 2013 in the country compared to Rs 250 billion in

the previous financial year

GAME THEORY

Indiarsquos telecom Industry an oligopoly has witnessed significant price-cutting since 2005 A

metric called Average Revenue per user (ARPU) which defines a companyrsquos per subscriber

monthly revenue has fallen from ₹37001 in Decemberrsquo05 to ₹12825 in Decemberrsquo13 This

implies that either people lowered usage of cell phones drastically or call rates fell over the

period

TABLE 1

The former is unlikely in a growing economy and the phenomenon actually resulted due to

aggressive price cutting by firms during this period

Currently Airtel Vodafone and Idea control 70+ of the industryrsquos market share Table 1

shows the ARPU and subscriber base (in Crores) of these 3 over the past 6 years The

average subscriber base for a particular year is shown in the table Table 2 shows change

in ARPU of the three companies over the past 5 years and their respective individual share

of the total subscriber base of these 3 companies

Quarter Ended December

Airtels ARPU (in ₹)

Airtels subscribers

Vodafones ARPU (in ₹)

Vodafones subscribers

Ideas ARPU (in ₹)

Ideas subscribers

2008 26059 611737305 22792 4323223725 21541 2689632113

2009 20058 7982973638 17055 597358665 17209 3668136038

2010 15398 1049672524 13005 8423015475 12782 5366251725

2011 1364 1282383818 11742 1074420281 11486 7323344775

2012 13667 1399592696 12192 1148899553 1072 8723590463

2013 14354 1441124333 1385 1164663934 12249 9457361213

17 | P a g e

TABLE 2

TABLE 3

Why are the companies cutting their prices Game theory is at work here Airtel (A)

Vodafone (V) and Idea (I) respectively had 47 33 and 20 market share in 2008 During

this period all companies in the industry were reducing their rates Given this scenario I

assume that companies that didnrsquot reduce their rates during this period would not have

gained more customers (they would have actually lost customers but for sake of simplicity I

donrsquot take this into account) Also I assume that proportional price cuts by all companies

would have resulted in no change in their relative market shares during these years

Airtel Vodafone Idea

Year Change in ARPU

Relative Market Share ()

Change in ARPU

Relative Market Share ()

Change in ARPU

Relative Market Share ()

2009 -2302851222

452942479 -25171113 338932742 -2011048698

20812478

2010 -2323262539

432213148 -23746702 346826077 -2572491138

220960776

2011 -1141706715

415126672 -97116494 347805789 -1013925833

237067538

2012 0197947214 40913579 383239653 335851943 -6668988334

255012268

2013 5026706666 405776274 135990814 327933531 142630597 266290195

Situation V reduces rates V doesnrsquot reduce

A Reduces Rates A and V retain market share V loses market share

A doesnrsquot Reduce A loses market share A and V retain market share

18 | P a g e

In such a case A and V would have faced the following situation at the beginning of 2009

This is a variant of the classical prisonerrsquos dilemma (say A and B) wherein two prisoners are

separately asked about the true culprit The situations that A and B face is shown below

TABLE 4

In this scenario no prisoner can trust the other one and the optimal solution for each one

would be to betray the other Similar is the case in Telecom industry No company can trust

the others In a bid to save their respective market shares companies kept cutting their own

rates Each set of companies each year would have faced a situation similar to the one in

table 3 If A didnrsquot reduce its rates in 2009 its market share could have fallen to 388

under the assumptions made at the beginning of analysis Hence A decided to cut prices

Similarly all firms in the industry decided to reduce rates Another question that I seek to

answer is what the ideal action for these firms would have been during this period Did they

make a mistake due to these price wars

In the case of the prisonerrsquos dilemma discussed above each prisonerrsquos ideal choice is to stay

silent and spend a year in jail instead of 3 that would result if they betray each other Would

the telecom companies also have achieved better results if they had not indulged in price

wars No The subscriber base of the 3 companies discussed above increased at a

compounded rate of 37 from 2008-2012 (Table 1) It would be reasonable to attribute this

change to the falling prices given that the economy was performing poorly during this

period Again taking into account the assumptions made in deriving Table 3 the revenues of

A and V in 2013 could be demonstrated by the following table

TABLE 5

Situation V reduces rates V doesnrsquot reduce

A Reduces Rates ( 2068 1400) (2068 984)

A doesnrsquot Reduce (1590 1400) (1590 984)

Situation B betrays A B stays silent

A Betrays B A and B imprisoned for 2 years A goes free and B imprisoned for 3 years

A stays silent B goes free and A imprisoned for 3 years A and B imprisoned for 1 year

19 | P a g e

Table 5 shows the approximate monthly revenues (in Rupees Crores) of the two firms under

different situations with respect to price In the above table both the Nash equilibrium (the

action point from which no company has an incentive to deviate given the action of the

other company) as well as the ideal equilibrium is for both companies to reduce rates Thus

the telecom industry didnrsquot necessarily suffer due to price cuts at least in terms of

revenues However this strategy would have remained profitable as long as the price

elasticity of the industryrsquos demand remains greater than 1 In 2012 a rise in prices

(indicated by ARPU) led to an increase in the three companiesrsquo revenue Thus this year

marked an end to the telecom industryrsquos price-cutting strategy

Why is it that the automobile Industry in India another oligopoly has not faced similar price

wars It is so because companies cut prices only if the price-cut doesnrsquot result in economic

losses for them Return on assets is already low in automobile industry (about 10) The

telecom industry has also had very low (9-10) returns during the past 2 years This also

explains why that the effect of game theory has disappeared in 2012 and 2013 Young

Industries (such as e-commerce) earning economic profits may witness a similar price-

cutting and erosion of economic profits in the future

Strategy in Global Environment

BALs telecom model was considered as the new model for telecom and effective for

emerging markets like India BAL had established itself as a dominant player in India with its

innovative business processes and strong brand but was witnessing tapering growth

because of increasing competition and saturation of the more lucrative urban markets

While more and more players were eyeing the fast-growing Indian mobile market which was

experiencing high growth BAL put its sight on foreign shores BAL realized that its extensive

experience in India coupled with its unique business model would help it tap the

20 | P a g e

opportunity provided by other developing and emerging markets and create value for its

customers

Acquisition of Zain Groups telecom business in fifteen African counties gave it a boosted

start in the African continent There were talks about BAL having paid higher for the deal

Even though BAL was in the process of giving shape to its strategy for the African markets

the critical success factors in emerging markets

raquo BAL was trying to understand the importance of business process innovation and strategic

partnerships

raquo Appreciate the role of tailoring strategy to fit a specific industry and business

environment

raquo Analyze BALs internal and external environment

raquo Understand and discuss cross-country differences in Cultural demographic and market

conditions and its possible impact on business

raquo Probe the role importance and pros and cons of legal and regulatory framework

raquo Explore the ways a business can be successful in international markets

Though BAL was able to acquire a global footprint and a much larger customer base through

this deal industry experts believed it would be difficult for it to leverage on the business

model and strategies which had kept it afloat and ahead of the competition in India

Jaydeep Ghosh Executive Director of KPMG 7 said Bharti has replicated the low-cost

model through outsourcing in India but depending upon different geographies (in Africa) it

will not be easy

BAL also acquired stake in Bangladeshrsquos Warid Telecom The Company has used its

successful lsquominute factory modelrsquo (lowest-costmin) in these territories Bharti Airtel has

about 2712 million subscribers worldwide ndash 1996 million in India 62 million in Bangladesh

17 million in Sri Lanka and 637 million in Africa as of the end of March 2013Telecom

penetration is low in Africa and hence huge opportunities are available for Bharti Airtel So

far turning around the African operations has been a challenging task for the company in

the past three years This is due to the high competition currency movements and political

unrest in some countries and regions However the African operations offer good

opportunities and it can be expected that these acquisitions will enhance the companyrsquos

global presence in telecom space and will help it to increase its profitability in the coming

years

4 | P a g e

External Analysis Opportunity amp Threats

Opportunities

1 Untapped voice market ndash Despite many believing that the voice market in India is close to saturation hundreds of millions remain without a phone Recently VLR (Visitor Location Register) numbers released by the regulator TRAI showed that around 730 million out of the total 870 million are active connections Given many people in India use multiple SIMs it is safe to say that mobile phone penetration in the country is less than 50 The opportunity for Airtel is huge especially in the rural segment

2 3G and data revenue ndash Airtelrsquos 3G subscribers constitute less than 5 of its total subscriber base Apart from getting new 3G customers to join Airtel there is immense room for growth within its existing customers The operator should be more aggressive in marketing the benefits of high speed data access on phone Simultaneously it must ensure faster and consistent data speeds on its network

3 LTE ndash The whole wireless world is moving towards LTE LTE for mobile broadband can be a good solution for India where fixed broadband penetration is otherwise low Airtel has taken the lead with this version of LTE in 4 cities but deployment needs to catch up pace Despite a weak LTE ecosystem in India Airtel should portray itself as the embracer of that technology It must pursue the device manufacturers to produce LTE capable phones for India and then take the lead in the deployment of LTE for cellular networks too

4 Mergers and Acquisitions ndash Unfortunately the MampA rules in India are yet to formally declared although recent media reports have suggested that companies may be allowed to merge as long as their market share in every circle is less than 50 Airtel with a market share of 222 should be good to acquire smaller telcos to reduce competition and add subscribers and spectrum Such acquisitions will incur huge spectrum costs but it could be well worth it in the long term

Threats

Unfriendly regulatory environment ndash The telecom industry in India has been

plagued by a hostile and unstable regulatory scenario This has adversely affected

the industry sentiment and the wireless service providers While some clarity has

begun to emerge many guidelines are far from certain Airtel has not remained

untouched from this chaos And this threat would continue to linger for the next

few years

Spectrum Auctions and Refarming ndash Government of India and TRAI kept a high

reserve price for 3G BWA and the recent 1800 MHz auction Airtel had spent Rs 123

billion ($27 billion per rupee to dollar conversion back then) for 3G airwaves Since

the returns are slow due to low tariffs buying the spectrum at high price is

detrimental for the telcos Refarming 900 MHz is another terrible idea which would

5 | P a g e

negatively impact Airtelrsquos finances given that it will have to repurchase those

airwaves to continue 2G operations

Mobile Number Portability ndash MNP gives the customer independence to change the

service provider while retaining the number With similar tariffs across various telcos

and satisfaction with the current service provider being low consumers are willing to

jump ship The larger incumbent operators are losing millions of customers to the

newer players who attract these customers with their freebies and innovative offers

ANALYSIS Porterrsquos five forces Model

1 Intensity of Competition among Rivals

Bharti Airtel has strong rivals in telecommunication sector of India like BSNL and Vodafone

Initially it had only two competitors but now this figure has jumped to more than ten All

these companies are providing similar services with the same capabilities Although it has

enhanced its investment in last few years and working hard to expand its network yet the

presence of strong competitors is a major threat for its successful survival

The price war is really very fierce in this industry Price war in telecom industry has

commoditized the market that branding has taken a backseat New players are reducing

their tariffs to get better hold in the market and in turn the existing big players like Airtel

also have to compete by introducing low tariff new plans such as youth plan for younger

generation ladies special etc

2 Bargaining Power of Buyer

Although subscribers are not concentrated not purchase in bulk but still can easily switch

for better quality coverage and rates In this context subscribersrsquo position is strong Bharti is

the leading operator in Access segment in terms of number of subscribers However in term

of net additions during the quarter Idea recorded the highest growth of 766 million

followed by Bharti (629 million) and Vodafone (488 million)

The following points influence the buyer power

Lack of differentiation among the service provider As telephone and data

services does not vary much regardless of which companies are selling them

Cut throat competition Competition level has increased a lot with increase in

new foreign as well as domestic players in the industry Operators are engaging

in an intense price war which is benefitting to the buyers in every way

6 | P a g e

Customer is price sensitive Every operator is offering low tariffs with better

services due to high level of competition among the operators which has made

customer more sensitive to price

Low switching costs from one operator to other operator

The consumer now has access to several means of communication like email

instant messaging which are diminishing the importance voice services

Attractive Schemes for new connections

Availability of all operators everywhere

3 Threats from Substitutes

Presence and easy availability of substituted products is a great threat for the successful

survival of any organization since it can enforce the company to cut the price of its product

The growth rate of reliance is more than Bharti and that of Vodafone is almost comparable

to Bharti

The potential major substitutes for telecom industry are as follows

Products and services from non-traditional telecom industries pose

serioussubstitution threats Cable TV and satellite operators now compete for

buyers The cable guys with their own direct lines into homes offer broadband

internet services and satellite links can substitute for high-speed business

networking needs

Wireless phones are also getting cheaper each year over the last decade this has

provided consumers with more convenience and mobility to the extent that the

younger demographic now considers a fixed line phone redundant

Just as worrying for telecom operators is the internet VOIP ie voice over ip

telephony is becoming a viable vehicle for cut-rate voice calls Delivered by ISPs -

not telecom operators - internet telephony could take a big bite out of telecom

companies core voice revenues Applications like Skype have been extremely

popular among younger generation users and are fast emerging as preferred

means of communication

4 Potential Entry of New Competitors Since current telecom technologies involve heavy

capital investment so chances of success for new entrants are very limited Still it is seen

that few new entrant like Idea is growing very rapidly and the growth rate is much higher

than the top service providers

The most common forms of entry barriers except intrinsic physical or legal obstacles are as

follows

7 | P a g e

Economies of scale In telecom industry the economies of scale exists from the

supplier side That is why companies try to increase their subscriber base at

drastic rate

Distribution channels Distribution channels are also providing a major

determining factor These channels are not loyal to any company and

competitors can easily access them and make out work for them

Though huge licence fee to be paid upfront and high gestation period reduces

the threat of new entrant and discourages investment and infrastructure in the

telecom sector

Limited Spectrum availability Regulatory issue which again leads to high licence

fee also restrict new players from entering into the market

Rapidly changing technology and setup the efficient Infrastructure for the same

accordingly is also the major factor which stops new player to enter into the

telecom sector

New entrants are ready to enter huge capital considering the attractiveness of

the market

Increase in FDI limits to 74 is bringing competition from foreign players Huge

investments are being made by the foreign companies to setup better

infrastructure and getting latest technology into the country

Threat from the non-telecom background brand which could foray into the

telecom industry by the ease of outsourcing

Customer switching cost is very low as cost of new connection is really low And

new connection offers more benefits to the customers

5 Bargaining Power of Suppliers

As far as the suppliers are concerned the pros and cons to all service providers are equal

that may be in human resource or products

Large number of suppliers The industry basically has a large number of suppliers

which helps them to choose from a lot of options So they try to select the best

option to deliver the value to the customers and to have a competitive

advantage from their competitor

Shared tower infrastructure Technology has helped them to share the tower

infrastructure This basically helps them to reduce the initial investment a lot

Limited pool of skilled managers and engineers especially those well versed in

the latest technologies which put companies into weaker side in terms of hiring

and salaries

Medium cost of switching since changing their hardware would lead to additional

cost in modifying the architecture

8 | P a g e

Table Analysis of the Porterrsquos Five Forces

Internal Analysis Strength amp Weakness

Strengths

1 Biggest mobile service provider in worldrsquos second largest telecom market ndash Mobile

phone subscriptions now follow the normal population trends around the world

With about 870 million wireless subscriptions India ranks second after China in the

wireless market Airtel has a 222 share of that market

2 Well-established nationwide infrastructure ndash Airtel has been in the market for 18+

years and thus has towers and backhaul all over the country This is a major

advantage Deployment of new technologies or increasing capacity at times requires

software and minimal hardware upgrade Having infrastructure already on the

ground makes that process much faster and smoother Secondly it is easier to

capture new customers if a telco already has a network in place

3 High brand equity ndash Airtel is among Indiarsquos most visible brands omnipresent in most

parts of the nation through television print and various other forms of advertising

Celebrity endorsements and innovative advertising that understand the pulse of

market are some of the assets of the Airtel brand

4 Superior overall network quality and reliability ndash Bharti Airtel (along with Vodafone)

runs one of the better mobile networksrsquo in India They have nationwide penetration

and although there is no dearth of consumer complaints regarding dropped calls and

slow data against Airtel it still offers a higher quality telecom service experience as

compared to most other telcos

5 Has established assets

a Physical assets Nationwide presence of offices has over 34000+ towers and

telecommunication equipmentrsquos and hardware This gives an easier

deployment of new technologies and softwares Also helps in easier

customer acquisition when infrastructure is already in place

9 | P a g e

b Intellectual and Human assets An employee base of about 20000

c Financial Assets

i Bharti Airtel PvtLtd went public in 2002

ii Listed on NSE and BSE

iii 141598B Market Capital

10 | P a g e

Weaknesses ndash

High competition in the telecom market ndash Airtel like all other service providers in

India has been adversely affected by the extreme price competition Although the

average voice call rates have gone up recently they were as low as Rs 06min (1

centmin) a few years ago The story is similar with data and 3G tariffs As a result

the company has been reporting declining profits for many years ARPU had been

decreasing too although it is showing signs of bottoming out now

Debt and finances ndash According to their latest quarterly report Airtel is burdened by

$97 billion in net debt which is a lot of money when converted to rupees How can

Airtel repay this debt is the question Possibilities include stake and equity sale or

spike in revenue Depreciating rupee is also an issue since it results in foreign

exchange losses and increases the financing cost

Africa acquisitions and operations ndash Airtel acquired Zainrsquos Africa business for $9

billion in 2010 Since then it has struggled to turn around those operations reporting

repeated losses from the continent While the Africa operation has widened the

companiesrsquo geography it continues to be a drag on its balance sheet

Late adoption of 3G and advanced wireless technologies ndash Due to various

regulatory uncertainties and delayed spectrum auctions India and Airtel were late to

the 3G party 3G services were launched by Airtel only in early 2011 The data tariffs

were high speeds were unsatisfactory and customer acceptance of 3G was slow The

company lacks nationwide 3G license with spectrum in 13 out of 22 telecom service

areas Airtelrsquos LTE network for mobile broadband is still confined to only 4 cities in

India

11 | P a g e

PESTEL Analysis of Bharti Airtel Limited

Political

The ministry of telecom industry hiked FDI limits from 49 to 74 which enabled

Indian promoters of telecom sector to spark off the competition and consolidation

by selling their stakes to foreign entities Airtel already have tie up with foreign

partner SINTEL which is going to help in investing more in infrastructure and latest

technology to provide the best services to their subscribers Also due to this increase

in foreign direct investment in telecommunication market Airtel will be able to

modulate the foreign stakes in their companies that have already acquired a range

between 67-69 percent of their assets

With the increase in globalisation and tremendous growth of Indian

telecommunication sector Airtel launched its mobile services in Srilanka in Jan 2009

and investing to

Recently Airtel have also acquired Zain for Africa operations which is the second

biggest overseas purchase by an Indian company

Economical

In telecom budget 2008 raw materials for the manufacture of specified electronic

hardware items have been exempted from excise duty which lowers the network

equipment costs to benefit major mobile services provider so Airtel can expand

their network coverage to more rural areas at much cheaper cost)

During the recession period government policy to reduce the custom duty on

convergence product from 10 to 5 helped in establishing parity devices used in

communication sector so this will help Airtel in lowering their cost for DTH

expansion

Government has announced per second billing tariff for the subscriber along with

the per minute billing plan Though the per second plan is not beneficial for the

telecom operators as this could reduce the sectors annual revenue by 10-

15Operators are already struggling with the low Average Revenue Per user

(ARPUs) due to high taxes (30 of the gross revenue earned by the operators goes

as various taxes) levied by government will now struggle more with this new plan To

overcome this situation Airtel has launched low tariff per minute plans along with

per second plan As majority of the subscribers make longer duration calls and the

per second call could be detrimental for them with the new reduced per minute

plan Airtel could also launch pay per character for SMS services to increase the VAS

revenue

12 | P a g e

Social

Government has hiked FDI limits which would lead to better infrastructure in

telecom due to intake of more investment by the foreign investors As 70 of Indian

population still resides in rural areas improvement in telecommunication

infrastructure and services will reduce isolation increase business viability farming

productivity and access to educational and medical services Airtel has already

announced to set up 100000 service centres and telecom infrastructure in rural India

by march 2010

Rollout of national rural employment scheme to all 596 districts in India with a

provision of Rs160 billion to aid faster penetration of mobiles and consequently

faster growth of Airtel as they hold major Indian telecom market with 24 growth at

the end of 31st March 2009

Government has announced the auction for 3G and BWA spectrum and Airtel is one

of the qualified bidders for the same and Airtel has already signed a deal with

Ericsson to upgrade their network for 3G It will help Airtel to undertake social

initiatives of the government such as e-education tele medicine and e-health and e-

governance providing affordable broadband and mobile services to sub urban and

rural areas

As demand for the value added services and high speed broadband is increasing

among the youth Airtel being the leading private broad band service provider in the

country has introduced the ultra fast speed of 50 Mbps for the broadband users on

next generation VDSL2 technology which will allow users the convenience to

download a full feature film in less than 3 minutes Along with it is providing free

value add services like parallel ringing website builder (Basic) PC secure (Anti-Virus

software) online storage unlimited gaming on games on demand

Increasing competition with the entry of many new operators in the telecom

industry has forced in reduction of tariffs So consumers get more options and can

change their network operator according to their need In this Airtel has introduced

many low tariff plans like youth Plan for young people ladies special and friends

prepaid plan family celebration plan according to the requirements of the different

customer segments Segmentation strategy aims towards understanding the need

gaps of specific consumer segments and creating special segmented products for

them

Technological

Increase in FDI limits also benefited inflow of latest technology with improved

infrastructure as AIRTEL is well established with better infrastructure so it can

provide better services to its customers in urban and can expand its network in more

rural areas

Introduction of Mobile Number Portability (MNP) which allows the consumer to

retain their existing mobile number even when they change the service provider

13 | P a g e

This will increase the competition among the service providers as the subscribers can

change their network if they are not happy with the services of the existing service

provider Airtel has the edge over his competitors as their services are much better

than other service providers

Government has announced the auction for 3G and BWA spectrum which will allow

telecom companies to offer additional valued services like high resolution video and

multimedia services with high data rate transmission capabilities Airtel has already

qualified to bid for the auctionAlso Airtel has signed a 13 billion deal with Ericsson

to expand and upgrade its network for 3G services in 15 of Indias 22 telecom circles

Environment and Legal

Radio frequency waves emitted from the mobile phones harms body cells and

damages the DNA This is not yet proved that such changes were risk to human

health

Mobilenumber portability (MNP) implementation would enable subscribers to move

to different service provider retaining the original number This implementation

would hamper Bharti Airtel as customers would keep switching to any possible

networks available

In India legal obligations are defined regarding 3G auction and bidding which proves

to be in favour of Bharti Airtel as this auction is not available to the new entrants

This political factor forbids the entry of new companies in to 3G services

Due to rising terrorist activities and hacking of confidential data on air India

Department of Telecommunication (DoT) has made amendments related to security

features which states that telecom companies should have good policies for security

and they should be responsible for the security of the network

Industry Environment

INDUSTRY STAGE

The industry growth stage lasted from 2005-2012 At this point the industry is almost at the

shakeout stage The industry is rapidly approaching the matured market stage But another

theory refutes the claim The economic growth in India currently the market is growing

more on the Network area growth providers are moving to smaller cities from big cities

demand is generated from Blsquo class amp Clsquo class cities ndash middle class population A major

section of middle class population of India in smaller cities couldnlsquot enjoy the advantages of

Telecom service due to the Govt monopoly poor capacity regulations they are the

immediate customers of the Mobile operators

14 | P a g e

The Landline is no more the preferable choice for the new telecom users people like to use

mobile phones because of its added advantages and easy subscription Also the middle class

size is expected to grow in India in next decades so the Mobile market in India will be

probably in Growth ndash Shakeout phase for a longer period 8 Indian mobile operators

offerings are segmented in two broad categories ndash Pre-paid and Post-paid Although mobile

market is growing positively the Post-paid market is declining and prepaid market is

increasing by leaps and bounds

The Indian telecom sector has witnessed tremendous growth over the past decade Today

the Indian telecom network is the second largest in the world after China A liberal policy

regime and involvement of the private sector have played an important role in transforming

this sector The total number of telephones as on 31st April 2013 was 89702 million The

telecom industry has witnessed significant growth in subscriber base over the last decade

with increasing network coverage and a competition-induced decline in tariffs acting as

catalysts for the growth in subscriber base The growth story and the potential have also

served to attract newer players in the industry with the result that the intensity of

competition has kept increasing Internet subscribers in India grew to 16481 million as of

March 31 2013 with as many as seven out of eight net users in the country accessing the

services via their mobile phones according to telecom regulator TRAI The total number of

mobile internet subscribers stood at 1432 million at the end of the last fiscal

The number of broadband subscribers increased to 1505 million as of March 31 2013 from

1498 million as of December 31 2012 The number of non-mobile internet subscribers in

the quarter ended March 31 2013 grew to 2161 million from 2157 million registering a

quarterly growth rate of 016 per cent

15 | P a g e

GROWTH IN TELECOM

Growth Drivers - Key factors which will fuel the growth of the sector include increased

access to services owing to launch of newer telecom technologies like 3G and BWA better

devices changing consumer behaviour and the emergence of cloud technologies A majority

of the investments will go into the capital expenditure for setting up newer networks like 3G

and developing the backhaul among other things

Subscriber Base - The mobile subscriber base in India is estimated rise by 9 per cent to 696

million connections this year according to technology researcher Gartner The mobile

service penetration in the country is currently at 51 per cent and is expected to grow to 72

per cent by 2016

Mobile Value Added Services (MVAS) - Indias current MVAS industry has an estimated size

of US$ 27 billion The industry derives its revenues majorly from the top five to six products

such as game based applications music downloads etc which continue to form close to 80

per cent of VAS revenues The Indian MVAS industry estimated to grow to US$ 108 billion

by 2015 with the next wave of growth in subscriptions expected to come from semi-urban

and rural areas

Mobile Number Portability (MNP) - Mobile Number Portability requests increased from

8970 million subscribers at the end of March 2013 to 9173 million at the end of April 2013

Handsets - The mobile handset markets revenues in India will grow from US$ 57 billion in

2010 to US$ 78 billion in 2016 according to the study India is the second largest mobile

handset market in the world and is set to become an even larger market with unit shipment

of 2084 million in 2016 at a CAGR of 118 per cent from 2010 to 2016The Indian mobile

handset market posted revenue of Rs 35946 billion in 2012-2013 compared to Rs 31330

billion in the earlier fiscal year on the back of increasing sale of Smartphonersquos In 2012-2013

Karbonn grew 731 per cent Samsung ended the year with revenue of Rs 11328 billion

compared to Rs 7891 billion last year showing a growth of 436 per cent The iconic Apple

16 | P a g e

posted revenue of Rs 1293 billion in FY 2013 in the country compared to Rs 250 billion in

the previous financial year

GAME THEORY

Indiarsquos telecom Industry an oligopoly has witnessed significant price-cutting since 2005 A

metric called Average Revenue per user (ARPU) which defines a companyrsquos per subscriber

monthly revenue has fallen from ₹37001 in Decemberrsquo05 to ₹12825 in Decemberrsquo13 This

implies that either people lowered usage of cell phones drastically or call rates fell over the

period

TABLE 1

The former is unlikely in a growing economy and the phenomenon actually resulted due to

aggressive price cutting by firms during this period

Currently Airtel Vodafone and Idea control 70+ of the industryrsquos market share Table 1

shows the ARPU and subscriber base (in Crores) of these 3 over the past 6 years The

average subscriber base for a particular year is shown in the table Table 2 shows change

in ARPU of the three companies over the past 5 years and their respective individual share

of the total subscriber base of these 3 companies

Quarter Ended December

Airtels ARPU (in ₹)

Airtels subscribers

Vodafones ARPU (in ₹)

Vodafones subscribers

Ideas ARPU (in ₹)

Ideas subscribers

2008 26059 611737305 22792 4323223725 21541 2689632113

2009 20058 7982973638 17055 597358665 17209 3668136038

2010 15398 1049672524 13005 8423015475 12782 5366251725

2011 1364 1282383818 11742 1074420281 11486 7323344775

2012 13667 1399592696 12192 1148899553 1072 8723590463

2013 14354 1441124333 1385 1164663934 12249 9457361213

17 | P a g e

TABLE 2

TABLE 3

Why are the companies cutting their prices Game theory is at work here Airtel (A)

Vodafone (V) and Idea (I) respectively had 47 33 and 20 market share in 2008 During

this period all companies in the industry were reducing their rates Given this scenario I

assume that companies that didnrsquot reduce their rates during this period would not have

gained more customers (they would have actually lost customers but for sake of simplicity I

donrsquot take this into account) Also I assume that proportional price cuts by all companies

would have resulted in no change in their relative market shares during these years

Airtel Vodafone Idea

Year Change in ARPU

Relative Market Share ()

Change in ARPU

Relative Market Share ()

Change in ARPU

Relative Market Share ()

2009 -2302851222

452942479 -25171113 338932742 -2011048698

20812478

2010 -2323262539

432213148 -23746702 346826077 -2572491138

220960776

2011 -1141706715

415126672 -97116494 347805789 -1013925833

237067538

2012 0197947214 40913579 383239653 335851943 -6668988334

255012268

2013 5026706666 405776274 135990814 327933531 142630597 266290195

Situation V reduces rates V doesnrsquot reduce

A Reduces Rates A and V retain market share V loses market share

A doesnrsquot Reduce A loses market share A and V retain market share

18 | P a g e

In such a case A and V would have faced the following situation at the beginning of 2009

This is a variant of the classical prisonerrsquos dilemma (say A and B) wherein two prisoners are

separately asked about the true culprit The situations that A and B face is shown below

TABLE 4

In this scenario no prisoner can trust the other one and the optimal solution for each one

would be to betray the other Similar is the case in Telecom industry No company can trust

the others In a bid to save their respective market shares companies kept cutting their own

rates Each set of companies each year would have faced a situation similar to the one in

table 3 If A didnrsquot reduce its rates in 2009 its market share could have fallen to 388

under the assumptions made at the beginning of analysis Hence A decided to cut prices

Similarly all firms in the industry decided to reduce rates Another question that I seek to

answer is what the ideal action for these firms would have been during this period Did they

make a mistake due to these price wars

In the case of the prisonerrsquos dilemma discussed above each prisonerrsquos ideal choice is to stay

silent and spend a year in jail instead of 3 that would result if they betray each other Would

the telecom companies also have achieved better results if they had not indulged in price

wars No The subscriber base of the 3 companies discussed above increased at a

compounded rate of 37 from 2008-2012 (Table 1) It would be reasonable to attribute this

change to the falling prices given that the economy was performing poorly during this

period Again taking into account the assumptions made in deriving Table 3 the revenues of

A and V in 2013 could be demonstrated by the following table

TABLE 5

Situation V reduces rates V doesnrsquot reduce

A Reduces Rates ( 2068 1400) (2068 984)

A doesnrsquot Reduce (1590 1400) (1590 984)

Situation B betrays A B stays silent

A Betrays B A and B imprisoned for 2 years A goes free and B imprisoned for 3 years

A stays silent B goes free and A imprisoned for 3 years A and B imprisoned for 1 year

19 | P a g e

Table 5 shows the approximate monthly revenues (in Rupees Crores) of the two firms under

different situations with respect to price In the above table both the Nash equilibrium (the

action point from which no company has an incentive to deviate given the action of the

other company) as well as the ideal equilibrium is for both companies to reduce rates Thus

the telecom industry didnrsquot necessarily suffer due to price cuts at least in terms of

revenues However this strategy would have remained profitable as long as the price

elasticity of the industryrsquos demand remains greater than 1 In 2012 a rise in prices

(indicated by ARPU) led to an increase in the three companiesrsquo revenue Thus this year

marked an end to the telecom industryrsquos price-cutting strategy

Why is it that the automobile Industry in India another oligopoly has not faced similar price

wars It is so because companies cut prices only if the price-cut doesnrsquot result in economic

losses for them Return on assets is already low in automobile industry (about 10) The

telecom industry has also had very low (9-10) returns during the past 2 years This also

explains why that the effect of game theory has disappeared in 2012 and 2013 Young

Industries (such as e-commerce) earning economic profits may witness a similar price-

cutting and erosion of economic profits in the future

Strategy in Global Environment

BALs telecom model was considered as the new model for telecom and effective for

emerging markets like India BAL had established itself as a dominant player in India with its

innovative business processes and strong brand but was witnessing tapering growth

because of increasing competition and saturation of the more lucrative urban markets

While more and more players were eyeing the fast-growing Indian mobile market which was

experiencing high growth BAL put its sight on foreign shores BAL realized that its extensive

experience in India coupled with its unique business model would help it tap the

20 | P a g e

opportunity provided by other developing and emerging markets and create value for its

customers

Acquisition of Zain Groups telecom business in fifteen African counties gave it a boosted

start in the African continent There were talks about BAL having paid higher for the deal

Even though BAL was in the process of giving shape to its strategy for the African markets

the critical success factors in emerging markets

raquo BAL was trying to understand the importance of business process innovation and strategic

partnerships

raquo Appreciate the role of tailoring strategy to fit a specific industry and business

environment

raquo Analyze BALs internal and external environment

raquo Understand and discuss cross-country differences in Cultural demographic and market

conditions and its possible impact on business

raquo Probe the role importance and pros and cons of legal and regulatory framework

raquo Explore the ways a business can be successful in international markets

Though BAL was able to acquire a global footprint and a much larger customer base through

this deal industry experts believed it would be difficult for it to leverage on the business

model and strategies which had kept it afloat and ahead of the competition in India

Jaydeep Ghosh Executive Director of KPMG 7 said Bharti has replicated the low-cost

model through outsourcing in India but depending upon different geographies (in Africa) it

will not be easy

BAL also acquired stake in Bangladeshrsquos Warid Telecom The Company has used its

successful lsquominute factory modelrsquo (lowest-costmin) in these territories Bharti Airtel has

about 2712 million subscribers worldwide ndash 1996 million in India 62 million in Bangladesh

17 million in Sri Lanka and 637 million in Africa as of the end of March 2013Telecom

penetration is low in Africa and hence huge opportunities are available for Bharti Airtel So

far turning around the African operations has been a challenging task for the company in

the past three years This is due to the high competition currency movements and political

unrest in some countries and regions However the African operations offer good

opportunities and it can be expected that these acquisitions will enhance the companyrsquos

global presence in telecom space and will help it to increase its profitability in the coming

years

5 | P a g e

negatively impact Airtelrsquos finances given that it will have to repurchase those

airwaves to continue 2G operations

Mobile Number Portability ndash MNP gives the customer independence to change the

service provider while retaining the number With similar tariffs across various telcos

and satisfaction with the current service provider being low consumers are willing to

jump ship The larger incumbent operators are losing millions of customers to the

newer players who attract these customers with their freebies and innovative offers

ANALYSIS Porterrsquos five forces Model

1 Intensity of Competition among Rivals

Bharti Airtel has strong rivals in telecommunication sector of India like BSNL and Vodafone

Initially it had only two competitors but now this figure has jumped to more than ten All

these companies are providing similar services with the same capabilities Although it has

enhanced its investment in last few years and working hard to expand its network yet the

presence of strong competitors is a major threat for its successful survival

The price war is really very fierce in this industry Price war in telecom industry has

commoditized the market that branding has taken a backseat New players are reducing

their tariffs to get better hold in the market and in turn the existing big players like Airtel

also have to compete by introducing low tariff new plans such as youth plan for younger

generation ladies special etc

2 Bargaining Power of Buyer

Although subscribers are not concentrated not purchase in bulk but still can easily switch

for better quality coverage and rates In this context subscribersrsquo position is strong Bharti is

the leading operator in Access segment in terms of number of subscribers However in term

of net additions during the quarter Idea recorded the highest growth of 766 million

followed by Bharti (629 million) and Vodafone (488 million)

The following points influence the buyer power

Lack of differentiation among the service provider As telephone and data

services does not vary much regardless of which companies are selling them

Cut throat competition Competition level has increased a lot with increase in

new foreign as well as domestic players in the industry Operators are engaging

in an intense price war which is benefitting to the buyers in every way

6 | P a g e

Customer is price sensitive Every operator is offering low tariffs with better

services due to high level of competition among the operators which has made

customer more sensitive to price

Low switching costs from one operator to other operator

The consumer now has access to several means of communication like email

instant messaging which are diminishing the importance voice services

Attractive Schemes for new connections

Availability of all operators everywhere

3 Threats from Substitutes

Presence and easy availability of substituted products is a great threat for the successful

survival of any organization since it can enforce the company to cut the price of its product

The growth rate of reliance is more than Bharti and that of Vodafone is almost comparable

to Bharti

The potential major substitutes for telecom industry are as follows

Products and services from non-traditional telecom industries pose

serioussubstitution threats Cable TV and satellite operators now compete for

buyers The cable guys with their own direct lines into homes offer broadband

internet services and satellite links can substitute for high-speed business

networking needs

Wireless phones are also getting cheaper each year over the last decade this has

provided consumers with more convenience and mobility to the extent that the

younger demographic now considers a fixed line phone redundant

Just as worrying for telecom operators is the internet VOIP ie voice over ip

telephony is becoming a viable vehicle for cut-rate voice calls Delivered by ISPs -

not telecom operators - internet telephony could take a big bite out of telecom

companies core voice revenues Applications like Skype have been extremely

popular among younger generation users and are fast emerging as preferred

means of communication

4 Potential Entry of New Competitors Since current telecom technologies involve heavy

capital investment so chances of success for new entrants are very limited Still it is seen

that few new entrant like Idea is growing very rapidly and the growth rate is much higher

than the top service providers

The most common forms of entry barriers except intrinsic physical or legal obstacles are as

follows

7 | P a g e

Economies of scale In telecom industry the economies of scale exists from the

supplier side That is why companies try to increase their subscriber base at

drastic rate

Distribution channels Distribution channels are also providing a major

determining factor These channels are not loyal to any company and

competitors can easily access them and make out work for them

Though huge licence fee to be paid upfront and high gestation period reduces

the threat of new entrant and discourages investment and infrastructure in the

telecom sector

Limited Spectrum availability Regulatory issue which again leads to high licence

fee also restrict new players from entering into the market

Rapidly changing technology and setup the efficient Infrastructure for the same

accordingly is also the major factor which stops new player to enter into the

telecom sector

New entrants are ready to enter huge capital considering the attractiveness of

the market

Increase in FDI limits to 74 is bringing competition from foreign players Huge

investments are being made by the foreign companies to setup better

infrastructure and getting latest technology into the country

Threat from the non-telecom background brand which could foray into the

telecom industry by the ease of outsourcing

Customer switching cost is very low as cost of new connection is really low And

new connection offers more benefits to the customers

5 Bargaining Power of Suppliers

As far as the suppliers are concerned the pros and cons to all service providers are equal

that may be in human resource or products

Large number of suppliers The industry basically has a large number of suppliers

which helps them to choose from a lot of options So they try to select the best

option to deliver the value to the customers and to have a competitive

advantage from their competitor

Shared tower infrastructure Technology has helped them to share the tower

infrastructure This basically helps them to reduce the initial investment a lot

Limited pool of skilled managers and engineers especially those well versed in

the latest technologies which put companies into weaker side in terms of hiring

and salaries

Medium cost of switching since changing their hardware would lead to additional

cost in modifying the architecture

8 | P a g e

Table Analysis of the Porterrsquos Five Forces

Internal Analysis Strength amp Weakness

Strengths

1 Biggest mobile service provider in worldrsquos second largest telecom market ndash Mobile

phone subscriptions now follow the normal population trends around the world

With about 870 million wireless subscriptions India ranks second after China in the

wireless market Airtel has a 222 share of that market

2 Well-established nationwide infrastructure ndash Airtel has been in the market for 18+

years and thus has towers and backhaul all over the country This is a major

advantage Deployment of new technologies or increasing capacity at times requires

software and minimal hardware upgrade Having infrastructure already on the

ground makes that process much faster and smoother Secondly it is easier to

capture new customers if a telco already has a network in place

3 High brand equity ndash Airtel is among Indiarsquos most visible brands omnipresent in most

parts of the nation through television print and various other forms of advertising

Celebrity endorsements and innovative advertising that understand the pulse of

market are some of the assets of the Airtel brand

4 Superior overall network quality and reliability ndash Bharti Airtel (along with Vodafone)

runs one of the better mobile networksrsquo in India They have nationwide penetration

and although there is no dearth of consumer complaints regarding dropped calls and

slow data against Airtel it still offers a higher quality telecom service experience as

compared to most other telcos

5 Has established assets

a Physical assets Nationwide presence of offices has over 34000+ towers and

telecommunication equipmentrsquos and hardware This gives an easier

deployment of new technologies and softwares Also helps in easier

customer acquisition when infrastructure is already in place

9 | P a g e

b Intellectual and Human assets An employee base of about 20000

c Financial Assets

i Bharti Airtel PvtLtd went public in 2002

ii Listed on NSE and BSE

iii 141598B Market Capital

10 | P a g e

Weaknesses ndash

High competition in the telecom market ndash Airtel like all other service providers in

India has been adversely affected by the extreme price competition Although the

average voice call rates have gone up recently they were as low as Rs 06min (1

centmin) a few years ago The story is similar with data and 3G tariffs As a result

the company has been reporting declining profits for many years ARPU had been

decreasing too although it is showing signs of bottoming out now

Debt and finances ndash According to their latest quarterly report Airtel is burdened by

$97 billion in net debt which is a lot of money when converted to rupees How can

Airtel repay this debt is the question Possibilities include stake and equity sale or

spike in revenue Depreciating rupee is also an issue since it results in foreign

exchange losses and increases the financing cost

Africa acquisitions and operations ndash Airtel acquired Zainrsquos Africa business for $9

billion in 2010 Since then it has struggled to turn around those operations reporting

repeated losses from the continent While the Africa operation has widened the

companiesrsquo geography it continues to be a drag on its balance sheet

Late adoption of 3G and advanced wireless technologies ndash Due to various

regulatory uncertainties and delayed spectrum auctions India and Airtel were late to

the 3G party 3G services were launched by Airtel only in early 2011 The data tariffs

were high speeds were unsatisfactory and customer acceptance of 3G was slow The

company lacks nationwide 3G license with spectrum in 13 out of 22 telecom service

areas Airtelrsquos LTE network for mobile broadband is still confined to only 4 cities in

India

11 | P a g e

PESTEL Analysis of Bharti Airtel Limited

Political

The ministry of telecom industry hiked FDI limits from 49 to 74 which enabled

Indian promoters of telecom sector to spark off the competition and consolidation

by selling their stakes to foreign entities Airtel already have tie up with foreign

partner SINTEL which is going to help in investing more in infrastructure and latest

technology to provide the best services to their subscribers Also due to this increase

in foreign direct investment in telecommunication market Airtel will be able to

modulate the foreign stakes in their companies that have already acquired a range

between 67-69 percent of their assets

With the increase in globalisation and tremendous growth of Indian

telecommunication sector Airtel launched its mobile services in Srilanka in Jan 2009

and investing to

Recently Airtel have also acquired Zain for Africa operations which is the second

biggest overseas purchase by an Indian company

Economical

In telecom budget 2008 raw materials for the manufacture of specified electronic

hardware items have been exempted from excise duty which lowers the network

equipment costs to benefit major mobile services provider so Airtel can expand

their network coverage to more rural areas at much cheaper cost)

During the recession period government policy to reduce the custom duty on

convergence product from 10 to 5 helped in establishing parity devices used in

communication sector so this will help Airtel in lowering their cost for DTH

expansion

Government has announced per second billing tariff for the subscriber along with

the per minute billing plan Though the per second plan is not beneficial for the

telecom operators as this could reduce the sectors annual revenue by 10-

15Operators are already struggling with the low Average Revenue Per user

(ARPUs) due to high taxes (30 of the gross revenue earned by the operators goes

as various taxes) levied by government will now struggle more with this new plan To

overcome this situation Airtel has launched low tariff per minute plans along with

per second plan As majority of the subscribers make longer duration calls and the

per second call could be detrimental for them with the new reduced per minute

plan Airtel could also launch pay per character for SMS services to increase the VAS

revenue

12 | P a g e

Social

Government has hiked FDI limits which would lead to better infrastructure in

telecom due to intake of more investment by the foreign investors As 70 of Indian

population still resides in rural areas improvement in telecommunication

infrastructure and services will reduce isolation increase business viability farming

productivity and access to educational and medical services Airtel has already

announced to set up 100000 service centres and telecom infrastructure in rural India

by march 2010

Rollout of national rural employment scheme to all 596 districts in India with a

provision of Rs160 billion to aid faster penetration of mobiles and consequently

faster growth of Airtel as they hold major Indian telecom market with 24 growth at

the end of 31st March 2009

Government has announced the auction for 3G and BWA spectrum and Airtel is one

of the qualified bidders for the same and Airtel has already signed a deal with

Ericsson to upgrade their network for 3G It will help Airtel to undertake social

initiatives of the government such as e-education tele medicine and e-health and e-

governance providing affordable broadband and mobile services to sub urban and

rural areas

As demand for the value added services and high speed broadband is increasing

among the youth Airtel being the leading private broad band service provider in the

country has introduced the ultra fast speed of 50 Mbps for the broadband users on

next generation VDSL2 technology which will allow users the convenience to

download a full feature film in less than 3 minutes Along with it is providing free

value add services like parallel ringing website builder (Basic) PC secure (Anti-Virus

software) online storage unlimited gaming on games on demand

Increasing competition with the entry of many new operators in the telecom

industry has forced in reduction of tariffs So consumers get more options and can

change their network operator according to their need In this Airtel has introduced

many low tariff plans like youth Plan for young people ladies special and friends

prepaid plan family celebration plan according to the requirements of the different

customer segments Segmentation strategy aims towards understanding the need

gaps of specific consumer segments and creating special segmented products for

them

Technological

Increase in FDI limits also benefited inflow of latest technology with improved

infrastructure as AIRTEL is well established with better infrastructure so it can

provide better services to its customers in urban and can expand its network in more

rural areas

Introduction of Mobile Number Portability (MNP) which allows the consumer to

retain their existing mobile number even when they change the service provider

13 | P a g e

This will increase the competition among the service providers as the subscribers can

change their network if they are not happy with the services of the existing service

provider Airtel has the edge over his competitors as their services are much better

than other service providers

Government has announced the auction for 3G and BWA spectrum which will allow

telecom companies to offer additional valued services like high resolution video and

multimedia services with high data rate transmission capabilities Airtel has already

qualified to bid for the auctionAlso Airtel has signed a 13 billion deal with Ericsson

to expand and upgrade its network for 3G services in 15 of Indias 22 telecom circles

Environment and Legal

Radio frequency waves emitted from the mobile phones harms body cells and

damages the DNA This is not yet proved that such changes were risk to human

health

Mobilenumber portability (MNP) implementation would enable subscribers to move

to different service provider retaining the original number This implementation

would hamper Bharti Airtel as customers would keep switching to any possible

networks available

In India legal obligations are defined regarding 3G auction and bidding which proves

to be in favour of Bharti Airtel as this auction is not available to the new entrants

This political factor forbids the entry of new companies in to 3G services

Due to rising terrorist activities and hacking of confidential data on air India

Department of Telecommunication (DoT) has made amendments related to security

features which states that telecom companies should have good policies for security

and they should be responsible for the security of the network

Industry Environment

INDUSTRY STAGE

The industry growth stage lasted from 2005-2012 At this point the industry is almost at the

shakeout stage The industry is rapidly approaching the matured market stage But another

theory refutes the claim The economic growth in India currently the market is growing

more on the Network area growth providers are moving to smaller cities from big cities

demand is generated from Blsquo class amp Clsquo class cities ndash middle class population A major

section of middle class population of India in smaller cities couldnlsquot enjoy the advantages of

Telecom service due to the Govt monopoly poor capacity regulations they are the

immediate customers of the Mobile operators

14 | P a g e

The Landline is no more the preferable choice for the new telecom users people like to use

mobile phones because of its added advantages and easy subscription Also the middle class

size is expected to grow in India in next decades so the Mobile market in India will be

probably in Growth ndash Shakeout phase for a longer period 8 Indian mobile operators

offerings are segmented in two broad categories ndash Pre-paid and Post-paid Although mobile

market is growing positively the Post-paid market is declining and prepaid market is

increasing by leaps and bounds

The Indian telecom sector has witnessed tremendous growth over the past decade Today

the Indian telecom network is the second largest in the world after China A liberal policy

regime and involvement of the private sector have played an important role in transforming

this sector The total number of telephones as on 31st April 2013 was 89702 million The

telecom industry has witnessed significant growth in subscriber base over the last decade

with increasing network coverage and a competition-induced decline in tariffs acting as

catalysts for the growth in subscriber base The growth story and the potential have also

served to attract newer players in the industry with the result that the intensity of

competition has kept increasing Internet subscribers in India grew to 16481 million as of

March 31 2013 with as many as seven out of eight net users in the country accessing the

services via their mobile phones according to telecom regulator TRAI The total number of

mobile internet subscribers stood at 1432 million at the end of the last fiscal

The number of broadband subscribers increased to 1505 million as of March 31 2013 from

1498 million as of December 31 2012 The number of non-mobile internet subscribers in

the quarter ended March 31 2013 grew to 2161 million from 2157 million registering a

quarterly growth rate of 016 per cent

15 | P a g e

GROWTH IN TELECOM

Growth Drivers - Key factors which will fuel the growth of the sector include increased

access to services owing to launch of newer telecom technologies like 3G and BWA better

devices changing consumer behaviour and the emergence of cloud technologies A majority

of the investments will go into the capital expenditure for setting up newer networks like 3G

and developing the backhaul among other things

Subscriber Base - The mobile subscriber base in India is estimated rise by 9 per cent to 696

million connections this year according to technology researcher Gartner The mobile

service penetration in the country is currently at 51 per cent and is expected to grow to 72

per cent by 2016

Mobile Value Added Services (MVAS) - Indias current MVAS industry has an estimated size

of US$ 27 billion The industry derives its revenues majorly from the top five to six products

such as game based applications music downloads etc which continue to form close to 80

per cent of VAS revenues The Indian MVAS industry estimated to grow to US$ 108 billion

by 2015 with the next wave of growth in subscriptions expected to come from semi-urban

and rural areas

Mobile Number Portability (MNP) - Mobile Number Portability requests increased from

8970 million subscribers at the end of March 2013 to 9173 million at the end of April 2013

Handsets - The mobile handset markets revenues in India will grow from US$ 57 billion in

2010 to US$ 78 billion in 2016 according to the study India is the second largest mobile

handset market in the world and is set to become an even larger market with unit shipment

of 2084 million in 2016 at a CAGR of 118 per cent from 2010 to 2016The Indian mobile

handset market posted revenue of Rs 35946 billion in 2012-2013 compared to Rs 31330

billion in the earlier fiscal year on the back of increasing sale of Smartphonersquos In 2012-2013

Karbonn grew 731 per cent Samsung ended the year with revenue of Rs 11328 billion

compared to Rs 7891 billion last year showing a growth of 436 per cent The iconic Apple

16 | P a g e

posted revenue of Rs 1293 billion in FY 2013 in the country compared to Rs 250 billion in

the previous financial year

GAME THEORY

Indiarsquos telecom Industry an oligopoly has witnessed significant price-cutting since 2005 A

metric called Average Revenue per user (ARPU) which defines a companyrsquos per subscriber

monthly revenue has fallen from ₹37001 in Decemberrsquo05 to ₹12825 in Decemberrsquo13 This

implies that either people lowered usage of cell phones drastically or call rates fell over the

period

TABLE 1

The former is unlikely in a growing economy and the phenomenon actually resulted due to

aggressive price cutting by firms during this period

Currently Airtel Vodafone and Idea control 70+ of the industryrsquos market share Table 1

shows the ARPU and subscriber base (in Crores) of these 3 over the past 6 years The

average subscriber base for a particular year is shown in the table Table 2 shows change

in ARPU of the three companies over the past 5 years and their respective individual share

of the total subscriber base of these 3 companies

Quarter Ended December

Airtels ARPU (in ₹)

Airtels subscribers

Vodafones ARPU (in ₹)

Vodafones subscribers

Ideas ARPU (in ₹)

Ideas subscribers

2008 26059 611737305 22792 4323223725 21541 2689632113

2009 20058 7982973638 17055 597358665 17209 3668136038

2010 15398 1049672524 13005 8423015475 12782 5366251725

2011 1364 1282383818 11742 1074420281 11486 7323344775

2012 13667 1399592696 12192 1148899553 1072 8723590463

2013 14354 1441124333 1385 1164663934 12249 9457361213

17 | P a g e

TABLE 2

TABLE 3

Why are the companies cutting their prices Game theory is at work here Airtel (A)

Vodafone (V) and Idea (I) respectively had 47 33 and 20 market share in 2008 During

this period all companies in the industry were reducing their rates Given this scenario I

assume that companies that didnrsquot reduce their rates during this period would not have

gained more customers (they would have actually lost customers but for sake of simplicity I

donrsquot take this into account) Also I assume that proportional price cuts by all companies

would have resulted in no change in their relative market shares during these years

Airtel Vodafone Idea

Year Change in ARPU

Relative Market Share ()

Change in ARPU

Relative Market Share ()

Change in ARPU

Relative Market Share ()

2009 -2302851222

452942479 -25171113 338932742 -2011048698

20812478

2010 -2323262539

432213148 -23746702 346826077 -2572491138

220960776

2011 -1141706715

415126672 -97116494 347805789 -1013925833

237067538

2012 0197947214 40913579 383239653 335851943 -6668988334

255012268

2013 5026706666 405776274 135990814 327933531 142630597 266290195

Situation V reduces rates V doesnrsquot reduce

A Reduces Rates A and V retain market share V loses market share

A doesnrsquot Reduce A loses market share A and V retain market share

18 | P a g e

In such a case A and V would have faced the following situation at the beginning of 2009

This is a variant of the classical prisonerrsquos dilemma (say A and B) wherein two prisoners are

separately asked about the true culprit The situations that A and B face is shown below

TABLE 4

In this scenario no prisoner can trust the other one and the optimal solution for each one

would be to betray the other Similar is the case in Telecom industry No company can trust

the others In a bid to save their respective market shares companies kept cutting their own

rates Each set of companies each year would have faced a situation similar to the one in

table 3 If A didnrsquot reduce its rates in 2009 its market share could have fallen to 388

under the assumptions made at the beginning of analysis Hence A decided to cut prices

Similarly all firms in the industry decided to reduce rates Another question that I seek to

answer is what the ideal action for these firms would have been during this period Did they

make a mistake due to these price wars

In the case of the prisonerrsquos dilemma discussed above each prisonerrsquos ideal choice is to stay

silent and spend a year in jail instead of 3 that would result if they betray each other Would

the telecom companies also have achieved better results if they had not indulged in price

wars No The subscriber base of the 3 companies discussed above increased at a

compounded rate of 37 from 2008-2012 (Table 1) It would be reasonable to attribute this

change to the falling prices given that the economy was performing poorly during this

period Again taking into account the assumptions made in deriving Table 3 the revenues of

A and V in 2013 could be demonstrated by the following table

TABLE 5

Situation V reduces rates V doesnrsquot reduce

A Reduces Rates ( 2068 1400) (2068 984)

A doesnrsquot Reduce (1590 1400) (1590 984)

Situation B betrays A B stays silent

A Betrays B A and B imprisoned for 2 years A goes free and B imprisoned for 3 years

A stays silent B goes free and A imprisoned for 3 years A and B imprisoned for 1 year

19 | P a g e

Table 5 shows the approximate monthly revenues (in Rupees Crores) of the two firms under

different situations with respect to price In the above table both the Nash equilibrium (the

action point from which no company has an incentive to deviate given the action of the

other company) as well as the ideal equilibrium is for both companies to reduce rates Thus

the telecom industry didnrsquot necessarily suffer due to price cuts at least in terms of

revenues However this strategy would have remained profitable as long as the price

elasticity of the industryrsquos demand remains greater than 1 In 2012 a rise in prices

(indicated by ARPU) led to an increase in the three companiesrsquo revenue Thus this year

marked an end to the telecom industryrsquos price-cutting strategy

Why is it that the automobile Industry in India another oligopoly has not faced similar price

wars It is so because companies cut prices only if the price-cut doesnrsquot result in economic

losses for them Return on assets is already low in automobile industry (about 10) The

telecom industry has also had very low (9-10) returns during the past 2 years This also

explains why that the effect of game theory has disappeared in 2012 and 2013 Young

Industries (such as e-commerce) earning economic profits may witness a similar price-

cutting and erosion of economic profits in the future

Strategy in Global Environment

BALs telecom model was considered as the new model for telecom and effective for

emerging markets like India BAL had established itself as a dominant player in India with its

innovative business processes and strong brand but was witnessing tapering growth

because of increasing competition and saturation of the more lucrative urban markets

While more and more players were eyeing the fast-growing Indian mobile market which was

experiencing high growth BAL put its sight on foreign shores BAL realized that its extensive

experience in India coupled with its unique business model would help it tap the

20 | P a g e

opportunity provided by other developing and emerging markets and create value for its

customers

Acquisition of Zain Groups telecom business in fifteen African counties gave it a boosted

start in the African continent There were talks about BAL having paid higher for the deal

Even though BAL was in the process of giving shape to its strategy for the African markets

the critical success factors in emerging markets

raquo BAL was trying to understand the importance of business process innovation and strategic

partnerships

raquo Appreciate the role of tailoring strategy to fit a specific industry and business

environment

raquo Analyze BALs internal and external environment

raquo Understand and discuss cross-country differences in Cultural demographic and market

conditions and its possible impact on business

raquo Probe the role importance and pros and cons of legal and regulatory framework

raquo Explore the ways a business can be successful in international markets

Though BAL was able to acquire a global footprint and a much larger customer base through

this deal industry experts believed it would be difficult for it to leverage on the business

model and strategies which had kept it afloat and ahead of the competition in India

Jaydeep Ghosh Executive Director of KPMG 7 said Bharti has replicated the low-cost

model through outsourcing in India but depending upon different geographies (in Africa) it

will not be easy

BAL also acquired stake in Bangladeshrsquos Warid Telecom The Company has used its

successful lsquominute factory modelrsquo (lowest-costmin) in these territories Bharti Airtel has

about 2712 million subscribers worldwide ndash 1996 million in India 62 million in Bangladesh

17 million in Sri Lanka and 637 million in Africa as of the end of March 2013Telecom

penetration is low in Africa and hence huge opportunities are available for Bharti Airtel So

far turning around the African operations has been a challenging task for the company in

the past three years This is due to the high competition currency movements and political

unrest in some countries and regions However the African operations offer good

opportunities and it can be expected that these acquisitions will enhance the companyrsquos

global presence in telecom space and will help it to increase its profitability in the coming

years

6 | P a g e

Customer is price sensitive Every operator is offering low tariffs with better

services due to high level of competition among the operators which has made

customer more sensitive to price

Low switching costs from one operator to other operator

The consumer now has access to several means of communication like email

instant messaging which are diminishing the importance voice services

Attractive Schemes for new connections

Availability of all operators everywhere

3 Threats from Substitutes

Presence and easy availability of substituted products is a great threat for the successful

survival of any organization since it can enforce the company to cut the price of its product

The growth rate of reliance is more than Bharti and that of Vodafone is almost comparable

to Bharti

The potential major substitutes for telecom industry are as follows

Products and services from non-traditional telecom industries pose

serioussubstitution threats Cable TV and satellite operators now compete for

buyers The cable guys with their own direct lines into homes offer broadband

internet services and satellite links can substitute for high-speed business

networking needs

Wireless phones are also getting cheaper each year over the last decade this has

provided consumers with more convenience and mobility to the extent that the

younger demographic now considers a fixed line phone redundant

Just as worrying for telecom operators is the internet VOIP ie voice over ip

telephony is becoming a viable vehicle for cut-rate voice calls Delivered by ISPs -

not telecom operators - internet telephony could take a big bite out of telecom

companies core voice revenues Applications like Skype have been extremely

popular among younger generation users and are fast emerging as preferred

means of communication

4 Potential Entry of New Competitors Since current telecom technologies involve heavy

capital investment so chances of success for new entrants are very limited Still it is seen

that few new entrant like Idea is growing very rapidly and the growth rate is much higher

than the top service providers

The most common forms of entry barriers except intrinsic physical or legal obstacles are as

follows

7 | P a g e

Economies of scale In telecom industry the economies of scale exists from the

supplier side That is why companies try to increase their subscriber base at

drastic rate

Distribution channels Distribution channels are also providing a major

determining factor These channels are not loyal to any company and

competitors can easily access them and make out work for them

Though huge licence fee to be paid upfront and high gestation period reduces

the threat of new entrant and discourages investment and infrastructure in the

telecom sector

Limited Spectrum availability Regulatory issue which again leads to high licence

fee also restrict new players from entering into the market

Rapidly changing technology and setup the efficient Infrastructure for the same

accordingly is also the major factor which stops new player to enter into the

telecom sector

New entrants are ready to enter huge capital considering the attractiveness of

the market

Increase in FDI limits to 74 is bringing competition from foreign players Huge

investments are being made by the foreign companies to setup better

infrastructure and getting latest technology into the country

Threat from the non-telecom background brand which could foray into the

telecom industry by the ease of outsourcing

Customer switching cost is very low as cost of new connection is really low And

new connection offers more benefits to the customers

5 Bargaining Power of Suppliers

As far as the suppliers are concerned the pros and cons to all service providers are equal

that may be in human resource or products

Large number of suppliers The industry basically has a large number of suppliers

which helps them to choose from a lot of options So they try to select the best

option to deliver the value to the customers and to have a competitive

advantage from their competitor

Shared tower infrastructure Technology has helped them to share the tower

infrastructure This basically helps them to reduce the initial investment a lot

Limited pool of skilled managers and engineers especially those well versed in

the latest technologies which put companies into weaker side in terms of hiring

and salaries

Medium cost of switching since changing their hardware would lead to additional

cost in modifying the architecture

8 | P a g e

Table Analysis of the Porterrsquos Five Forces

Internal Analysis Strength amp Weakness

Strengths

1 Biggest mobile service provider in worldrsquos second largest telecom market ndash Mobile

phone subscriptions now follow the normal population trends around the world

With about 870 million wireless subscriptions India ranks second after China in the

wireless market Airtel has a 222 share of that market

2 Well-established nationwide infrastructure ndash Airtel has been in the market for 18+

years and thus has towers and backhaul all over the country This is a major

advantage Deployment of new technologies or increasing capacity at times requires

software and minimal hardware upgrade Having infrastructure already on the

ground makes that process much faster and smoother Secondly it is easier to

capture new customers if a telco already has a network in place

3 High brand equity ndash Airtel is among Indiarsquos most visible brands omnipresent in most

parts of the nation through television print and various other forms of advertising

Celebrity endorsements and innovative advertising that understand the pulse of

market are some of the assets of the Airtel brand

4 Superior overall network quality and reliability ndash Bharti Airtel (along with Vodafone)

runs one of the better mobile networksrsquo in India They have nationwide penetration

and although there is no dearth of consumer complaints regarding dropped calls and

slow data against Airtel it still offers a higher quality telecom service experience as

compared to most other telcos

5 Has established assets

a Physical assets Nationwide presence of offices has over 34000+ towers and

telecommunication equipmentrsquos and hardware This gives an easier

deployment of new technologies and softwares Also helps in easier

customer acquisition when infrastructure is already in place

9 | P a g e

b Intellectual and Human assets An employee base of about 20000

c Financial Assets

i Bharti Airtel PvtLtd went public in 2002

ii Listed on NSE and BSE

iii 141598B Market Capital

10 | P a g e

Weaknesses ndash

High competition in the telecom market ndash Airtel like all other service providers in

India has been adversely affected by the extreme price competition Although the

average voice call rates have gone up recently they were as low as Rs 06min (1

centmin) a few years ago The story is similar with data and 3G tariffs As a result

the company has been reporting declining profits for many years ARPU had been

decreasing too although it is showing signs of bottoming out now

Debt and finances ndash According to their latest quarterly report Airtel is burdened by

$97 billion in net debt which is a lot of money when converted to rupees How can

Airtel repay this debt is the question Possibilities include stake and equity sale or

spike in revenue Depreciating rupee is also an issue since it results in foreign

exchange losses and increases the financing cost

Africa acquisitions and operations ndash Airtel acquired Zainrsquos Africa business for $9

billion in 2010 Since then it has struggled to turn around those operations reporting

repeated losses from the continent While the Africa operation has widened the

companiesrsquo geography it continues to be a drag on its balance sheet

Late adoption of 3G and advanced wireless technologies ndash Due to various

regulatory uncertainties and delayed spectrum auctions India and Airtel were late to

the 3G party 3G services were launched by Airtel only in early 2011 The data tariffs

were high speeds were unsatisfactory and customer acceptance of 3G was slow The

company lacks nationwide 3G license with spectrum in 13 out of 22 telecom service

areas Airtelrsquos LTE network for mobile broadband is still confined to only 4 cities in

India

11 | P a g e

PESTEL Analysis of Bharti Airtel Limited

Political

The ministry of telecom industry hiked FDI limits from 49 to 74 which enabled

Indian promoters of telecom sector to spark off the competition and consolidation

by selling their stakes to foreign entities Airtel already have tie up with foreign

partner SINTEL which is going to help in investing more in infrastructure and latest

technology to provide the best services to their subscribers Also due to this increase

in foreign direct investment in telecommunication market Airtel will be able to

modulate the foreign stakes in their companies that have already acquired a range

between 67-69 percent of their assets

With the increase in globalisation and tremendous growth of Indian

telecommunication sector Airtel launched its mobile services in Srilanka in Jan 2009

and investing to

Recently Airtel have also acquired Zain for Africa operations which is the second

biggest overseas purchase by an Indian company

Economical

In telecom budget 2008 raw materials for the manufacture of specified electronic

hardware items have been exempted from excise duty which lowers the network

equipment costs to benefit major mobile services provider so Airtel can expand

their network coverage to more rural areas at much cheaper cost)

During the recession period government policy to reduce the custom duty on

convergence product from 10 to 5 helped in establishing parity devices used in

communication sector so this will help Airtel in lowering their cost for DTH

expansion

Government has announced per second billing tariff for the subscriber along with

the per minute billing plan Though the per second plan is not beneficial for the

telecom operators as this could reduce the sectors annual revenue by 10-

15Operators are already struggling with the low Average Revenue Per user

(ARPUs) due to high taxes (30 of the gross revenue earned by the operators goes

as various taxes) levied by government will now struggle more with this new plan To

overcome this situation Airtel has launched low tariff per minute plans along with

per second plan As majority of the subscribers make longer duration calls and the

per second call could be detrimental for them with the new reduced per minute

plan Airtel could also launch pay per character for SMS services to increase the VAS

revenue

12 | P a g e

Social

Government has hiked FDI limits which would lead to better infrastructure in

telecom due to intake of more investment by the foreign investors As 70 of Indian

population still resides in rural areas improvement in telecommunication

infrastructure and services will reduce isolation increase business viability farming

productivity and access to educational and medical services Airtel has already

announced to set up 100000 service centres and telecom infrastructure in rural India

by march 2010

Rollout of national rural employment scheme to all 596 districts in India with a

provision of Rs160 billion to aid faster penetration of mobiles and consequently

faster growth of Airtel as they hold major Indian telecom market with 24 growth at

the end of 31st March 2009

Government has announced the auction for 3G and BWA spectrum and Airtel is one

of the qualified bidders for the same and Airtel has already signed a deal with

Ericsson to upgrade their network for 3G It will help Airtel to undertake social

initiatives of the government such as e-education tele medicine and e-health and e-

governance providing affordable broadband and mobile services to sub urban and

rural areas

As demand for the value added services and high speed broadband is increasing

among the youth Airtel being the leading private broad band service provider in the

country has introduced the ultra fast speed of 50 Mbps for the broadband users on

next generation VDSL2 technology which will allow users the convenience to

download a full feature film in less than 3 minutes Along with it is providing free

value add services like parallel ringing website builder (Basic) PC secure (Anti-Virus

software) online storage unlimited gaming on games on demand

Increasing competition with the entry of many new operators in the telecom

industry has forced in reduction of tariffs So consumers get more options and can

change their network operator according to their need In this Airtel has introduced

many low tariff plans like youth Plan for young people ladies special and friends

prepaid plan family celebration plan according to the requirements of the different

customer segments Segmentation strategy aims towards understanding the need

gaps of specific consumer segments and creating special segmented products for

them

Technological

Increase in FDI limits also benefited inflow of latest technology with improved

infrastructure as AIRTEL is well established with better infrastructure so it can

provide better services to its customers in urban and can expand its network in more

rural areas

Introduction of Mobile Number Portability (MNP) which allows the consumer to

retain their existing mobile number even when they change the service provider

13 | P a g e

This will increase the competition among the service providers as the subscribers can

change their network if they are not happy with the services of the existing service

provider Airtel has the edge over his competitors as their services are much better

than other service providers

Government has announced the auction for 3G and BWA spectrum which will allow

telecom companies to offer additional valued services like high resolution video and

multimedia services with high data rate transmission capabilities Airtel has already

qualified to bid for the auctionAlso Airtel has signed a 13 billion deal with Ericsson

to expand and upgrade its network for 3G services in 15 of Indias 22 telecom circles

Environment and Legal

Radio frequency waves emitted from the mobile phones harms body cells and

damages the DNA This is not yet proved that such changes were risk to human

health

Mobilenumber portability (MNP) implementation would enable subscribers to move

to different service provider retaining the original number This implementation

would hamper Bharti Airtel as customers would keep switching to any possible

networks available

In India legal obligations are defined regarding 3G auction and bidding which proves

to be in favour of Bharti Airtel as this auction is not available to the new entrants

This political factor forbids the entry of new companies in to 3G services

Due to rising terrorist activities and hacking of confidential data on air India

Department of Telecommunication (DoT) has made amendments related to security

features which states that telecom companies should have good policies for security

and they should be responsible for the security of the network

Industry Environment

INDUSTRY STAGE

The industry growth stage lasted from 2005-2012 At this point the industry is almost at the

shakeout stage The industry is rapidly approaching the matured market stage But another

theory refutes the claim The economic growth in India currently the market is growing

more on the Network area growth providers are moving to smaller cities from big cities

demand is generated from Blsquo class amp Clsquo class cities ndash middle class population A major

section of middle class population of India in smaller cities couldnlsquot enjoy the advantages of

Telecom service due to the Govt monopoly poor capacity regulations they are the

immediate customers of the Mobile operators

14 | P a g e

The Landline is no more the preferable choice for the new telecom users people like to use

mobile phones because of its added advantages and easy subscription Also the middle class

size is expected to grow in India in next decades so the Mobile market in India will be

probably in Growth ndash Shakeout phase for a longer period 8 Indian mobile operators

offerings are segmented in two broad categories ndash Pre-paid and Post-paid Although mobile

market is growing positively the Post-paid market is declining and prepaid market is

increasing by leaps and bounds

The Indian telecom sector has witnessed tremendous growth over the past decade Today

the Indian telecom network is the second largest in the world after China A liberal policy

regime and involvement of the private sector have played an important role in transforming

this sector The total number of telephones as on 31st April 2013 was 89702 million The

telecom industry has witnessed significant growth in subscriber base over the last decade

with increasing network coverage and a competition-induced decline in tariffs acting as

catalysts for the growth in subscriber base The growth story and the potential have also

served to attract newer players in the industry with the result that the intensity of

competition has kept increasing Internet subscribers in India grew to 16481 million as of

March 31 2013 with as many as seven out of eight net users in the country accessing the

services via their mobile phones according to telecom regulator TRAI The total number of

mobile internet subscribers stood at 1432 million at the end of the last fiscal

The number of broadband subscribers increased to 1505 million as of March 31 2013 from

1498 million as of December 31 2012 The number of non-mobile internet subscribers in

the quarter ended March 31 2013 grew to 2161 million from 2157 million registering a

quarterly growth rate of 016 per cent

15 | P a g e

GROWTH IN TELECOM

Growth Drivers - Key factors which will fuel the growth of the sector include increased

access to services owing to launch of newer telecom technologies like 3G and BWA better

devices changing consumer behaviour and the emergence of cloud technologies A majority

of the investments will go into the capital expenditure for setting up newer networks like 3G

and developing the backhaul among other things

Subscriber Base - The mobile subscriber base in India is estimated rise by 9 per cent to 696

million connections this year according to technology researcher Gartner The mobile

service penetration in the country is currently at 51 per cent and is expected to grow to 72

per cent by 2016

Mobile Value Added Services (MVAS) - Indias current MVAS industry has an estimated size

of US$ 27 billion The industry derives its revenues majorly from the top five to six products

such as game based applications music downloads etc which continue to form close to 80

per cent of VAS revenues The Indian MVAS industry estimated to grow to US$ 108 billion

by 2015 with the next wave of growth in subscriptions expected to come from semi-urban

and rural areas

Mobile Number Portability (MNP) - Mobile Number Portability requests increased from

8970 million subscribers at the end of March 2013 to 9173 million at the end of April 2013

Handsets - The mobile handset markets revenues in India will grow from US$ 57 billion in

2010 to US$ 78 billion in 2016 according to the study India is the second largest mobile

handset market in the world and is set to become an even larger market with unit shipment

of 2084 million in 2016 at a CAGR of 118 per cent from 2010 to 2016The Indian mobile

handset market posted revenue of Rs 35946 billion in 2012-2013 compared to Rs 31330

billion in the earlier fiscal year on the back of increasing sale of Smartphonersquos In 2012-2013

Karbonn grew 731 per cent Samsung ended the year with revenue of Rs 11328 billion

compared to Rs 7891 billion last year showing a growth of 436 per cent The iconic Apple

16 | P a g e

posted revenue of Rs 1293 billion in FY 2013 in the country compared to Rs 250 billion in

the previous financial year

GAME THEORY

Indiarsquos telecom Industry an oligopoly has witnessed significant price-cutting since 2005 A

metric called Average Revenue per user (ARPU) which defines a companyrsquos per subscriber

monthly revenue has fallen from ₹37001 in Decemberrsquo05 to ₹12825 in Decemberrsquo13 This

implies that either people lowered usage of cell phones drastically or call rates fell over the

period

TABLE 1

The former is unlikely in a growing economy and the phenomenon actually resulted due to

aggressive price cutting by firms during this period

Currently Airtel Vodafone and Idea control 70+ of the industryrsquos market share Table 1

shows the ARPU and subscriber base (in Crores) of these 3 over the past 6 years The

average subscriber base for a particular year is shown in the table Table 2 shows change

in ARPU of the three companies over the past 5 years and their respective individual share

of the total subscriber base of these 3 companies

Quarter Ended December

Airtels ARPU (in ₹)

Airtels subscribers

Vodafones ARPU (in ₹)

Vodafones subscribers

Ideas ARPU (in ₹)

Ideas subscribers

2008 26059 611737305 22792 4323223725 21541 2689632113

2009 20058 7982973638 17055 597358665 17209 3668136038

2010 15398 1049672524 13005 8423015475 12782 5366251725

2011 1364 1282383818 11742 1074420281 11486 7323344775

2012 13667 1399592696 12192 1148899553 1072 8723590463

2013 14354 1441124333 1385 1164663934 12249 9457361213

17 | P a g e

TABLE 2

TABLE 3

Why are the companies cutting their prices Game theory is at work here Airtel (A)

Vodafone (V) and Idea (I) respectively had 47 33 and 20 market share in 2008 During

this period all companies in the industry were reducing their rates Given this scenario I

assume that companies that didnrsquot reduce their rates during this period would not have

gained more customers (they would have actually lost customers but for sake of simplicity I

donrsquot take this into account) Also I assume that proportional price cuts by all companies

would have resulted in no change in their relative market shares during these years

Airtel Vodafone Idea

Year Change in ARPU

Relative Market Share ()

Change in ARPU

Relative Market Share ()

Change in ARPU

Relative Market Share ()

2009 -2302851222

452942479 -25171113 338932742 -2011048698

20812478

2010 -2323262539

432213148 -23746702 346826077 -2572491138

220960776

2011 -1141706715

415126672 -97116494 347805789 -1013925833

237067538

2012 0197947214 40913579 383239653 335851943 -6668988334

255012268

2013 5026706666 405776274 135990814 327933531 142630597 266290195

Situation V reduces rates V doesnrsquot reduce

A Reduces Rates A and V retain market share V loses market share

A doesnrsquot Reduce A loses market share A and V retain market share

18 | P a g e

In such a case A and V would have faced the following situation at the beginning of 2009

This is a variant of the classical prisonerrsquos dilemma (say A and B) wherein two prisoners are

separately asked about the true culprit The situations that A and B face is shown below

TABLE 4

In this scenario no prisoner can trust the other one and the optimal solution for each one

would be to betray the other Similar is the case in Telecom industry No company can trust

the others In a bid to save their respective market shares companies kept cutting their own

rates Each set of companies each year would have faced a situation similar to the one in

table 3 If A didnrsquot reduce its rates in 2009 its market share could have fallen to 388

under the assumptions made at the beginning of analysis Hence A decided to cut prices

Similarly all firms in the industry decided to reduce rates Another question that I seek to

answer is what the ideal action for these firms would have been during this period Did they

make a mistake due to these price wars

In the case of the prisonerrsquos dilemma discussed above each prisonerrsquos ideal choice is to stay

silent and spend a year in jail instead of 3 that would result if they betray each other Would

the telecom companies also have achieved better results if they had not indulged in price

wars No The subscriber base of the 3 companies discussed above increased at a

compounded rate of 37 from 2008-2012 (Table 1) It would be reasonable to attribute this

change to the falling prices given that the economy was performing poorly during this

period Again taking into account the assumptions made in deriving Table 3 the revenues of

A and V in 2013 could be demonstrated by the following table

TABLE 5

Situation V reduces rates V doesnrsquot reduce

A Reduces Rates ( 2068 1400) (2068 984)

A doesnrsquot Reduce (1590 1400) (1590 984)

Situation B betrays A B stays silent

A Betrays B A and B imprisoned for 2 years A goes free and B imprisoned for 3 years

A stays silent B goes free and A imprisoned for 3 years A and B imprisoned for 1 year

19 | P a g e

Table 5 shows the approximate monthly revenues (in Rupees Crores) of the two firms under

different situations with respect to price In the above table both the Nash equilibrium (the

action point from which no company has an incentive to deviate given the action of the

other company) as well as the ideal equilibrium is for both companies to reduce rates Thus

the telecom industry didnrsquot necessarily suffer due to price cuts at least in terms of

revenues However this strategy would have remained profitable as long as the price

elasticity of the industryrsquos demand remains greater than 1 In 2012 a rise in prices

(indicated by ARPU) led to an increase in the three companiesrsquo revenue Thus this year

marked an end to the telecom industryrsquos price-cutting strategy

Why is it that the automobile Industry in India another oligopoly has not faced similar price

wars It is so because companies cut prices only if the price-cut doesnrsquot result in economic

losses for them Return on assets is already low in automobile industry (about 10) The

telecom industry has also had very low (9-10) returns during the past 2 years This also

explains why that the effect of game theory has disappeared in 2012 and 2013 Young

Industries (such as e-commerce) earning economic profits may witness a similar price-

cutting and erosion of economic profits in the future

Strategy in Global Environment

BALs telecom model was considered as the new model for telecom and effective for

emerging markets like India BAL had established itself as a dominant player in India with its

innovative business processes and strong brand but was witnessing tapering growth

because of increasing competition and saturation of the more lucrative urban markets

While more and more players were eyeing the fast-growing Indian mobile market which was

experiencing high growth BAL put its sight on foreign shores BAL realized that its extensive

experience in India coupled with its unique business model would help it tap the

20 | P a g e

opportunity provided by other developing and emerging markets and create value for its

customers

Acquisition of Zain Groups telecom business in fifteen African counties gave it a boosted

start in the African continent There were talks about BAL having paid higher for the deal

Even though BAL was in the process of giving shape to its strategy for the African markets

the critical success factors in emerging markets

raquo BAL was trying to understand the importance of business process innovation and strategic

partnerships

raquo Appreciate the role of tailoring strategy to fit a specific industry and business

environment

raquo Analyze BALs internal and external environment

raquo Understand and discuss cross-country differences in Cultural demographic and market

conditions and its possible impact on business

raquo Probe the role importance and pros and cons of legal and regulatory framework

raquo Explore the ways a business can be successful in international markets

Though BAL was able to acquire a global footprint and a much larger customer base through

this deal industry experts believed it would be difficult for it to leverage on the business

model and strategies which had kept it afloat and ahead of the competition in India

Jaydeep Ghosh Executive Director of KPMG 7 said Bharti has replicated the low-cost

model through outsourcing in India but depending upon different geographies (in Africa) it

will not be easy

BAL also acquired stake in Bangladeshrsquos Warid Telecom The Company has used its

successful lsquominute factory modelrsquo (lowest-costmin) in these territories Bharti Airtel has

about 2712 million subscribers worldwide ndash 1996 million in India 62 million in Bangladesh

17 million in Sri Lanka and 637 million in Africa as of the end of March 2013Telecom

penetration is low in Africa and hence huge opportunities are available for Bharti Airtel So

far turning around the African operations has been a challenging task for the company in

the past three years This is due to the high competition currency movements and political

unrest in some countries and regions However the African operations offer good

opportunities and it can be expected that these acquisitions will enhance the companyrsquos

global presence in telecom space and will help it to increase its profitability in the coming

years

7 | P a g e

Economies of scale In telecom industry the economies of scale exists from the

supplier side That is why companies try to increase their subscriber base at

drastic rate

Distribution channels Distribution channels are also providing a major

determining factor These channels are not loyal to any company and

competitors can easily access them and make out work for them

Though huge licence fee to be paid upfront and high gestation period reduces

the threat of new entrant and discourages investment and infrastructure in the

telecom sector

Limited Spectrum availability Regulatory issue which again leads to high licence

fee also restrict new players from entering into the market

Rapidly changing technology and setup the efficient Infrastructure for the same

accordingly is also the major factor which stops new player to enter into the

telecom sector

New entrants are ready to enter huge capital considering the attractiveness of

the market

Increase in FDI limits to 74 is bringing competition from foreign players Huge

investments are being made by the foreign companies to setup better

infrastructure and getting latest technology into the country

Threat from the non-telecom background brand which could foray into the

telecom industry by the ease of outsourcing

Customer switching cost is very low as cost of new connection is really low And

new connection offers more benefits to the customers

5 Bargaining Power of Suppliers

As far as the suppliers are concerned the pros and cons to all service providers are equal

that may be in human resource or products

Large number of suppliers The industry basically has a large number of suppliers

which helps them to choose from a lot of options So they try to select the best

option to deliver the value to the customers and to have a competitive

advantage from their competitor

Shared tower infrastructure Technology has helped them to share the tower

infrastructure This basically helps them to reduce the initial investment a lot

Limited pool of skilled managers and engineers especially those well versed in

the latest technologies which put companies into weaker side in terms of hiring

and salaries

Medium cost of switching since changing their hardware would lead to additional

cost in modifying the architecture

8 | P a g e

Table Analysis of the Porterrsquos Five Forces

Internal Analysis Strength amp Weakness

Strengths

1 Biggest mobile service provider in worldrsquos second largest telecom market ndash Mobile

phone subscriptions now follow the normal population trends around the world

With about 870 million wireless subscriptions India ranks second after China in the

wireless market Airtel has a 222 share of that market

2 Well-established nationwide infrastructure ndash Airtel has been in the market for 18+

years and thus has towers and backhaul all over the country This is a major

advantage Deployment of new technologies or increasing capacity at times requires

software and minimal hardware upgrade Having infrastructure already on the

ground makes that process much faster and smoother Secondly it is easier to

capture new customers if a telco already has a network in place

3 High brand equity ndash Airtel is among Indiarsquos most visible brands omnipresent in most

parts of the nation through television print and various other forms of advertising

Celebrity endorsements and innovative advertising that understand the pulse of

market are some of the assets of the Airtel brand

4 Superior overall network quality and reliability ndash Bharti Airtel (along with Vodafone)

runs one of the better mobile networksrsquo in India They have nationwide penetration

and although there is no dearth of consumer complaints regarding dropped calls and

slow data against Airtel it still offers a higher quality telecom service experience as

compared to most other telcos

5 Has established assets

a Physical assets Nationwide presence of offices has over 34000+ towers and

telecommunication equipmentrsquos and hardware This gives an easier

deployment of new technologies and softwares Also helps in easier

customer acquisition when infrastructure is already in place

9 | P a g e

b Intellectual and Human assets An employee base of about 20000

c Financial Assets

i Bharti Airtel PvtLtd went public in 2002

ii Listed on NSE and BSE

iii 141598B Market Capital

10 | P a g e

Weaknesses ndash

High competition in the telecom market ndash Airtel like all other service providers in

India has been adversely affected by the extreme price competition Although the

average voice call rates have gone up recently they were as low as Rs 06min (1

centmin) a few years ago The story is similar with data and 3G tariffs As a result

the company has been reporting declining profits for many years ARPU had been

decreasing too although it is showing signs of bottoming out now

Debt and finances ndash According to their latest quarterly report Airtel is burdened by

$97 billion in net debt which is a lot of money when converted to rupees How can

Airtel repay this debt is the question Possibilities include stake and equity sale or

spike in revenue Depreciating rupee is also an issue since it results in foreign

exchange losses and increases the financing cost

Africa acquisitions and operations ndash Airtel acquired Zainrsquos Africa business for $9

billion in 2010 Since then it has struggled to turn around those operations reporting

repeated losses from the continent While the Africa operation has widened the

companiesrsquo geography it continues to be a drag on its balance sheet

Late adoption of 3G and advanced wireless technologies ndash Due to various

regulatory uncertainties and delayed spectrum auctions India and Airtel were late to

the 3G party 3G services were launched by Airtel only in early 2011 The data tariffs

were high speeds were unsatisfactory and customer acceptance of 3G was slow The

company lacks nationwide 3G license with spectrum in 13 out of 22 telecom service

areas Airtelrsquos LTE network for mobile broadband is still confined to only 4 cities in

India

11 | P a g e

PESTEL Analysis of Bharti Airtel Limited

Political

The ministry of telecom industry hiked FDI limits from 49 to 74 which enabled

Indian promoters of telecom sector to spark off the competition and consolidation

by selling their stakes to foreign entities Airtel already have tie up with foreign

partner SINTEL which is going to help in investing more in infrastructure and latest

technology to provide the best services to their subscribers Also due to this increase

in foreign direct investment in telecommunication market Airtel will be able to

modulate the foreign stakes in their companies that have already acquired a range

between 67-69 percent of their assets

With the increase in globalisation and tremendous growth of Indian

telecommunication sector Airtel launched its mobile services in Srilanka in Jan 2009

and investing to

Recently Airtel have also acquired Zain for Africa operations which is the second

biggest overseas purchase by an Indian company

Economical

In telecom budget 2008 raw materials for the manufacture of specified electronic

hardware items have been exempted from excise duty which lowers the network

equipment costs to benefit major mobile services provider so Airtel can expand

their network coverage to more rural areas at much cheaper cost)

During the recession period government policy to reduce the custom duty on

convergence product from 10 to 5 helped in establishing parity devices used in

communication sector so this will help Airtel in lowering their cost for DTH

expansion

Government has announced per second billing tariff for the subscriber along with

the per minute billing plan Though the per second plan is not beneficial for the

telecom operators as this could reduce the sectors annual revenue by 10-

15Operators are already struggling with the low Average Revenue Per user

(ARPUs) due to high taxes (30 of the gross revenue earned by the operators goes

as various taxes) levied by government will now struggle more with this new plan To

overcome this situation Airtel has launched low tariff per minute plans along with

per second plan As majority of the subscribers make longer duration calls and the

per second call could be detrimental for them with the new reduced per minute

plan Airtel could also launch pay per character for SMS services to increase the VAS

revenue

12 | P a g e

Social

Government has hiked FDI limits which would lead to better infrastructure in

telecom due to intake of more investment by the foreign investors As 70 of Indian

population still resides in rural areas improvement in telecommunication

infrastructure and services will reduce isolation increase business viability farming

productivity and access to educational and medical services Airtel has already

announced to set up 100000 service centres and telecom infrastructure in rural India

by march 2010

Rollout of national rural employment scheme to all 596 districts in India with a

provision of Rs160 billion to aid faster penetration of mobiles and consequently

faster growth of Airtel as they hold major Indian telecom market with 24 growth at

the end of 31st March 2009

Government has announced the auction for 3G and BWA spectrum and Airtel is one

of the qualified bidders for the same and Airtel has already signed a deal with

Ericsson to upgrade their network for 3G It will help Airtel to undertake social

initiatives of the government such as e-education tele medicine and e-health and e-

governance providing affordable broadband and mobile services to sub urban and

rural areas

As demand for the value added services and high speed broadband is increasing

among the youth Airtel being the leading private broad band service provider in the

country has introduced the ultra fast speed of 50 Mbps for the broadband users on

next generation VDSL2 technology which will allow users the convenience to

download a full feature film in less than 3 minutes Along with it is providing free

value add services like parallel ringing website builder (Basic) PC secure (Anti-Virus

software) online storage unlimited gaming on games on demand

Increasing competition with the entry of many new operators in the telecom

industry has forced in reduction of tariffs So consumers get more options and can

change their network operator according to their need In this Airtel has introduced

many low tariff plans like youth Plan for young people ladies special and friends

prepaid plan family celebration plan according to the requirements of the different

customer segments Segmentation strategy aims towards understanding the need

gaps of specific consumer segments and creating special segmented products for

them

Technological

Increase in FDI limits also benefited inflow of latest technology with improved

infrastructure as AIRTEL is well established with better infrastructure so it can

provide better services to its customers in urban and can expand its network in more

rural areas

Introduction of Mobile Number Portability (MNP) which allows the consumer to

retain their existing mobile number even when they change the service provider

13 | P a g e

This will increase the competition among the service providers as the subscribers can

change their network if they are not happy with the services of the existing service

provider Airtel has the edge over his competitors as their services are much better

than other service providers

Government has announced the auction for 3G and BWA spectrum which will allow

telecom companies to offer additional valued services like high resolution video and

multimedia services with high data rate transmission capabilities Airtel has already

qualified to bid for the auctionAlso Airtel has signed a 13 billion deal with Ericsson

to expand and upgrade its network for 3G services in 15 of Indias 22 telecom circles

Environment and Legal

Radio frequency waves emitted from the mobile phones harms body cells and

damages the DNA This is not yet proved that such changes were risk to human

health

Mobilenumber portability (MNP) implementation would enable subscribers to move

to different service provider retaining the original number This implementation

would hamper Bharti Airtel as customers would keep switching to any possible

networks available

In India legal obligations are defined regarding 3G auction and bidding which proves

to be in favour of Bharti Airtel as this auction is not available to the new entrants

This political factor forbids the entry of new companies in to 3G services

Due to rising terrorist activities and hacking of confidential data on air India

Department of Telecommunication (DoT) has made amendments related to security

features which states that telecom companies should have good policies for security

and they should be responsible for the security of the network

Industry Environment

INDUSTRY STAGE

The industry growth stage lasted from 2005-2012 At this point the industry is almost at the

shakeout stage The industry is rapidly approaching the matured market stage But another

theory refutes the claim The economic growth in India currently the market is growing

more on the Network area growth providers are moving to smaller cities from big cities

demand is generated from Blsquo class amp Clsquo class cities ndash middle class population A major

section of middle class population of India in smaller cities couldnlsquot enjoy the advantages of

Telecom service due to the Govt monopoly poor capacity regulations they are the

immediate customers of the Mobile operators

14 | P a g e

The Landline is no more the preferable choice for the new telecom users people like to use

mobile phones because of its added advantages and easy subscription Also the middle class

size is expected to grow in India in next decades so the Mobile market in India will be

probably in Growth ndash Shakeout phase for a longer period 8 Indian mobile operators

offerings are segmented in two broad categories ndash Pre-paid and Post-paid Although mobile

market is growing positively the Post-paid market is declining and prepaid market is

increasing by leaps and bounds

The Indian telecom sector has witnessed tremendous growth over the past decade Today

the Indian telecom network is the second largest in the world after China A liberal policy

regime and involvement of the private sector have played an important role in transforming

this sector The total number of telephones as on 31st April 2013 was 89702 million The

telecom industry has witnessed significant growth in subscriber base over the last decade

with increasing network coverage and a competition-induced decline in tariffs acting as

catalysts for the growth in subscriber base The growth story and the potential have also

served to attract newer players in the industry with the result that the intensity of

competition has kept increasing Internet subscribers in India grew to 16481 million as of

March 31 2013 with as many as seven out of eight net users in the country accessing the

services via their mobile phones according to telecom regulator TRAI The total number of

mobile internet subscribers stood at 1432 million at the end of the last fiscal

The number of broadband subscribers increased to 1505 million as of March 31 2013 from

1498 million as of December 31 2012 The number of non-mobile internet subscribers in

the quarter ended March 31 2013 grew to 2161 million from 2157 million registering a

quarterly growth rate of 016 per cent

15 | P a g e

GROWTH IN TELECOM

Growth Drivers - Key factors which will fuel the growth of the sector include increased

access to services owing to launch of newer telecom technologies like 3G and BWA better

devices changing consumer behaviour and the emergence of cloud technologies A majority

of the investments will go into the capital expenditure for setting up newer networks like 3G

and developing the backhaul among other things

Subscriber Base - The mobile subscriber base in India is estimated rise by 9 per cent to 696

million connections this year according to technology researcher Gartner The mobile

service penetration in the country is currently at 51 per cent and is expected to grow to 72

per cent by 2016

Mobile Value Added Services (MVAS) - Indias current MVAS industry has an estimated size

of US$ 27 billion The industry derives its revenues majorly from the top five to six products

such as game based applications music downloads etc which continue to form close to 80

per cent of VAS revenues The Indian MVAS industry estimated to grow to US$ 108 billion

by 2015 with the next wave of growth in subscriptions expected to come from semi-urban

and rural areas

Mobile Number Portability (MNP) - Mobile Number Portability requests increased from

8970 million subscribers at the end of March 2013 to 9173 million at the end of April 2013

Handsets - The mobile handset markets revenues in India will grow from US$ 57 billion in

2010 to US$ 78 billion in 2016 according to the study India is the second largest mobile

handset market in the world and is set to become an even larger market with unit shipment

of 2084 million in 2016 at a CAGR of 118 per cent from 2010 to 2016The Indian mobile

handset market posted revenue of Rs 35946 billion in 2012-2013 compared to Rs 31330

billion in the earlier fiscal year on the back of increasing sale of Smartphonersquos In 2012-2013

Karbonn grew 731 per cent Samsung ended the year with revenue of Rs 11328 billion

compared to Rs 7891 billion last year showing a growth of 436 per cent The iconic Apple

16 | P a g e

posted revenue of Rs 1293 billion in FY 2013 in the country compared to Rs 250 billion in

the previous financial year

GAME THEORY

Indiarsquos telecom Industry an oligopoly has witnessed significant price-cutting since 2005 A

metric called Average Revenue per user (ARPU) which defines a companyrsquos per subscriber

monthly revenue has fallen from ₹37001 in Decemberrsquo05 to ₹12825 in Decemberrsquo13 This

implies that either people lowered usage of cell phones drastically or call rates fell over the

period

TABLE 1

The former is unlikely in a growing economy and the phenomenon actually resulted due to

aggressive price cutting by firms during this period

Currently Airtel Vodafone and Idea control 70+ of the industryrsquos market share Table 1

shows the ARPU and subscriber base (in Crores) of these 3 over the past 6 years The

average subscriber base for a particular year is shown in the table Table 2 shows change

in ARPU of the three companies over the past 5 years and their respective individual share

of the total subscriber base of these 3 companies

Quarter Ended December

Airtels ARPU (in ₹)

Airtels subscribers

Vodafones ARPU (in ₹)

Vodafones subscribers

Ideas ARPU (in ₹)

Ideas subscribers

2008 26059 611737305 22792 4323223725 21541 2689632113

2009 20058 7982973638 17055 597358665 17209 3668136038

2010 15398 1049672524 13005 8423015475 12782 5366251725

2011 1364 1282383818 11742 1074420281 11486 7323344775

2012 13667 1399592696 12192 1148899553 1072 8723590463

2013 14354 1441124333 1385 1164663934 12249 9457361213

17 | P a g e

TABLE 2

TABLE 3

Why are the companies cutting their prices Game theory is at work here Airtel (A)

Vodafone (V) and Idea (I) respectively had 47 33 and 20 market share in 2008 During

this period all companies in the industry were reducing their rates Given this scenario I

assume that companies that didnrsquot reduce their rates during this period would not have

gained more customers (they would have actually lost customers but for sake of simplicity I

donrsquot take this into account) Also I assume that proportional price cuts by all companies

would have resulted in no change in their relative market shares during these years

Airtel Vodafone Idea

Year Change in ARPU

Relative Market Share ()

Change in ARPU

Relative Market Share ()

Change in ARPU

Relative Market Share ()

2009 -2302851222

452942479 -25171113 338932742 -2011048698

20812478

2010 -2323262539

432213148 -23746702 346826077 -2572491138

220960776

2011 -1141706715

415126672 -97116494 347805789 -1013925833

237067538

2012 0197947214 40913579 383239653 335851943 -6668988334

255012268

2013 5026706666 405776274 135990814 327933531 142630597 266290195

Situation V reduces rates V doesnrsquot reduce

A Reduces Rates A and V retain market share V loses market share

A doesnrsquot Reduce A loses market share A and V retain market share

18 | P a g e

In such a case A and V would have faced the following situation at the beginning of 2009

This is a variant of the classical prisonerrsquos dilemma (say A and B) wherein two prisoners are

separately asked about the true culprit The situations that A and B face is shown below

TABLE 4

In this scenario no prisoner can trust the other one and the optimal solution for each one

would be to betray the other Similar is the case in Telecom industry No company can trust

the others In a bid to save their respective market shares companies kept cutting their own

rates Each set of companies each year would have faced a situation similar to the one in

table 3 If A didnrsquot reduce its rates in 2009 its market share could have fallen to 388

under the assumptions made at the beginning of analysis Hence A decided to cut prices

Similarly all firms in the industry decided to reduce rates Another question that I seek to

answer is what the ideal action for these firms would have been during this period Did they

make a mistake due to these price wars

In the case of the prisonerrsquos dilemma discussed above each prisonerrsquos ideal choice is to stay

silent and spend a year in jail instead of 3 that would result if they betray each other Would

the telecom companies also have achieved better results if they had not indulged in price

wars No The subscriber base of the 3 companies discussed above increased at a

compounded rate of 37 from 2008-2012 (Table 1) It would be reasonable to attribute this

change to the falling prices given that the economy was performing poorly during this

period Again taking into account the assumptions made in deriving Table 3 the revenues of

A and V in 2013 could be demonstrated by the following table

TABLE 5

Situation V reduces rates V doesnrsquot reduce

A Reduces Rates ( 2068 1400) (2068 984)

A doesnrsquot Reduce (1590 1400) (1590 984)

Situation B betrays A B stays silent

A Betrays B A and B imprisoned for 2 years A goes free and B imprisoned for 3 years

A stays silent B goes free and A imprisoned for 3 years A and B imprisoned for 1 year

19 | P a g e

Table 5 shows the approximate monthly revenues (in Rupees Crores) of the two firms under

different situations with respect to price In the above table both the Nash equilibrium (the

action point from which no company has an incentive to deviate given the action of the

other company) as well as the ideal equilibrium is for both companies to reduce rates Thus

the telecom industry didnrsquot necessarily suffer due to price cuts at least in terms of

revenues However this strategy would have remained profitable as long as the price

elasticity of the industryrsquos demand remains greater than 1 In 2012 a rise in prices

(indicated by ARPU) led to an increase in the three companiesrsquo revenue Thus this year

marked an end to the telecom industryrsquos price-cutting strategy

Why is it that the automobile Industry in India another oligopoly has not faced similar price

wars It is so because companies cut prices only if the price-cut doesnrsquot result in economic

losses for them Return on assets is already low in automobile industry (about 10) The

telecom industry has also had very low (9-10) returns during the past 2 years This also

explains why that the effect of game theory has disappeared in 2012 and 2013 Young

Industries (such as e-commerce) earning economic profits may witness a similar price-

cutting and erosion of economic profits in the future

Strategy in Global Environment

BALs telecom model was considered as the new model for telecom and effective for

emerging markets like India BAL had established itself as a dominant player in India with its

innovative business processes and strong brand but was witnessing tapering growth

because of increasing competition and saturation of the more lucrative urban markets

While more and more players were eyeing the fast-growing Indian mobile market which was

experiencing high growth BAL put its sight on foreign shores BAL realized that its extensive

experience in India coupled with its unique business model would help it tap the

20 | P a g e

opportunity provided by other developing and emerging markets and create value for its

customers

Acquisition of Zain Groups telecom business in fifteen African counties gave it a boosted

start in the African continent There were talks about BAL having paid higher for the deal

Even though BAL was in the process of giving shape to its strategy for the African markets

the critical success factors in emerging markets

raquo BAL was trying to understand the importance of business process innovation and strategic

partnerships

raquo Appreciate the role of tailoring strategy to fit a specific industry and business

environment

raquo Analyze BALs internal and external environment

raquo Understand and discuss cross-country differences in Cultural demographic and market

conditions and its possible impact on business

raquo Probe the role importance and pros and cons of legal and regulatory framework

raquo Explore the ways a business can be successful in international markets

Though BAL was able to acquire a global footprint and a much larger customer base through

this deal industry experts believed it would be difficult for it to leverage on the business

model and strategies which had kept it afloat and ahead of the competition in India

Jaydeep Ghosh Executive Director of KPMG 7 said Bharti has replicated the low-cost

model through outsourcing in India but depending upon different geographies (in Africa) it

will not be easy

BAL also acquired stake in Bangladeshrsquos Warid Telecom The Company has used its

successful lsquominute factory modelrsquo (lowest-costmin) in these territories Bharti Airtel has

about 2712 million subscribers worldwide ndash 1996 million in India 62 million in Bangladesh

17 million in Sri Lanka and 637 million in Africa as of the end of March 2013Telecom

penetration is low in Africa and hence huge opportunities are available for Bharti Airtel So

far turning around the African operations has been a challenging task for the company in

the past three years This is due to the high competition currency movements and political

unrest in some countries and regions However the African operations offer good

opportunities and it can be expected that these acquisitions will enhance the companyrsquos

global presence in telecom space and will help it to increase its profitability in the coming

years

8 | P a g e

Table Analysis of the Porterrsquos Five Forces

Internal Analysis Strength amp Weakness

Strengths

1 Biggest mobile service provider in worldrsquos second largest telecom market ndash Mobile

phone subscriptions now follow the normal population trends around the world

With about 870 million wireless subscriptions India ranks second after China in the

wireless market Airtel has a 222 share of that market

2 Well-established nationwide infrastructure ndash Airtel has been in the market for 18+

years and thus has towers and backhaul all over the country This is a major

advantage Deployment of new technologies or increasing capacity at times requires

software and minimal hardware upgrade Having infrastructure already on the

ground makes that process much faster and smoother Secondly it is easier to

capture new customers if a telco already has a network in place

3 High brand equity ndash Airtel is among Indiarsquos most visible brands omnipresent in most

parts of the nation through television print and various other forms of advertising

Celebrity endorsements and innovative advertising that understand the pulse of

market are some of the assets of the Airtel brand

4 Superior overall network quality and reliability ndash Bharti Airtel (along with Vodafone)

runs one of the better mobile networksrsquo in India They have nationwide penetration

and although there is no dearth of consumer complaints regarding dropped calls and

slow data against Airtel it still offers a higher quality telecom service experience as

compared to most other telcos

5 Has established assets

a Physical assets Nationwide presence of offices has over 34000+ towers and

telecommunication equipmentrsquos and hardware This gives an easier

deployment of new technologies and softwares Also helps in easier

customer acquisition when infrastructure is already in place

9 | P a g e

b Intellectual and Human assets An employee base of about 20000

c Financial Assets

i Bharti Airtel PvtLtd went public in 2002

ii Listed on NSE and BSE

iii 141598B Market Capital

10 | P a g e

Weaknesses ndash

High competition in the telecom market ndash Airtel like all other service providers in

India has been adversely affected by the extreme price competition Although the

average voice call rates have gone up recently they were as low as Rs 06min (1

centmin) a few years ago The story is similar with data and 3G tariffs As a result

the company has been reporting declining profits for many years ARPU had been

decreasing too although it is showing signs of bottoming out now

Debt and finances ndash According to their latest quarterly report Airtel is burdened by

$97 billion in net debt which is a lot of money when converted to rupees How can

Airtel repay this debt is the question Possibilities include stake and equity sale or

spike in revenue Depreciating rupee is also an issue since it results in foreign

exchange losses and increases the financing cost

Africa acquisitions and operations ndash Airtel acquired Zainrsquos Africa business for $9

billion in 2010 Since then it has struggled to turn around those operations reporting

repeated losses from the continent While the Africa operation has widened the

companiesrsquo geography it continues to be a drag on its balance sheet

Late adoption of 3G and advanced wireless technologies ndash Due to various

regulatory uncertainties and delayed spectrum auctions India and Airtel were late to

the 3G party 3G services were launched by Airtel only in early 2011 The data tariffs

were high speeds were unsatisfactory and customer acceptance of 3G was slow The

company lacks nationwide 3G license with spectrum in 13 out of 22 telecom service

areas Airtelrsquos LTE network for mobile broadband is still confined to only 4 cities in

India

11 | P a g e

PESTEL Analysis of Bharti Airtel Limited

Political

The ministry of telecom industry hiked FDI limits from 49 to 74 which enabled

Indian promoters of telecom sector to spark off the competition and consolidation

by selling their stakes to foreign entities Airtel already have tie up with foreign

partner SINTEL which is going to help in investing more in infrastructure and latest

technology to provide the best services to their subscribers Also due to this increase

in foreign direct investment in telecommunication market Airtel will be able to

modulate the foreign stakes in their companies that have already acquired a range

between 67-69 percent of their assets

With the increase in globalisation and tremendous growth of Indian

telecommunication sector Airtel launched its mobile services in Srilanka in Jan 2009

and investing to

Recently Airtel have also acquired Zain for Africa operations which is the second

biggest overseas purchase by an Indian company

Economical

In telecom budget 2008 raw materials for the manufacture of specified electronic

hardware items have been exempted from excise duty which lowers the network

equipment costs to benefit major mobile services provider so Airtel can expand

their network coverage to more rural areas at much cheaper cost)

During the recession period government policy to reduce the custom duty on

convergence product from 10 to 5 helped in establishing parity devices used in

communication sector so this will help Airtel in lowering their cost for DTH

expansion

Government has announced per second billing tariff for the subscriber along with

the per minute billing plan Though the per second plan is not beneficial for the

telecom operators as this could reduce the sectors annual revenue by 10-

15Operators are already struggling with the low Average Revenue Per user

(ARPUs) due to high taxes (30 of the gross revenue earned by the operators goes

as various taxes) levied by government will now struggle more with this new plan To

overcome this situation Airtel has launched low tariff per minute plans along with

per second plan As majority of the subscribers make longer duration calls and the

per second call could be detrimental for them with the new reduced per minute

plan Airtel could also launch pay per character for SMS services to increase the VAS

revenue

12 | P a g e

Social

Government has hiked FDI limits which would lead to better infrastructure in

telecom due to intake of more investment by the foreign investors As 70 of Indian

population still resides in rural areas improvement in telecommunication

infrastructure and services will reduce isolation increase business viability farming

productivity and access to educational and medical services Airtel has already

announced to set up 100000 service centres and telecom infrastructure in rural India

by march 2010

Rollout of national rural employment scheme to all 596 districts in India with a

provision of Rs160 billion to aid faster penetration of mobiles and consequently

faster growth of Airtel as they hold major Indian telecom market with 24 growth at

the end of 31st March 2009

Government has announced the auction for 3G and BWA spectrum and Airtel is one

of the qualified bidders for the same and Airtel has already signed a deal with

Ericsson to upgrade their network for 3G It will help Airtel to undertake social

initiatives of the government such as e-education tele medicine and e-health and e-

governance providing affordable broadband and mobile services to sub urban and

rural areas

As demand for the value added services and high speed broadband is increasing

among the youth Airtel being the leading private broad band service provider in the

country has introduced the ultra fast speed of 50 Mbps for the broadband users on

next generation VDSL2 technology which will allow users the convenience to

download a full feature film in less than 3 minutes Along with it is providing free

value add services like parallel ringing website builder (Basic) PC secure (Anti-Virus

software) online storage unlimited gaming on games on demand

Increasing competition with the entry of many new operators in the telecom

industry has forced in reduction of tariffs So consumers get more options and can

change their network operator according to their need In this Airtel has introduced

many low tariff plans like youth Plan for young people ladies special and friends

prepaid plan family celebration plan according to the requirements of the different

customer segments Segmentation strategy aims towards understanding the need

gaps of specific consumer segments and creating special segmented products for

them

Technological

Increase in FDI limits also benefited inflow of latest technology with improved

infrastructure as AIRTEL is well established with better infrastructure so it can

provide better services to its customers in urban and can expand its network in more

rural areas

Introduction of Mobile Number Portability (MNP) which allows the consumer to

retain their existing mobile number even when they change the service provider

13 | P a g e

This will increase the competition among the service providers as the subscribers can

change their network if they are not happy with the services of the existing service

provider Airtel has the edge over his competitors as their services are much better

than other service providers

Government has announced the auction for 3G and BWA spectrum which will allow

telecom companies to offer additional valued services like high resolution video and

multimedia services with high data rate transmission capabilities Airtel has already

qualified to bid for the auctionAlso Airtel has signed a 13 billion deal with Ericsson

to expand and upgrade its network for 3G services in 15 of Indias 22 telecom circles

Environment and Legal

Radio frequency waves emitted from the mobile phones harms body cells and

damages the DNA This is not yet proved that such changes were risk to human

health

Mobilenumber portability (MNP) implementation would enable subscribers to move

to different service provider retaining the original number This implementation

would hamper Bharti Airtel as customers would keep switching to any possible

networks available

In India legal obligations are defined regarding 3G auction and bidding which proves

to be in favour of Bharti Airtel as this auction is not available to the new entrants

This political factor forbids the entry of new companies in to 3G services

Due to rising terrorist activities and hacking of confidential data on air India

Department of Telecommunication (DoT) has made amendments related to security

features which states that telecom companies should have good policies for security

and they should be responsible for the security of the network

Industry Environment

INDUSTRY STAGE

The industry growth stage lasted from 2005-2012 At this point the industry is almost at the

shakeout stage The industry is rapidly approaching the matured market stage But another

theory refutes the claim The economic growth in India currently the market is growing

more on the Network area growth providers are moving to smaller cities from big cities

demand is generated from Blsquo class amp Clsquo class cities ndash middle class population A major

section of middle class population of India in smaller cities couldnlsquot enjoy the advantages of

Telecom service due to the Govt monopoly poor capacity regulations they are the

immediate customers of the Mobile operators

14 | P a g e

The Landline is no more the preferable choice for the new telecom users people like to use

mobile phones because of its added advantages and easy subscription Also the middle class

size is expected to grow in India in next decades so the Mobile market in India will be

probably in Growth ndash Shakeout phase for a longer period 8 Indian mobile operators

offerings are segmented in two broad categories ndash Pre-paid and Post-paid Although mobile

market is growing positively the Post-paid market is declining and prepaid market is

increasing by leaps and bounds

The Indian telecom sector has witnessed tremendous growth over the past decade Today

the Indian telecom network is the second largest in the world after China A liberal policy

regime and involvement of the private sector have played an important role in transforming

this sector The total number of telephones as on 31st April 2013 was 89702 million The

telecom industry has witnessed significant growth in subscriber base over the last decade

with increasing network coverage and a competition-induced decline in tariffs acting as

catalysts for the growth in subscriber base The growth story and the potential have also

served to attract newer players in the industry with the result that the intensity of

competition has kept increasing Internet subscribers in India grew to 16481 million as of

March 31 2013 with as many as seven out of eight net users in the country accessing the

services via their mobile phones according to telecom regulator TRAI The total number of

mobile internet subscribers stood at 1432 million at the end of the last fiscal

The number of broadband subscribers increased to 1505 million as of March 31 2013 from

1498 million as of December 31 2012 The number of non-mobile internet subscribers in

the quarter ended March 31 2013 grew to 2161 million from 2157 million registering a

quarterly growth rate of 016 per cent

15 | P a g e

GROWTH IN TELECOM

Growth Drivers - Key factors which will fuel the growth of the sector include increased

access to services owing to launch of newer telecom technologies like 3G and BWA better

devices changing consumer behaviour and the emergence of cloud technologies A majority

of the investments will go into the capital expenditure for setting up newer networks like 3G

and developing the backhaul among other things

Subscriber Base - The mobile subscriber base in India is estimated rise by 9 per cent to 696

million connections this year according to technology researcher Gartner The mobile

service penetration in the country is currently at 51 per cent and is expected to grow to 72

per cent by 2016

Mobile Value Added Services (MVAS) - Indias current MVAS industry has an estimated size

of US$ 27 billion The industry derives its revenues majorly from the top five to six products

such as game based applications music downloads etc which continue to form close to 80

per cent of VAS revenues The Indian MVAS industry estimated to grow to US$ 108 billion

by 2015 with the next wave of growth in subscriptions expected to come from semi-urban

and rural areas

Mobile Number Portability (MNP) - Mobile Number Portability requests increased from

8970 million subscribers at the end of March 2013 to 9173 million at the end of April 2013

Handsets - The mobile handset markets revenues in India will grow from US$ 57 billion in

2010 to US$ 78 billion in 2016 according to the study India is the second largest mobile

handset market in the world and is set to become an even larger market with unit shipment

of 2084 million in 2016 at a CAGR of 118 per cent from 2010 to 2016The Indian mobile

handset market posted revenue of Rs 35946 billion in 2012-2013 compared to Rs 31330

billion in the earlier fiscal year on the back of increasing sale of Smartphonersquos In 2012-2013

Karbonn grew 731 per cent Samsung ended the year with revenue of Rs 11328 billion

compared to Rs 7891 billion last year showing a growth of 436 per cent The iconic Apple

16 | P a g e

posted revenue of Rs 1293 billion in FY 2013 in the country compared to Rs 250 billion in

the previous financial year

GAME THEORY

Indiarsquos telecom Industry an oligopoly has witnessed significant price-cutting since 2005 A

metric called Average Revenue per user (ARPU) which defines a companyrsquos per subscriber

monthly revenue has fallen from ₹37001 in Decemberrsquo05 to ₹12825 in Decemberrsquo13 This

implies that either people lowered usage of cell phones drastically or call rates fell over the

period

TABLE 1

The former is unlikely in a growing economy and the phenomenon actually resulted due to

aggressive price cutting by firms during this period

Currently Airtel Vodafone and Idea control 70+ of the industryrsquos market share Table 1

shows the ARPU and subscriber base (in Crores) of these 3 over the past 6 years The

average subscriber base for a particular year is shown in the table Table 2 shows change

in ARPU of the three companies over the past 5 years and their respective individual share

of the total subscriber base of these 3 companies

Quarter Ended December

Airtels ARPU (in ₹)

Airtels subscribers

Vodafones ARPU (in ₹)

Vodafones subscribers

Ideas ARPU (in ₹)

Ideas subscribers

2008 26059 611737305 22792 4323223725 21541 2689632113

2009 20058 7982973638 17055 597358665 17209 3668136038

2010 15398 1049672524 13005 8423015475 12782 5366251725

2011 1364 1282383818 11742 1074420281 11486 7323344775

2012 13667 1399592696 12192 1148899553 1072 8723590463

2013 14354 1441124333 1385 1164663934 12249 9457361213

17 | P a g e

TABLE 2

TABLE 3

Why are the companies cutting their prices Game theory is at work here Airtel (A)

Vodafone (V) and Idea (I) respectively had 47 33 and 20 market share in 2008 During

this period all companies in the industry were reducing their rates Given this scenario I

assume that companies that didnrsquot reduce their rates during this period would not have

gained more customers (they would have actually lost customers but for sake of simplicity I

donrsquot take this into account) Also I assume that proportional price cuts by all companies

would have resulted in no change in their relative market shares during these years

Airtel Vodafone Idea

Year Change in ARPU

Relative Market Share ()

Change in ARPU

Relative Market Share ()

Change in ARPU

Relative Market Share ()

2009 -2302851222

452942479 -25171113 338932742 -2011048698

20812478

2010 -2323262539

432213148 -23746702 346826077 -2572491138

220960776

2011 -1141706715

415126672 -97116494 347805789 -1013925833

237067538

2012 0197947214 40913579 383239653 335851943 -6668988334

255012268

2013 5026706666 405776274 135990814 327933531 142630597 266290195

Situation V reduces rates V doesnrsquot reduce

A Reduces Rates A and V retain market share V loses market share

A doesnrsquot Reduce A loses market share A and V retain market share

18 | P a g e

In such a case A and V would have faced the following situation at the beginning of 2009

This is a variant of the classical prisonerrsquos dilemma (say A and B) wherein two prisoners are

separately asked about the true culprit The situations that A and B face is shown below

TABLE 4

In this scenario no prisoner can trust the other one and the optimal solution for each one

would be to betray the other Similar is the case in Telecom industry No company can trust

the others In a bid to save their respective market shares companies kept cutting their own

rates Each set of companies each year would have faced a situation similar to the one in

table 3 If A didnrsquot reduce its rates in 2009 its market share could have fallen to 388

under the assumptions made at the beginning of analysis Hence A decided to cut prices

Similarly all firms in the industry decided to reduce rates Another question that I seek to

answer is what the ideal action for these firms would have been during this period Did they

make a mistake due to these price wars

In the case of the prisonerrsquos dilemma discussed above each prisonerrsquos ideal choice is to stay

silent and spend a year in jail instead of 3 that would result if they betray each other Would

the telecom companies also have achieved better results if they had not indulged in price

wars No The subscriber base of the 3 companies discussed above increased at a

compounded rate of 37 from 2008-2012 (Table 1) It would be reasonable to attribute this

change to the falling prices given that the economy was performing poorly during this

period Again taking into account the assumptions made in deriving Table 3 the revenues of

A and V in 2013 could be demonstrated by the following table

TABLE 5

Situation V reduces rates V doesnrsquot reduce

A Reduces Rates ( 2068 1400) (2068 984)

A doesnrsquot Reduce (1590 1400) (1590 984)

Situation B betrays A B stays silent

A Betrays B A and B imprisoned for 2 years A goes free and B imprisoned for 3 years

A stays silent B goes free and A imprisoned for 3 years A and B imprisoned for 1 year

19 | P a g e

Table 5 shows the approximate monthly revenues (in Rupees Crores) of the two firms under

different situations with respect to price In the above table both the Nash equilibrium (the

action point from which no company has an incentive to deviate given the action of the

other company) as well as the ideal equilibrium is for both companies to reduce rates Thus

the telecom industry didnrsquot necessarily suffer due to price cuts at least in terms of

revenues However this strategy would have remained profitable as long as the price

elasticity of the industryrsquos demand remains greater than 1 In 2012 a rise in prices

(indicated by ARPU) led to an increase in the three companiesrsquo revenue Thus this year

marked an end to the telecom industryrsquos price-cutting strategy

Why is it that the automobile Industry in India another oligopoly has not faced similar price

wars It is so because companies cut prices only if the price-cut doesnrsquot result in economic

losses for them Return on assets is already low in automobile industry (about 10) The

telecom industry has also had very low (9-10) returns during the past 2 years This also

explains why that the effect of game theory has disappeared in 2012 and 2013 Young

Industries (such as e-commerce) earning economic profits may witness a similar price-

cutting and erosion of economic profits in the future

Strategy in Global Environment

BALs telecom model was considered as the new model for telecom and effective for

emerging markets like India BAL had established itself as a dominant player in India with its

innovative business processes and strong brand but was witnessing tapering growth

because of increasing competition and saturation of the more lucrative urban markets

While more and more players were eyeing the fast-growing Indian mobile market which was

experiencing high growth BAL put its sight on foreign shores BAL realized that its extensive

experience in India coupled with its unique business model would help it tap the

20 | P a g e

opportunity provided by other developing and emerging markets and create value for its

customers

Acquisition of Zain Groups telecom business in fifteen African counties gave it a boosted

start in the African continent There were talks about BAL having paid higher for the deal

Even though BAL was in the process of giving shape to its strategy for the African markets

the critical success factors in emerging markets

raquo BAL was trying to understand the importance of business process innovation and strategic

partnerships

raquo Appreciate the role of tailoring strategy to fit a specific industry and business

environment

raquo Analyze BALs internal and external environment

raquo Understand and discuss cross-country differences in Cultural demographic and market

conditions and its possible impact on business

raquo Probe the role importance and pros and cons of legal and regulatory framework

raquo Explore the ways a business can be successful in international markets

Though BAL was able to acquire a global footprint and a much larger customer base through

this deal industry experts believed it would be difficult for it to leverage on the business

model and strategies which had kept it afloat and ahead of the competition in India

Jaydeep Ghosh Executive Director of KPMG 7 said Bharti has replicated the low-cost

model through outsourcing in India but depending upon different geographies (in Africa) it

will not be easy

BAL also acquired stake in Bangladeshrsquos Warid Telecom The Company has used its

successful lsquominute factory modelrsquo (lowest-costmin) in these territories Bharti Airtel has

about 2712 million subscribers worldwide ndash 1996 million in India 62 million in Bangladesh

17 million in Sri Lanka and 637 million in Africa as of the end of March 2013Telecom

penetration is low in Africa and hence huge opportunities are available for Bharti Airtel So

far turning around the African operations has been a challenging task for the company in

the past three years This is due to the high competition currency movements and political

unrest in some countries and regions However the African operations offer good

opportunities and it can be expected that these acquisitions will enhance the companyrsquos

global presence in telecom space and will help it to increase its profitability in the coming

years

9 | P a g e

b Intellectual and Human assets An employee base of about 20000

c Financial Assets

i Bharti Airtel PvtLtd went public in 2002

ii Listed on NSE and BSE

iii 141598B Market Capital

10 | P a g e

Weaknesses ndash

High competition in the telecom market ndash Airtel like all other service providers in

India has been adversely affected by the extreme price competition Although the

average voice call rates have gone up recently they were as low as Rs 06min (1

centmin) a few years ago The story is similar with data and 3G tariffs As a result

the company has been reporting declining profits for many years ARPU had been

decreasing too although it is showing signs of bottoming out now

Debt and finances ndash According to their latest quarterly report Airtel is burdened by

$97 billion in net debt which is a lot of money when converted to rupees How can

Airtel repay this debt is the question Possibilities include stake and equity sale or

spike in revenue Depreciating rupee is also an issue since it results in foreign

exchange losses and increases the financing cost

Africa acquisitions and operations ndash Airtel acquired Zainrsquos Africa business for $9

billion in 2010 Since then it has struggled to turn around those operations reporting

repeated losses from the continent While the Africa operation has widened the

companiesrsquo geography it continues to be a drag on its balance sheet

Late adoption of 3G and advanced wireless technologies ndash Due to various

regulatory uncertainties and delayed spectrum auctions India and Airtel were late to

the 3G party 3G services were launched by Airtel only in early 2011 The data tariffs

were high speeds were unsatisfactory and customer acceptance of 3G was slow The

company lacks nationwide 3G license with spectrum in 13 out of 22 telecom service

areas Airtelrsquos LTE network for mobile broadband is still confined to only 4 cities in

India

11 | P a g e

PESTEL Analysis of Bharti Airtel Limited

Political

The ministry of telecom industry hiked FDI limits from 49 to 74 which enabled

Indian promoters of telecom sector to spark off the competition and consolidation

by selling their stakes to foreign entities Airtel already have tie up with foreign

partner SINTEL which is going to help in investing more in infrastructure and latest

technology to provide the best services to their subscribers Also due to this increase

in foreign direct investment in telecommunication market Airtel will be able to

modulate the foreign stakes in their companies that have already acquired a range

between 67-69 percent of their assets

With the increase in globalisation and tremendous growth of Indian

telecommunication sector Airtel launched its mobile services in Srilanka in Jan 2009

and investing to

Recently Airtel have also acquired Zain for Africa operations which is the second

biggest overseas purchase by an Indian company

Economical

In telecom budget 2008 raw materials for the manufacture of specified electronic

hardware items have been exempted from excise duty which lowers the network

equipment costs to benefit major mobile services provider so Airtel can expand

their network coverage to more rural areas at much cheaper cost)

During the recession period government policy to reduce the custom duty on

convergence product from 10 to 5 helped in establishing parity devices used in

communication sector so this will help Airtel in lowering their cost for DTH

expansion

Government has announced per second billing tariff for the subscriber along with

the per minute billing plan Though the per second plan is not beneficial for the

telecom operators as this could reduce the sectors annual revenue by 10-

15Operators are already struggling with the low Average Revenue Per user

(ARPUs) due to high taxes (30 of the gross revenue earned by the operators goes

as various taxes) levied by government will now struggle more with this new plan To

overcome this situation Airtel has launched low tariff per minute plans along with

per second plan As majority of the subscribers make longer duration calls and the

per second call could be detrimental for them with the new reduced per minute

plan Airtel could also launch pay per character for SMS services to increase the VAS

revenue

12 | P a g e

Social

Government has hiked FDI limits which would lead to better infrastructure in

telecom due to intake of more investment by the foreign investors As 70 of Indian

population still resides in rural areas improvement in telecommunication

infrastructure and services will reduce isolation increase business viability farming

productivity and access to educational and medical services Airtel has already

announced to set up 100000 service centres and telecom infrastructure in rural India

by march 2010

Rollout of national rural employment scheme to all 596 districts in India with a

provision of Rs160 billion to aid faster penetration of mobiles and consequently

faster growth of Airtel as they hold major Indian telecom market with 24 growth at

the end of 31st March 2009

Government has announced the auction for 3G and BWA spectrum and Airtel is one

of the qualified bidders for the same and Airtel has already signed a deal with

Ericsson to upgrade their network for 3G It will help Airtel to undertake social

initiatives of the government such as e-education tele medicine and e-health and e-

governance providing affordable broadband and mobile services to sub urban and

rural areas

As demand for the value added services and high speed broadband is increasing

among the youth Airtel being the leading private broad band service provider in the

country has introduced the ultra fast speed of 50 Mbps for the broadband users on

next generation VDSL2 technology which will allow users the convenience to

download a full feature film in less than 3 minutes Along with it is providing free

value add services like parallel ringing website builder (Basic) PC secure (Anti-Virus

software) online storage unlimited gaming on games on demand

Increasing competition with the entry of many new operators in the telecom

industry has forced in reduction of tariffs So consumers get more options and can

change their network operator according to their need In this Airtel has introduced

many low tariff plans like youth Plan for young people ladies special and friends

prepaid plan family celebration plan according to the requirements of the different

customer segments Segmentation strategy aims towards understanding the need

gaps of specific consumer segments and creating special segmented products for

them

Technological

Increase in FDI limits also benefited inflow of latest technology with improved

infrastructure as AIRTEL is well established with better infrastructure so it can

provide better services to its customers in urban and can expand its network in more

rural areas

Introduction of Mobile Number Portability (MNP) which allows the consumer to

retain their existing mobile number even when they change the service provider

13 | P a g e

This will increase the competition among the service providers as the subscribers can

change their network if they are not happy with the services of the existing service

provider Airtel has the edge over his competitors as their services are much better

than other service providers

Government has announced the auction for 3G and BWA spectrum which will allow

telecom companies to offer additional valued services like high resolution video and

multimedia services with high data rate transmission capabilities Airtel has already

qualified to bid for the auctionAlso Airtel has signed a 13 billion deal with Ericsson

to expand and upgrade its network for 3G services in 15 of Indias 22 telecom circles

Environment and Legal

Radio frequency waves emitted from the mobile phones harms body cells and

damages the DNA This is not yet proved that such changes were risk to human

health

Mobilenumber portability (MNP) implementation would enable subscribers to move

to different service provider retaining the original number This implementation

would hamper Bharti Airtel as customers would keep switching to any possible

networks available

In India legal obligations are defined regarding 3G auction and bidding which proves

to be in favour of Bharti Airtel as this auction is not available to the new entrants

This political factor forbids the entry of new companies in to 3G services

Due to rising terrorist activities and hacking of confidential data on air India

Department of Telecommunication (DoT) has made amendments related to security

features which states that telecom companies should have good policies for security

and they should be responsible for the security of the network

Industry Environment

INDUSTRY STAGE

The industry growth stage lasted from 2005-2012 At this point the industry is almost at the

shakeout stage The industry is rapidly approaching the matured market stage But another

theory refutes the claim The economic growth in India currently the market is growing

more on the Network area growth providers are moving to smaller cities from big cities

demand is generated from Blsquo class amp Clsquo class cities ndash middle class population A major

section of middle class population of India in smaller cities couldnlsquot enjoy the advantages of

Telecom service due to the Govt monopoly poor capacity regulations they are the

immediate customers of the Mobile operators

14 | P a g e

The Landline is no more the preferable choice for the new telecom users people like to use

mobile phones because of its added advantages and easy subscription Also the middle class

size is expected to grow in India in next decades so the Mobile market in India will be

probably in Growth ndash Shakeout phase for a longer period 8 Indian mobile operators

offerings are segmented in two broad categories ndash Pre-paid and Post-paid Although mobile

market is growing positively the Post-paid market is declining and prepaid market is

increasing by leaps and bounds

The Indian telecom sector has witnessed tremendous growth over the past decade Today

the Indian telecom network is the second largest in the world after China A liberal policy

regime and involvement of the private sector have played an important role in transforming

this sector The total number of telephones as on 31st April 2013 was 89702 million The

telecom industry has witnessed significant growth in subscriber base over the last decade

with increasing network coverage and a competition-induced decline in tariffs acting as

catalysts for the growth in subscriber base The growth story and the potential have also

served to attract newer players in the industry with the result that the intensity of

competition has kept increasing Internet subscribers in India grew to 16481 million as of

March 31 2013 with as many as seven out of eight net users in the country accessing the

services via their mobile phones according to telecom regulator TRAI The total number of

mobile internet subscribers stood at 1432 million at the end of the last fiscal

The number of broadband subscribers increased to 1505 million as of March 31 2013 from

1498 million as of December 31 2012 The number of non-mobile internet subscribers in

the quarter ended March 31 2013 grew to 2161 million from 2157 million registering a

quarterly growth rate of 016 per cent

15 | P a g e

GROWTH IN TELECOM

Growth Drivers - Key factors which will fuel the growth of the sector include increased

access to services owing to launch of newer telecom technologies like 3G and BWA better

devices changing consumer behaviour and the emergence of cloud technologies A majority

of the investments will go into the capital expenditure for setting up newer networks like 3G

and developing the backhaul among other things

Subscriber Base - The mobile subscriber base in India is estimated rise by 9 per cent to 696

million connections this year according to technology researcher Gartner The mobile

service penetration in the country is currently at 51 per cent and is expected to grow to 72

per cent by 2016

Mobile Value Added Services (MVAS) - Indias current MVAS industry has an estimated size

of US$ 27 billion The industry derives its revenues majorly from the top five to six products

such as game based applications music downloads etc which continue to form close to 80

per cent of VAS revenues The Indian MVAS industry estimated to grow to US$ 108 billion

by 2015 with the next wave of growth in subscriptions expected to come from semi-urban

and rural areas

Mobile Number Portability (MNP) - Mobile Number Portability requests increased from

8970 million subscribers at the end of March 2013 to 9173 million at the end of April 2013

Handsets - The mobile handset markets revenues in India will grow from US$ 57 billion in

2010 to US$ 78 billion in 2016 according to the study India is the second largest mobile

handset market in the world and is set to become an even larger market with unit shipment

of 2084 million in 2016 at a CAGR of 118 per cent from 2010 to 2016The Indian mobile

handset market posted revenue of Rs 35946 billion in 2012-2013 compared to Rs 31330

billion in the earlier fiscal year on the back of increasing sale of Smartphonersquos In 2012-2013

Karbonn grew 731 per cent Samsung ended the year with revenue of Rs 11328 billion

compared to Rs 7891 billion last year showing a growth of 436 per cent The iconic Apple

16 | P a g e

posted revenue of Rs 1293 billion in FY 2013 in the country compared to Rs 250 billion in

the previous financial year

GAME THEORY

Indiarsquos telecom Industry an oligopoly has witnessed significant price-cutting since 2005 A

metric called Average Revenue per user (ARPU) which defines a companyrsquos per subscriber

monthly revenue has fallen from ₹37001 in Decemberrsquo05 to ₹12825 in Decemberrsquo13 This

implies that either people lowered usage of cell phones drastically or call rates fell over the

period

TABLE 1

The former is unlikely in a growing economy and the phenomenon actually resulted due to

aggressive price cutting by firms during this period

Currently Airtel Vodafone and Idea control 70+ of the industryrsquos market share Table 1

shows the ARPU and subscriber base (in Crores) of these 3 over the past 6 years The

average subscriber base for a particular year is shown in the table Table 2 shows change

in ARPU of the three companies over the past 5 years and their respective individual share

of the total subscriber base of these 3 companies

Quarter Ended December

Airtels ARPU (in ₹)

Airtels subscribers

Vodafones ARPU (in ₹)

Vodafones subscribers

Ideas ARPU (in ₹)

Ideas subscribers

2008 26059 611737305 22792 4323223725 21541 2689632113

2009 20058 7982973638 17055 597358665 17209 3668136038

2010 15398 1049672524 13005 8423015475 12782 5366251725

2011 1364 1282383818 11742 1074420281 11486 7323344775

2012 13667 1399592696 12192 1148899553 1072 8723590463

2013 14354 1441124333 1385 1164663934 12249 9457361213

17 | P a g e

TABLE 2

TABLE 3

Why are the companies cutting their prices Game theory is at work here Airtel (A)

Vodafone (V) and Idea (I) respectively had 47 33 and 20 market share in 2008 During

this period all companies in the industry were reducing their rates Given this scenario I

assume that companies that didnrsquot reduce their rates during this period would not have

gained more customers (they would have actually lost customers but for sake of simplicity I

donrsquot take this into account) Also I assume that proportional price cuts by all companies

would have resulted in no change in their relative market shares during these years

Airtel Vodafone Idea

Year Change in ARPU

Relative Market Share ()

Change in ARPU

Relative Market Share ()

Change in ARPU

Relative Market Share ()

2009 -2302851222

452942479 -25171113 338932742 -2011048698

20812478

2010 -2323262539

432213148 -23746702 346826077 -2572491138

220960776

2011 -1141706715

415126672 -97116494 347805789 -1013925833

237067538

2012 0197947214 40913579 383239653 335851943 -6668988334

255012268

2013 5026706666 405776274 135990814 327933531 142630597 266290195

Situation V reduces rates V doesnrsquot reduce

A Reduces Rates A and V retain market share V loses market share

A doesnrsquot Reduce A loses market share A and V retain market share

18 | P a g e

In such a case A and V would have faced the following situation at the beginning of 2009

This is a variant of the classical prisonerrsquos dilemma (say A and B) wherein two prisoners are

separately asked about the true culprit The situations that A and B face is shown below

TABLE 4

In this scenario no prisoner can trust the other one and the optimal solution for each one

would be to betray the other Similar is the case in Telecom industry No company can trust

the others In a bid to save their respective market shares companies kept cutting their own

rates Each set of companies each year would have faced a situation similar to the one in

table 3 If A didnrsquot reduce its rates in 2009 its market share could have fallen to 388

under the assumptions made at the beginning of analysis Hence A decided to cut prices

Similarly all firms in the industry decided to reduce rates Another question that I seek to

answer is what the ideal action for these firms would have been during this period Did they

make a mistake due to these price wars

In the case of the prisonerrsquos dilemma discussed above each prisonerrsquos ideal choice is to stay

silent and spend a year in jail instead of 3 that would result if they betray each other Would

the telecom companies also have achieved better results if they had not indulged in price

wars No The subscriber base of the 3 companies discussed above increased at a

compounded rate of 37 from 2008-2012 (Table 1) It would be reasonable to attribute this

change to the falling prices given that the economy was performing poorly during this

period Again taking into account the assumptions made in deriving Table 3 the revenues of

A and V in 2013 could be demonstrated by the following table

TABLE 5

Situation V reduces rates V doesnrsquot reduce

A Reduces Rates ( 2068 1400) (2068 984)

A doesnrsquot Reduce (1590 1400) (1590 984)

Situation B betrays A B stays silent

A Betrays B A and B imprisoned for 2 years A goes free and B imprisoned for 3 years

A stays silent B goes free and A imprisoned for 3 years A and B imprisoned for 1 year

19 | P a g e

Table 5 shows the approximate monthly revenues (in Rupees Crores) of the two firms under

different situations with respect to price In the above table both the Nash equilibrium (the

action point from which no company has an incentive to deviate given the action of the

other company) as well as the ideal equilibrium is for both companies to reduce rates Thus

the telecom industry didnrsquot necessarily suffer due to price cuts at least in terms of

revenues However this strategy would have remained profitable as long as the price

elasticity of the industryrsquos demand remains greater than 1 In 2012 a rise in prices

(indicated by ARPU) led to an increase in the three companiesrsquo revenue Thus this year

marked an end to the telecom industryrsquos price-cutting strategy

Why is it that the automobile Industry in India another oligopoly has not faced similar price

wars It is so because companies cut prices only if the price-cut doesnrsquot result in economic

losses for them Return on assets is already low in automobile industry (about 10) The

telecom industry has also had very low (9-10) returns during the past 2 years This also

explains why that the effect of game theory has disappeared in 2012 and 2013 Young

Industries (such as e-commerce) earning economic profits may witness a similar price-

cutting and erosion of economic profits in the future

Strategy in Global Environment

BALs telecom model was considered as the new model for telecom and effective for

emerging markets like India BAL had established itself as a dominant player in India with its

innovative business processes and strong brand but was witnessing tapering growth

because of increasing competition and saturation of the more lucrative urban markets

While more and more players were eyeing the fast-growing Indian mobile market which was

experiencing high growth BAL put its sight on foreign shores BAL realized that its extensive

experience in India coupled with its unique business model would help it tap the

20 | P a g e

opportunity provided by other developing and emerging markets and create value for its

customers

Acquisition of Zain Groups telecom business in fifteen African counties gave it a boosted

start in the African continent There were talks about BAL having paid higher for the deal

Even though BAL was in the process of giving shape to its strategy for the African markets

the critical success factors in emerging markets

raquo BAL was trying to understand the importance of business process innovation and strategic

partnerships

raquo Appreciate the role of tailoring strategy to fit a specific industry and business

environment

raquo Analyze BALs internal and external environment

raquo Understand and discuss cross-country differences in Cultural demographic and market

conditions and its possible impact on business

raquo Probe the role importance and pros and cons of legal and regulatory framework

raquo Explore the ways a business can be successful in international markets

Though BAL was able to acquire a global footprint and a much larger customer base through

this deal industry experts believed it would be difficult for it to leverage on the business

model and strategies which had kept it afloat and ahead of the competition in India

Jaydeep Ghosh Executive Director of KPMG 7 said Bharti has replicated the low-cost

model through outsourcing in India but depending upon different geographies (in Africa) it

will not be easy

BAL also acquired stake in Bangladeshrsquos Warid Telecom The Company has used its

successful lsquominute factory modelrsquo (lowest-costmin) in these territories Bharti Airtel has

about 2712 million subscribers worldwide ndash 1996 million in India 62 million in Bangladesh

17 million in Sri Lanka and 637 million in Africa as of the end of March 2013Telecom

penetration is low in Africa and hence huge opportunities are available for Bharti Airtel So

far turning around the African operations has been a challenging task for the company in

the past three years This is due to the high competition currency movements and political

unrest in some countries and regions However the African operations offer good

opportunities and it can be expected that these acquisitions will enhance the companyrsquos

global presence in telecom space and will help it to increase its profitability in the coming

years

10 | P a g e

Weaknesses ndash

High competition in the telecom market ndash Airtel like all other service providers in

India has been adversely affected by the extreme price competition Although the

average voice call rates have gone up recently they were as low as Rs 06min (1

centmin) a few years ago The story is similar with data and 3G tariffs As a result

the company has been reporting declining profits for many years ARPU had been

decreasing too although it is showing signs of bottoming out now

Debt and finances ndash According to their latest quarterly report Airtel is burdened by

$97 billion in net debt which is a lot of money when converted to rupees How can

Airtel repay this debt is the question Possibilities include stake and equity sale or

spike in revenue Depreciating rupee is also an issue since it results in foreign

exchange losses and increases the financing cost

Africa acquisitions and operations ndash Airtel acquired Zainrsquos Africa business for $9

billion in 2010 Since then it has struggled to turn around those operations reporting

repeated losses from the continent While the Africa operation has widened the

companiesrsquo geography it continues to be a drag on its balance sheet

Late adoption of 3G and advanced wireless technologies ndash Due to various

regulatory uncertainties and delayed spectrum auctions India and Airtel were late to

the 3G party 3G services were launched by Airtel only in early 2011 The data tariffs

were high speeds were unsatisfactory and customer acceptance of 3G was slow The

company lacks nationwide 3G license with spectrum in 13 out of 22 telecom service

areas Airtelrsquos LTE network for mobile broadband is still confined to only 4 cities in

India

11 | P a g e

PESTEL Analysis of Bharti Airtel Limited

Political

The ministry of telecom industry hiked FDI limits from 49 to 74 which enabled

Indian promoters of telecom sector to spark off the competition and consolidation

by selling their stakes to foreign entities Airtel already have tie up with foreign

partner SINTEL which is going to help in investing more in infrastructure and latest

technology to provide the best services to their subscribers Also due to this increase

in foreign direct investment in telecommunication market Airtel will be able to

modulate the foreign stakes in their companies that have already acquired a range

between 67-69 percent of their assets

With the increase in globalisation and tremendous growth of Indian

telecommunication sector Airtel launched its mobile services in Srilanka in Jan 2009

and investing to

Recently Airtel have also acquired Zain for Africa operations which is the second

biggest overseas purchase by an Indian company

Economical

In telecom budget 2008 raw materials for the manufacture of specified electronic

hardware items have been exempted from excise duty which lowers the network

equipment costs to benefit major mobile services provider so Airtel can expand

their network coverage to more rural areas at much cheaper cost)

During the recession period government policy to reduce the custom duty on

convergence product from 10 to 5 helped in establishing parity devices used in

communication sector so this will help Airtel in lowering their cost for DTH

expansion

Government has announced per second billing tariff for the subscriber along with

the per minute billing plan Though the per second plan is not beneficial for the

telecom operators as this could reduce the sectors annual revenue by 10-

15Operators are already struggling with the low Average Revenue Per user

(ARPUs) due to high taxes (30 of the gross revenue earned by the operators goes

as various taxes) levied by government will now struggle more with this new plan To

overcome this situation Airtel has launched low tariff per minute plans along with

per second plan As majority of the subscribers make longer duration calls and the

per second call could be detrimental for them with the new reduced per minute

plan Airtel could also launch pay per character for SMS services to increase the VAS

revenue

12 | P a g e

Social

Government has hiked FDI limits which would lead to better infrastructure in

telecom due to intake of more investment by the foreign investors As 70 of Indian

population still resides in rural areas improvement in telecommunication

infrastructure and services will reduce isolation increase business viability farming

productivity and access to educational and medical services Airtel has already

announced to set up 100000 service centres and telecom infrastructure in rural India

by march 2010

Rollout of national rural employment scheme to all 596 districts in India with a

provision of Rs160 billion to aid faster penetration of mobiles and consequently

faster growth of Airtel as they hold major Indian telecom market with 24 growth at

the end of 31st March 2009

Government has announced the auction for 3G and BWA spectrum and Airtel is one

of the qualified bidders for the same and Airtel has already signed a deal with

Ericsson to upgrade their network for 3G It will help Airtel to undertake social

initiatives of the government such as e-education tele medicine and e-health and e-

governance providing affordable broadband and mobile services to sub urban and

rural areas

As demand for the value added services and high speed broadband is increasing

among the youth Airtel being the leading private broad band service provider in the

country has introduced the ultra fast speed of 50 Mbps for the broadband users on

next generation VDSL2 technology which will allow users the convenience to

download a full feature film in less than 3 minutes Along with it is providing free

value add services like parallel ringing website builder (Basic) PC secure (Anti-Virus

software) online storage unlimited gaming on games on demand

Increasing competition with the entry of many new operators in the telecom

industry has forced in reduction of tariffs So consumers get more options and can

change their network operator according to their need In this Airtel has introduced

many low tariff plans like youth Plan for young people ladies special and friends

prepaid plan family celebration plan according to the requirements of the different

customer segments Segmentation strategy aims towards understanding the need

gaps of specific consumer segments and creating special segmented products for

them

Technological

Increase in FDI limits also benefited inflow of latest technology with improved

infrastructure as AIRTEL is well established with better infrastructure so it can

provide better services to its customers in urban and can expand its network in more

rural areas

Introduction of Mobile Number Portability (MNP) which allows the consumer to

retain their existing mobile number even when they change the service provider

13 | P a g e

This will increase the competition among the service providers as the subscribers can

change their network if they are not happy with the services of the existing service

provider Airtel has the edge over his competitors as their services are much better

than other service providers

Government has announced the auction for 3G and BWA spectrum which will allow

telecom companies to offer additional valued services like high resolution video and

multimedia services with high data rate transmission capabilities Airtel has already

qualified to bid for the auctionAlso Airtel has signed a 13 billion deal with Ericsson

to expand and upgrade its network for 3G services in 15 of Indias 22 telecom circles

Environment and Legal

Radio frequency waves emitted from the mobile phones harms body cells and

damages the DNA This is not yet proved that such changes were risk to human

health

Mobilenumber portability (MNP) implementation would enable subscribers to move

to different service provider retaining the original number This implementation

would hamper Bharti Airtel as customers would keep switching to any possible

networks available

In India legal obligations are defined regarding 3G auction and bidding which proves

to be in favour of Bharti Airtel as this auction is not available to the new entrants

This political factor forbids the entry of new companies in to 3G services

Due to rising terrorist activities and hacking of confidential data on air India

Department of Telecommunication (DoT) has made amendments related to security

features which states that telecom companies should have good policies for security

and they should be responsible for the security of the network

Industry Environment

INDUSTRY STAGE

The industry growth stage lasted from 2005-2012 At this point the industry is almost at the

shakeout stage The industry is rapidly approaching the matured market stage But another

theory refutes the claim The economic growth in India currently the market is growing

more on the Network area growth providers are moving to smaller cities from big cities

demand is generated from Blsquo class amp Clsquo class cities ndash middle class population A major

section of middle class population of India in smaller cities couldnlsquot enjoy the advantages of

Telecom service due to the Govt monopoly poor capacity regulations they are the

immediate customers of the Mobile operators

14 | P a g e

The Landline is no more the preferable choice for the new telecom users people like to use

mobile phones because of its added advantages and easy subscription Also the middle class

size is expected to grow in India in next decades so the Mobile market in India will be

probably in Growth ndash Shakeout phase for a longer period 8 Indian mobile operators

offerings are segmented in two broad categories ndash Pre-paid and Post-paid Although mobile

market is growing positively the Post-paid market is declining and prepaid market is

increasing by leaps and bounds

The Indian telecom sector has witnessed tremendous growth over the past decade Today

the Indian telecom network is the second largest in the world after China A liberal policy

regime and involvement of the private sector have played an important role in transforming

this sector The total number of telephones as on 31st April 2013 was 89702 million The

telecom industry has witnessed significant growth in subscriber base over the last decade

with increasing network coverage and a competition-induced decline in tariffs acting as

catalysts for the growth in subscriber base The growth story and the potential have also

served to attract newer players in the industry with the result that the intensity of

competition has kept increasing Internet subscribers in India grew to 16481 million as of

March 31 2013 with as many as seven out of eight net users in the country accessing the

services via their mobile phones according to telecom regulator TRAI The total number of

mobile internet subscribers stood at 1432 million at the end of the last fiscal

The number of broadband subscribers increased to 1505 million as of March 31 2013 from

1498 million as of December 31 2012 The number of non-mobile internet subscribers in

the quarter ended March 31 2013 grew to 2161 million from 2157 million registering a

quarterly growth rate of 016 per cent

15 | P a g e

GROWTH IN TELECOM

Growth Drivers - Key factors which will fuel the growth of the sector include increased

access to services owing to launch of newer telecom technologies like 3G and BWA better

devices changing consumer behaviour and the emergence of cloud technologies A majority

of the investments will go into the capital expenditure for setting up newer networks like 3G

and developing the backhaul among other things

Subscriber Base - The mobile subscriber base in India is estimated rise by 9 per cent to 696

million connections this year according to technology researcher Gartner The mobile

service penetration in the country is currently at 51 per cent and is expected to grow to 72

per cent by 2016

Mobile Value Added Services (MVAS) - Indias current MVAS industry has an estimated size

of US$ 27 billion The industry derives its revenues majorly from the top five to six products

such as game based applications music downloads etc which continue to form close to 80

per cent of VAS revenues The Indian MVAS industry estimated to grow to US$ 108 billion

by 2015 with the next wave of growth in subscriptions expected to come from semi-urban

and rural areas

Mobile Number Portability (MNP) - Mobile Number Portability requests increased from

8970 million subscribers at the end of March 2013 to 9173 million at the end of April 2013

Handsets - The mobile handset markets revenues in India will grow from US$ 57 billion in

2010 to US$ 78 billion in 2016 according to the study India is the second largest mobile

handset market in the world and is set to become an even larger market with unit shipment

of 2084 million in 2016 at a CAGR of 118 per cent from 2010 to 2016The Indian mobile

handset market posted revenue of Rs 35946 billion in 2012-2013 compared to Rs 31330

billion in the earlier fiscal year on the back of increasing sale of Smartphonersquos In 2012-2013

Karbonn grew 731 per cent Samsung ended the year with revenue of Rs 11328 billion

compared to Rs 7891 billion last year showing a growth of 436 per cent The iconic Apple

16 | P a g e

posted revenue of Rs 1293 billion in FY 2013 in the country compared to Rs 250 billion in

the previous financial year

GAME THEORY

Indiarsquos telecom Industry an oligopoly has witnessed significant price-cutting since 2005 A

metric called Average Revenue per user (ARPU) which defines a companyrsquos per subscriber

monthly revenue has fallen from ₹37001 in Decemberrsquo05 to ₹12825 in Decemberrsquo13 This

implies that either people lowered usage of cell phones drastically or call rates fell over the

period

TABLE 1

The former is unlikely in a growing economy and the phenomenon actually resulted due to

aggressive price cutting by firms during this period

Currently Airtel Vodafone and Idea control 70+ of the industryrsquos market share Table 1

shows the ARPU and subscriber base (in Crores) of these 3 over the past 6 years The

average subscriber base for a particular year is shown in the table Table 2 shows change

in ARPU of the three companies over the past 5 years and their respective individual share

of the total subscriber base of these 3 companies

Quarter Ended December

Airtels ARPU (in ₹)

Airtels subscribers

Vodafones ARPU (in ₹)

Vodafones subscribers

Ideas ARPU (in ₹)

Ideas subscribers

2008 26059 611737305 22792 4323223725 21541 2689632113

2009 20058 7982973638 17055 597358665 17209 3668136038

2010 15398 1049672524 13005 8423015475 12782 5366251725

2011 1364 1282383818 11742 1074420281 11486 7323344775

2012 13667 1399592696 12192 1148899553 1072 8723590463

2013 14354 1441124333 1385 1164663934 12249 9457361213

17 | P a g e

TABLE 2

TABLE 3

Why are the companies cutting their prices Game theory is at work here Airtel (A)

Vodafone (V) and Idea (I) respectively had 47 33 and 20 market share in 2008 During

this period all companies in the industry were reducing their rates Given this scenario I

assume that companies that didnrsquot reduce their rates during this period would not have

gained more customers (they would have actually lost customers but for sake of simplicity I

donrsquot take this into account) Also I assume that proportional price cuts by all companies

would have resulted in no change in their relative market shares during these years

Airtel Vodafone Idea

Year Change in ARPU

Relative Market Share ()

Change in ARPU

Relative Market Share ()

Change in ARPU

Relative Market Share ()

2009 -2302851222

452942479 -25171113 338932742 -2011048698

20812478

2010 -2323262539

432213148 -23746702 346826077 -2572491138

220960776

2011 -1141706715

415126672 -97116494 347805789 -1013925833

237067538

2012 0197947214 40913579 383239653 335851943 -6668988334

255012268

2013 5026706666 405776274 135990814 327933531 142630597 266290195

Situation V reduces rates V doesnrsquot reduce

A Reduces Rates A and V retain market share V loses market share

A doesnrsquot Reduce A loses market share A and V retain market share

18 | P a g e

In such a case A and V would have faced the following situation at the beginning of 2009

This is a variant of the classical prisonerrsquos dilemma (say A and B) wherein two prisoners are

separately asked about the true culprit The situations that A and B face is shown below

TABLE 4

In this scenario no prisoner can trust the other one and the optimal solution for each one

would be to betray the other Similar is the case in Telecom industry No company can trust

the others In a bid to save their respective market shares companies kept cutting their own

rates Each set of companies each year would have faced a situation similar to the one in

table 3 If A didnrsquot reduce its rates in 2009 its market share could have fallen to 388

under the assumptions made at the beginning of analysis Hence A decided to cut prices

Similarly all firms in the industry decided to reduce rates Another question that I seek to

answer is what the ideal action for these firms would have been during this period Did they

make a mistake due to these price wars

In the case of the prisonerrsquos dilemma discussed above each prisonerrsquos ideal choice is to stay

silent and spend a year in jail instead of 3 that would result if they betray each other Would

the telecom companies also have achieved better results if they had not indulged in price

wars No The subscriber base of the 3 companies discussed above increased at a

compounded rate of 37 from 2008-2012 (Table 1) It would be reasonable to attribute this

change to the falling prices given that the economy was performing poorly during this

period Again taking into account the assumptions made in deriving Table 3 the revenues of

A and V in 2013 could be demonstrated by the following table

TABLE 5

Situation V reduces rates V doesnrsquot reduce

A Reduces Rates ( 2068 1400) (2068 984)

A doesnrsquot Reduce (1590 1400) (1590 984)

Situation B betrays A B stays silent

A Betrays B A and B imprisoned for 2 years A goes free and B imprisoned for 3 years

A stays silent B goes free and A imprisoned for 3 years A and B imprisoned for 1 year

19 | P a g e

Table 5 shows the approximate monthly revenues (in Rupees Crores) of the two firms under

different situations with respect to price In the above table both the Nash equilibrium (the

action point from which no company has an incentive to deviate given the action of the

other company) as well as the ideal equilibrium is for both companies to reduce rates Thus

the telecom industry didnrsquot necessarily suffer due to price cuts at least in terms of

revenues However this strategy would have remained profitable as long as the price

elasticity of the industryrsquos demand remains greater than 1 In 2012 a rise in prices

(indicated by ARPU) led to an increase in the three companiesrsquo revenue Thus this year

marked an end to the telecom industryrsquos price-cutting strategy

Why is it that the automobile Industry in India another oligopoly has not faced similar price

wars It is so because companies cut prices only if the price-cut doesnrsquot result in economic

losses for them Return on assets is already low in automobile industry (about 10) The

telecom industry has also had very low (9-10) returns during the past 2 years This also

explains why that the effect of game theory has disappeared in 2012 and 2013 Young

Industries (such as e-commerce) earning economic profits may witness a similar price-

cutting and erosion of economic profits in the future

Strategy in Global Environment

BALs telecom model was considered as the new model for telecom and effective for

emerging markets like India BAL had established itself as a dominant player in India with its

innovative business processes and strong brand but was witnessing tapering growth

because of increasing competition and saturation of the more lucrative urban markets

While more and more players were eyeing the fast-growing Indian mobile market which was

experiencing high growth BAL put its sight on foreign shores BAL realized that its extensive

experience in India coupled with its unique business model would help it tap the

20 | P a g e

opportunity provided by other developing and emerging markets and create value for its

customers

Acquisition of Zain Groups telecom business in fifteen African counties gave it a boosted

start in the African continent There were talks about BAL having paid higher for the deal

Even though BAL was in the process of giving shape to its strategy for the African markets

the critical success factors in emerging markets

raquo BAL was trying to understand the importance of business process innovation and strategic

partnerships

raquo Appreciate the role of tailoring strategy to fit a specific industry and business

environment

raquo Analyze BALs internal and external environment

raquo Understand and discuss cross-country differences in Cultural demographic and market

conditions and its possible impact on business

raquo Probe the role importance and pros and cons of legal and regulatory framework

raquo Explore the ways a business can be successful in international markets

Though BAL was able to acquire a global footprint and a much larger customer base through

this deal industry experts believed it would be difficult for it to leverage on the business

model and strategies which had kept it afloat and ahead of the competition in India

Jaydeep Ghosh Executive Director of KPMG 7 said Bharti has replicated the low-cost

model through outsourcing in India but depending upon different geographies (in Africa) it

will not be easy

BAL also acquired stake in Bangladeshrsquos Warid Telecom The Company has used its

successful lsquominute factory modelrsquo (lowest-costmin) in these territories Bharti Airtel has

about 2712 million subscribers worldwide ndash 1996 million in India 62 million in Bangladesh

17 million in Sri Lanka and 637 million in Africa as of the end of March 2013Telecom

penetration is low in Africa and hence huge opportunities are available for Bharti Airtel So

far turning around the African operations has been a challenging task for the company in

the past three years This is due to the high competition currency movements and political

unrest in some countries and regions However the African operations offer good

opportunities and it can be expected that these acquisitions will enhance the companyrsquos

global presence in telecom space and will help it to increase its profitability in the coming

years

11 | P a g e

PESTEL Analysis of Bharti Airtel Limited

Political

The ministry of telecom industry hiked FDI limits from 49 to 74 which enabled

Indian promoters of telecom sector to spark off the competition and consolidation

by selling their stakes to foreign entities Airtel already have tie up with foreign

partner SINTEL which is going to help in investing more in infrastructure and latest

technology to provide the best services to their subscribers Also due to this increase

in foreign direct investment in telecommunication market Airtel will be able to

modulate the foreign stakes in their companies that have already acquired a range

between 67-69 percent of their assets

With the increase in globalisation and tremendous growth of Indian

telecommunication sector Airtel launched its mobile services in Srilanka in Jan 2009

and investing to

Recently Airtel have also acquired Zain for Africa operations which is the second

biggest overseas purchase by an Indian company

Economical

In telecom budget 2008 raw materials for the manufacture of specified electronic

hardware items have been exempted from excise duty which lowers the network

equipment costs to benefit major mobile services provider so Airtel can expand

their network coverage to more rural areas at much cheaper cost)

During the recession period government policy to reduce the custom duty on

convergence product from 10 to 5 helped in establishing parity devices used in

communication sector so this will help Airtel in lowering their cost for DTH

expansion

Government has announced per second billing tariff for the subscriber along with

the per minute billing plan Though the per second plan is not beneficial for the

telecom operators as this could reduce the sectors annual revenue by 10-

15Operators are already struggling with the low Average Revenue Per user

(ARPUs) due to high taxes (30 of the gross revenue earned by the operators goes

as various taxes) levied by government will now struggle more with this new plan To

overcome this situation Airtel has launched low tariff per minute plans along with

per second plan As majority of the subscribers make longer duration calls and the

per second call could be detrimental for them with the new reduced per minute

plan Airtel could also launch pay per character for SMS services to increase the VAS

revenue

12 | P a g e

Social

Government has hiked FDI limits which would lead to better infrastructure in

telecom due to intake of more investment by the foreign investors As 70 of Indian

population still resides in rural areas improvement in telecommunication

infrastructure and services will reduce isolation increase business viability farming

productivity and access to educational and medical services Airtel has already

announced to set up 100000 service centres and telecom infrastructure in rural India

by march 2010

Rollout of national rural employment scheme to all 596 districts in India with a

provision of Rs160 billion to aid faster penetration of mobiles and consequently

faster growth of Airtel as they hold major Indian telecom market with 24 growth at

the end of 31st March 2009

Government has announced the auction for 3G and BWA spectrum and Airtel is one

of the qualified bidders for the same and Airtel has already signed a deal with

Ericsson to upgrade their network for 3G It will help Airtel to undertake social

initiatives of the government such as e-education tele medicine and e-health and e-

governance providing affordable broadband and mobile services to sub urban and

rural areas

As demand for the value added services and high speed broadband is increasing

among the youth Airtel being the leading private broad band service provider in the

country has introduced the ultra fast speed of 50 Mbps for the broadband users on

next generation VDSL2 technology which will allow users the convenience to

download a full feature film in less than 3 minutes Along with it is providing free

value add services like parallel ringing website builder (Basic) PC secure (Anti-Virus

software) online storage unlimited gaming on games on demand

Increasing competition with the entry of many new operators in the telecom

industry has forced in reduction of tariffs So consumers get more options and can

change their network operator according to their need In this Airtel has introduced

many low tariff plans like youth Plan for young people ladies special and friends

prepaid plan family celebration plan according to the requirements of the different

customer segments Segmentation strategy aims towards understanding the need

gaps of specific consumer segments and creating special segmented products for

them

Technological

Increase in FDI limits also benefited inflow of latest technology with improved

infrastructure as AIRTEL is well established with better infrastructure so it can

provide better services to its customers in urban and can expand its network in more

rural areas

Introduction of Mobile Number Portability (MNP) which allows the consumer to

retain their existing mobile number even when they change the service provider

13 | P a g e

This will increase the competition among the service providers as the subscribers can

change their network if they are not happy with the services of the existing service

provider Airtel has the edge over his competitors as their services are much better

than other service providers

Government has announced the auction for 3G and BWA spectrum which will allow

telecom companies to offer additional valued services like high resolution video and

multimedia services with high data rate transmission capabilities Airtel has already

qualified to bid for the auctionAlso Airtel has signed a 13 billion deal with Ericsson

to expand and upgrade its network for 3G services in 15 of Indias 22 telecom circles

Environment and Legal

Radio frequency waves emitted from the mobile phones harms body cells and

damages the DNA This is not yet proved that such changes were risk to human

health

Mobilenumber portability (MNP) implementation would enable subscribers to move

to different service provider retaining the original number This implementation

would hamper Bharti Airtel as customers would keep switching to any possible

networks available

In India legal obligations are defined regarding 3G auction and bidding which proves

to be in favour of Bharti Airtel as this auction is not available to the new entrants

This political factor forbids the entry of new companies in to 3G services

Due to rising terrorist activities and hacking of confidential data on air India

Department of Telecommunication (DoT) has made amendments related to security

features which states that telecom companies should have good policies for security

and they should be responsible for the security of the network

Industry Environment

INDUSTRY STAGE

The industry growth stage lasted from 2005-2012 At this point the industry is almost at the

shakeout stage The industry is rapidly approaching the matured market stage But another

theory refutes the claim The economic growth in India currently the market is growing

more on the Network area growth providers are moving to smaller cities from big cities

demand is generated from Blsquo class amp Clsquo class cities ndash middle class population A major

section of middle class population of India in smaller cities couldnlsquot enjoy the advantages of

Telecom service due to the Govt monopoly poor capacity regulations they are the

immediate customers of the Mobile operators

14 | P a g e

The Landline is no more the preferable choice for the new telecom users people like to use

mobile phones because of its added advantages and easy subscription Also the middle class

size is expected to grow in India in next decades so the Mobile market in India will be

probably in Growth ndash Shakeout phase for a longer period 8 Indian mobile operators

offerings are segmented in two broad categories ndash Pre-paid and Post-paid Although mobile

market is growing positively the Post-paid market is declining and prepaid market is

increasing by leaps and bounds

The Indian telecom sector has witnessed tremendous growth over the past decade Today

the Indian telecom network is the second largest in the world after China A liberal policy

regime and involvement of the private sector have played an important role in transforming

this sector The total number of telephones as on 31st April 2013 was 89702 million The

telecom industry has witnessed significant growth in subscriber base over the last decade

with increasing network coverage and a competition-induced decline in tariffs acting as

catalysts for the growth in subscriber base The growth story and the potential have also

served to attract newer players in the industry with the result that the intensity of

competition has kept increasing Internet subscribers in India grew to 16481 million as of

March 31 2013 with as many as seven out of eight net users in the country accessing the

services via their mobile phones according to telecom regulator TRAI The total number of

mobile internet subscribers stood at 1432 million at the end of the last fiscal

The number of broadband subscribers increased to 1505 million as of March 31 2013 from

1498 million as of December 31 2012 The number of non-mobile internet subscribers in

the quarter ended March 31 2013 grew to 2161 million from 2157 million registering a

quarterly growth rate of 016 per cent

15 | P a g e

GROWTH IN TELECOM

Growth Drivers - Key factors which will fuel the growth of the sector include increased

access to services owing to launch of newer telecom technologies like 3G and BWA better

devices changing consumer behaviour and the emergence of cloud technologies A majority

of the investments will go into the capital expenditure for setting up newer networks like 3G

and developing the backhaul among other things

Subscriber Base - The mobile subscriber base in India is estimated rise by 9 per cent to 696

million connections this year according to technology researcher Gartner The mobile

service penetration in the country is currently at 51 per cent and is expected to grow to 72

per cent by 2016

Mobile Value Added Services (MVAS) - Indias current MVAS industry has an estimated size

of US$ 27 billion The industry derives its revenues majorly from the top five to six products

such as game based applications music downloads etc which continue to form close to 80

per cent of VAS revenues The Indian MVAS industry estimated to grow to US$ 108 billion

by 2015 with the next wave of growth in subscriptions expected to come from semi-urban

and rural areas

Mobile Number Portability (MNP) - Mobile Number Portability requests increased from

8970 million subscribers at the end of March 2013 to 9173 million at the end of April 2013

Handsets - The mobile handset markets revenues in India will grow from US$ 57 billion in

2010 to US$ 78 billion in 2016 according to the study India is the second largest mobile

handset market in the world and is set to become an even larger market with unit shipment

of 2084 million in 2016 at a CAGR of 118 per cent from 2010 to 2016The Indian mobile

handset market posted revenue of Rs 35946 billion in 2012-2013 compared to Rs 31330

billion in the earlier fiscal year on the back of increasing sale of Smartphonersquos In 2012-2013

Karbonn grew 731 per cent Samsung ended the year with revenue of Rs 11328 billion

compared to Rs 7891 billion last year showing a growth of 436 per cent The iconic Apple

16 | P a g e

posted revenue of Rs 1293 billion in FY 2013 in the country compared to Rs 250 billion in

the previous financial year

GAME THEORY

Indiarsquos telecom Industry an oligopoly has witnessed significant price-cutting since 2005 A

metric called Average Revenue per user (ARPU) which defines a companyrsquos per subscriber

monthly revenue has fallen from ₹37001 in Decemberrsquo05 to ₹12825 in Decemberrsquo13 This

implies that either people lowered usage of cell phones drastically or call rates fell over the

period

TABLE 1

The former is unlikely in a growing economy and the phenomenon actually resulted due to

aggressive price cutting by firms during this period

Currently Airtel Vodafone and Idea control 70+ of the industryrsquos market share Table 1

shows the ARPU and subscriber base (in Crores) of these 3 over the past 6 years The

average subscriber base for a particular year is shown in the table Table 2 shows change

in ARPU of the three companies over the past 5 years and their respective individual share

of the total subscriber base of these 3 companies

Quarter Ended December

Airtels ARPU (in ₹)

Airtels subscribers

Vodafones ARPU (in ₹)

Vodafones subscribers

Ideas ARPU (in ₹)

Ideas subscribers

2008 26059 611737305 22792 4323223725 21541 2689632113

2009 20058 7982973638 17055 597358665 17209 3668136038

2010 15398 1049672524 13005 8423015475 12782 5366251725

2011 1364 1282383818 11742 1074420281 11486 7323344775

2012 13667 1399592696 12192 1148899553 1072 8723590463

2013 14354 1441124333 1385 1164663934 12249 9457361213

17 | P a g e

TABLE 2

TABLE 3

Why are the companies cutting their prices Game theory is at work here Airtel (A)

Vodafone (V) and Idea (I) respectively had 47 33 and 20 market share in 2008 During

this period all companies in the industry were reducing their rates Given this scenario I

assume that companies that didnrsquot reduce their rates during this period would not have

gained more customers (they would have actually lost customers but for sake of simplicity I

donrsquot take this into account) Also I assume that proportional price cuts by all companies

would have resulted in no change in their relative market shares during these years

Airtel Vodafone Idea

Year Change in ARPU

Relative Market Share ()

Change in ARPU

Relative Market Share ()

Change in ARPU

Relative Market Share ()

2009 -2302851222

452942479 -25171113 338932742 -2011048698

20812478

2010 -2323262539

432213148 -23746702 346826077 -2572491138

220960776

2011 -1141706715

415126672 -97116494 347805789 -1013925833

237067538

2012 0197947214 40913579 383239653 335851943 -6668988334

255012268

2013 5026706666 405776274 135990814 327933531 142630597 266290195

Situation V reduces rates V doesnrsquot reduce

A Reduces Rates A and V retain market share V loses market share

A doesnrsquot Reduce A loses market share A and V retain market share

18 | P a g e

In such a case A and V would have faced the following situation at the beginning of 2009

This is a variant of the classical prisonerrsquos dilemma (say A and B) wherein two prisoners are

separately asked about the true culprit The situations that A and B face is shown below

TABLE 4

In this scenario no prisoner can trust the other one and the optimal solution for each one

would be to betray the other Similar is the case in Telecom industry No company can trust

the others In a bid to save their respective market shares companies kept cutting their own

rates Each set of companies each year would have faced a situation similar to the one in

table 3 If A didnrsquot reduce its rates in 2009 its market share could have fallen to 388

under the assumptions made at the beginning of analysis Hence A decided to cut prices

Similarly all firms in the industry decided to reduce rates Another question that I seek to

answer is what the ideal action for these firms would have been during this period Did they

make a mistake due to these price wars

In the case of the prisonerrsquos dilemma discussed above each prisonerrsquos ideal choice is to stay

silent and spend a year in jail instead of 3 that would result if they betray each other Would

the telecom companies also have achieved better results if they had not indulged in price

wars No The subscriber base of the 3 companies discussed above increased at a

compounded rate of 37 from 2008-2012 (Table 1) It would be reasonable to attribute this

change to the falling prices given that the economy was performing poorly during this

period Again taking into account the assumptions made in deriving Table 3 the revenues of

A and V in 2013 could be demonstrated by the following table

TABLE 5

Situation V reduces rates V doesnrsquot reduce

A Reduces Rates ( 2068 1400) (2068 984)

A doesnrsquot Reduce (1590 1400) (1590 984)

Situation B betrays A B stays silent

A Betrays B A and B imprisoned for 2 years A goes free and B imprisoned for 3 years

A stays silent B goes free and A imprisoned for 3 years A and B imprisoned for 1 year

19 | P a g e

Table 5 shows the approximate monthly revenues (in Rupees Crores) of the two firms under

different situations with respect to price In the above table both the Nash equilibrium (the

action point from which no company has an incentive to deviate given the action of the

other company) as well as the ideal equilibrium is for both companies to reduce rates Thus

the telecom industry didnrsquot necessarily suffer due to price cuts at least in terms of

revenues However this strategy would have remained profitable as long as the price

elasticity of the industryrsquos demand remains greater than 1 In 2012 a rise in prices

(indicated by ARPU) led to an increase in the three companiesrsquo revenue Thus this year

marked an end to the telecom industryrsquos price-cutting strategy

Why is it that the automobile Industry in India another oligopoly has not faced similar price

wars It is so because companies cut prices only if the price-cut doesnrsquot result in economic

losses for them Return on assets is already low in automobile industry (about 10) The

telecom industry has also had very low (9-10) returns during the past 2 years This also

explains why that the effect of game theory has disappeared in 2012 and 2013 Young

Industries (such as e-commerce) earning economic profits may witness a similar price-

cutting and erosion of economic profits in the future

Strategy in Global Environment

BALs telecom model was considered as the new model for telecom and effective for

emerging markets like India BAL had established itself as a dominant player in India with its

innovative business processes and strong brand but was witnessing tapering growth

because of increasing competition and saturation of the more lucrative urban markets

While more and more players were eyeing the fast-growing Indian mobile market which was

experiencing high growth BAL put its sight on foreign shores BAL realized that its extensive

experience in India coupled with its unique business model would help it tap the

20 | P a g e

opportunity provided by other developing and emerging markets and create value for its

customers

Acquisition of Zain Groups telecom business in fifteen African counties gave it a boosted

start in the African continent There were talks about BAL having paid higher for the deal

Even though BAL was in the process of giving shape to its strategy for the African markets

the critical success factors in emerging markets

raquo BAL was trying to understand the importance of business process innovation and strategic

partnerships

raquo Appreciate the role of tailoring strategy to fit a specific industry and business

environment

raquo Analyze BALs internal and external environment

raquo Understand and discuss cross-country differences in Cultural demographic and market

conditions and its possible impact on business

raquo Probe the role importance and pros and cons of legal and regulatory framework

raquo Explore the ways a business can be successful in international markets

Though BAL was able to acquire a global footprint and a much larger customer base through

this deal industry experts believed it would be difficult for it to leverage on the business

model and strategies which had kept it afloat and ahead of the competition in India

Jaydeep Ghosh Executive Director of KPMG 7 said Bharti has replicated the low-cost

model through outsourcing in India but depending upon different geographies (in Africa) it

will not be easy

BAL also acquired stake in Bangladeshrsquos Warid Telecom The Company has used its

successful lsquominute factory modelrsquo (lowest-costmin) in these territories Bharti Airtel has

about 2712 million subscribers worldwide ndash 1996 million in India 62 million in Bangladesh

17 million in Sri Lanka and 637 million in Africa as of the end of March 2013Telecom

penetration is low in Africa and hence huge opportunities are available for Bharti Airtel So

far turning around the African operations has been a challenging task for the company in

the past three years This is due to the high competition currency movements and political

unrest in some countries and regions However the African operations offer good

opportunities and it can be expected that these acquisitions will enhance the companyrsquos

global presence in telecom space and will help it to increase its profitability in the coming

years

12 | P a g e

Social

Government has hiked FDI limits which would lead to better infrastructure in

telecom due to intake of more investment by the foreign investors As 70 of Indian

population still resides in rural areas improvement in telecommunication

infrastructure and services will reduce isolation increase business viability farming

productivity and access to educational and medical services Airtel has already

announced to set up 100000 service centres and telecom infrastructure in rural India

by march 2010

Rollout of national rural employment scheme to all 596 districts in India with a

provision of Rs160 billion to aid faster penetration of mobiles and consequently

faster growth of Airtel as they hold major Indian telecom market with 24 growth at

the end of 31st March 2009

Government has announced the auction for 3G and BWA spectrum and Airtel is one

of the qualified bidders for the same and Airtel has already signed a deal with

Ericsson to upgrade their network for 3G It will help Airtel to undertake social

initiatives of the government such as e-education tele medicine and e-health and e-

governance providing affordable broadband and mobile services to sub urban and

rural areas

As demand for the value added services and high speed broadband is increasing

among the youth Airtel being the leading private broad band service provider in the

country has introduced the ultra fast speed of 50 Mbps for the broadband users on

next generation VDSL2 technology which will allow users the convenience to

download a full feature film in less than 3 minutes Along with it is providing free

value add services like parallel ringing website builder (Basic) PC secure (Anti-Virus

software) online storage unlimited gaming on games on demand

Increasing competition with the entry of many new operators in the telecom

industry has forced in reduction of tariffs So consumers get more options and can

change their network operator according to their need In this Airtel has introduced

many low tariff plans like youth Plan for young people ladies special and friends

prepaid plan family celebration plan according to the requirements of the different

customer segments Segmentation strategy aims towards understanding the need

gaps of specific consumer segments and creating special segmented products for

them

Technological

Increase in FDI limits also benefited inflow of latest technology with improved

infrastructure as AIRTEL is well established with better infrastructure so it can

provide better services to its customers in urban and can expand its network in more

rural areas

Introduction of Mobile Number Portability (MNP) which allows the consumer to

retain their existing mobile number even when they change the service provider

13 | P a g e

This will increase the competition among the service providers as the subscribers can

change their network if they are not happy with the services of the existing service

provider Airtel has the edge over his competitors as their services are much better

than other service providers

Government has announced the auction for 3G and BWA spectrum which will allow

telecom companies to offer additional valued services like high resolution video and

multimedia services with high data rate transmission capabilities Airtel has already

qualified to bid for the auctionAlso Airtel has signed a 13 billion deal with Ericsson

to expand and upgrade its network for 3G services in 15 of Indias 22 telecom circles

Environment and Legal

Radio frequency waves emitted from the mobile phones harms body cells and

damages the DNA This is not yet proved that such changes were risk to human

health

Mobilenumber portability (MNP) implementation would enable subscribers to move

to different service provider retaining the original number This implementation

would hamper Bharti Airtel as customers would keep switching to any possible

networks available

In India legal obligations are defined regarding 3G auction and bidding which proves

to be in favour of Bharti Airtel as this auction is not available to the new entrants

This political factor forbids the entry of new companies in to 3G services

Due to rising terrorist activities and hacking of confidential data on air India

Department of Telecommunication (DoT) has made amendments related to security

features which states that telecom companies should have good policies for security

and they should be responsible for the security of the network

Industry Environment

INDUSTRY STAGE

The industry growth stage lasted from 2005-2012 At this point the industry is almost at the

shakeout stage The industry is rapidly approaching the matured market stage But another

theory refutes the claim The economic growth in India currently the market is growing

more on the Network area growth providers are moving to smaller cities from big cities

demand is generated from Blsquo class amp Clsquo class cities ndash middle class population A major

section of middle class population of India in smaller cities couldnlsquot enjoy the advantages of

Telecom service due to the Govt monopoly poor capacity regulations they are the

immediate customers of the Mobile operators

14 | P a g e

The Landline is no more the preferable choice for the new telecom users people like to use

mobile phones because of its added advantages and easy subscription Also the middle class

size is expected to grow in India in next decades so the Mobile market in India will be

probably in Growth ndash Shakeout phase for a longer period 8 Indian mobile operators

offerings are segmented in two broad categories ndash Pre-paid and Post-paid Although mobile

market is growing positively the Post-paid market is declining and prepaid market is

increasing by leaps and bounds

The Indian telecom sector has witnessed tremendous growth over the past decade Today

the Indian telecom network is the second largest in the world after China A liberal policy

regime and involvement of the private sector have played an important role in transforming

this sector The total number of telephones as on 31st April 2013 was 89702 million The

telecom industry has witnessed significant growth in subscriber base over the last decade

with increasing network coverage and a competition-induced decline in tariffs acting as

catalysts for the growth in subscriber base The growth story and the potential have also

served to attract newer players in the industry with the result that the intensity of

competition has kept increasing Internet subscribers in India grew to 16481 million as of

March 31 2013 with as many as seven out of eight net users in the country accessing the

services via their mobile phones according to telecom regulator TRAI The total number of

mobile internet subscribers stood at 1432 million at the end of the last fiscal

The number of broadband subscribers increased to 1505 million as of March 31 2013 from

1498 million as of December 31 2012 The number of non-mobile internet subscribers in

the quarter ended March 31 2013 grew to 2161 million from 2157 million registering a

quarterly growth rate of 016 per cent

15 | P a g e

GROWTH IN TELECOM

Growth Drivers - Key factors which will fuel the growth of the sector include increased

access to services owing to launch of newer telecom technologies like 3G and BWA better

devices changing consumer behaviour and the emergence of cloud technologies A majority

of the investments will go into the capital expenditure for setting up newer networks like 3G

and developing the backhaul among other things

Subscriber Base - The mobile subscriber base in India is estimated rise by 9 per cent to 696

million connections this year according to technology researcher Gartner The mobile

service penetration in the country is currently at 51 per cent and is expected to grow to 72

per cent by 2016

Mobile Value Added Services (MVAS) - Indias current MVAS industry has an estimated size

of US$ 27 billion The industry derives its revenues majorly from the top five to six products

such as game based applications music downloads etc which continue to form close to 80

per cent of VAS revenues The Indian MVAS industry estimated to grow to US$ 108 billion

by 2015 with the next wave of growth in subscriptions expected to come from semi-urban

and rural areas

Mobile Number Portability (MNP) - Mobile Number Portability requests increased from

8970 million subscribers at the end of March 2013 to 9173 million at the end of April 2013

Handsets - The mobile handset markets revenues in India will grow from US$ 57 billion in

2010 to US$ 78 billion in 2016 according to the study India is the second largest mobile

handset market in the world and is set to become an even larger market with unit shipment

of 2084 million in 2016 at a CAGR of 118 per cent from 2010 to 2016The Indian mobile

handset market posted revenue of Rs 35946 billion in 2012-2013 compared to Rs 31330

billion in the earlier fiscal year on the back of increasing sale of Smartphonersquos In 2012-2013

Karbonn grew 731 per cent Samsung ended the year with revenue of Rs 11328 billion

compared to Rs 7891 billion last year showing a growth of 436 per cent The iconic Apple

16 | P a g e

posted revenue of Rs 1293 billion in FY 2013 in the country compared to Rs 250 billion in

the previous financial year

GAME THEORY

Indiarsquos telecom Industry an oligopoly has witnessed significant price-cutting since 2005 A

metric called Average Revenue per user (ARPU) which defines a companyrsquos per subscriber

monthly revenue has fallen from ₹37001 in Decemberrsquo05 to ₹12825 in Decemberrsquo13 This

implies that either people lowered usage of cell phones drastically or call rates fell over the

period

TABLE 1

The former is unlikely in a growing economy and the phenomenon actually resulted due to

aggressive price cutting by firms during this period

Currently Airtel Vodafone and Idea control 70+ of the industryrsquos market share Table 1

shows the ARPU and subscriber base (in Crores) of these 3 over the past 6 years The

average subscriber base for a particular year is shown in the table Table 2 shows change

in ARPU of the three companies over the past 5 years and their respective individual share

of the total subscriber base of these 3 companies

Quarter Ended December

Airtels ARPU (in ₹)

Airtels subscribers

Vodafones ARPU (in ₹)

Vodafones subscribers

Ideas ARPU (in ₹)

Ideas subscribers

2008 26059 611737305 22792 4323223725 21541 2689632113

2009 20058 7982973638 17055 597358665 17209 3668136038

2010 15398 1049672524 13005 8423015475 12782 5366251725

2011 1364 1282383818 11742 1074420281 11486 7323344775

2012 13667 1399592696 12192 1148899553 1072 8723590463

2013 14354 1441124333 1385 1164663934 12249 9457361213

17 | P a g e

TABLE 2

TABLE 3

Why are the companies cutting their prices Game theory is at work here Airtel (A)

Vodafone (V) and Idea (I) respectively had 47 33 and 20 market share in 2008 During

this period all companies in the industry were reducing their rates Given this scenario I

assume that companies that didnrsquot reduce their rates during this period would not have

gained more customers (they would have actually lost customers but for sake of simplicity I

donrsquot take this into account) Also I assume that proportional price cuts by all companies

would have resulted in no change in their relative market shares during these years

Airtel Vodafone Idea

Year Change in ARPU

Relative Market Share ()

Change in ARPU

Relative Market Share ()

Change in ARPU

Relative Market Share ()

2009 -2302851222

452942479 -25171113 338932742 -2011048698

20812478

2010 -2323262539

432213148 -23746702 346826077 -2572491138

220960776

2011 -1141706715

415126672 -97116494 347805789 -1013925833

237067538

2012 0197947214 40913579 383239653 335851943 -6668988334

255012268

2013 5026706666 405776274 135990814 327933531 142630597 266290195

Situation V reduces rates V doesnrsquot reduce

A Reduces Rates A and V retain market share V loses market share

A doesnrsquot Reduce A loses market share A and V retain market share

18 | P a g e

In such a case A and V would have faced the following situation at the beginning of 2009

This is a variant of the classical prisonerrsquos dilemma (say A and B) wherein two prisoners are

separately asked about the true culprit The situations that A and B face is shown below

TABLE 4

In this scenario no prisoner can trust the other one and the optimal solution for each one

would be to betray the other Similar is the case in Telecom industry No company can trust

the others In a bid to save their respective market shares companies kept cutting their own

rates Each set of companies each year would have faced a situation similar to the one in

table 3 If A didnrsquot reduce its rates in 2009 its market share could have fallen to 388

under the assumptions made at the beginning of analysis Hence A decided to cut prices

Similarly all firms in the industry decided to reduce rates Another question that I seek to

answer is what the ideal action for these firms would have been during this period Did they

make a mistake due to these price wars

In the case of the prisonerrsquos dilemma discussed above each prisonerrsquos ideal choice is to stay

silent and spend a year in jail instead of 3 that would result if they betray each other Would

the telecom companies also have achieved better results if they had not indulged in price

wars No The subscriber base of the 3 companies discussed above increased at a

compounded rate of 37 from 2008-2012 (Table 1) It would be reasonable to attribute this

change to the falling prices given that the economy was performing poorly during this

period Again taking into account the assumptions made in deriving Table 3 the revenues of

A and V in 2013 could be demonstrated by the following table

TABLE 5

Situation V reduces rates V doesnrsquot reduce

A Reduces Rates ( 2068 1400) (2068 984)

A doesnrsquot Reduce (1590 1400) (1590 984)

Situation B betrays A B stays silent

A Betrays B A and B imprisoned for 2 years A goes free and B imprisoned for 3 years

A stays silent B goes free and A imprisoned for 3 years A and B imprisoned for 1 year

19 | P a g e

Table 5 shows the approximate monthly revenues (in Rupees Crores) of the two firms under

different situations with respect to price In the above table both the Nash equilibrium (the

action point from which no company has an incentive to deviate given the action of the

other company) as well as the ideal equilibrium is for both companies to reduce rates Thus

the telecom industry didnrsquot necessarily suffer due to price cuts at least in terms of

revenues However this strategy would have remained profitable as long as the price

elasticity of the industryrsquos demand remains greater than 1 In 2012 a rise in prices

(indicated by ARPU) led to an increase in the three companiesrsquo revenue Thus this year

marked an end to the telecom industryrsquos price-cutting strategy

Why is it that the automobile Industry in India another oligopoly has not faced similar price

wars It is so because companies cut prices only if the price-cut doesnrsquot result in economic

losses for them Return on assets is already low in automobile industry (about 10) The

telecom industry has also had very low (9-10) returns during the past 2 years This also

explains why that the effect of game theory has disappeared in 2012 and 2013 Young

Industries (such as e-commerce) earning economic profits may witness a similar price-

cutting and erosion of economic profits in the future

Strategy in Global Environment

BALs telecom model was considered as the new model for telecom and effective for

emerging markets like India BAL had established itself as a dominant player in India with its

innovative business processes and strong brand but was witnessing tapering growth

because of increasing competition and saturation of the more lucrative urban markets

While more and more players were eyeing the fast-growing Indian mobile market which was

experiencing high growth BAL put its sight on foreign shores BAL realized that its extensive

experience in India coupled with its unique business model would help it tap the

20 | P a g e

opportunity provided by other developing and emerging markets and create value for its

customers

Acquisition of Zain Groups telecom business in fifteen African counties gave it a boosted

start in the African continent There were talks about BAL having paid higher for the deal

Even though BAL was in the process of giving shape to its strategy for the African markets

the critical success factors in emerging markets

raquo BAL was trying to understand the importance of business process innovation and strategic

partnerships

raquo Appreciate the role of tailoring strategy to fit a specific industry and business

environment

raquo Analyze BALs internal and external environment

raquo Understand and discuss cross-country differences in Cultural demographic and market

conditions and its possible impact on business

raquo Probe the role importance and pros and cons of legal and regulatory framework

raquo Explore the ways a business can be successful in international markets

Though BAL was able to acquire a global footprint and a much larger customer base through

this deal industry experts believed it would be difficult for it to leverage on the business

model and strategies which had kept it afloat and ahead of the competition in India

Jaydeep Ghosh Executive Director of KPMG 7 said Bharti has replicated the low-cost

model through outsourcing in India but depending upon different geographies (in Africa) it

will not be easy

BAL also acquired stake in Bangladeshrsquos Warid Telecom The Company has used its

successful lsquominute factory modelrsquo (lowest-costmin) in these territories Bharti Airtel has

about 2712 million subscribers worldwide ndash 1996 million in India 62 million in Bangladesh

17 million in Sri Lanka and 637 million in Africa as of the end of March 2013Telecom

penetration is low in Africa and hence huge opportunities are available for Bharti Airtel So

far turning around the African operations has been a challenging task for the company in

the past three years This is due to the high competition currency movements and political

unrest in some countries and regions However the African operations offer good

opportunities and it can be expected that these acquisitions will enhance the companyrsquos

global presence in telecom space and will help it to increase its profitability in the coming

years

13 | P a g e

This will increase the competition among the service providers as the subscribers can

change their network if they are not happy with the services of the existing service

provider Airtel has the edge over his competitors as their services are much better

than other service providers

Government has announced the auction for 3G and BWA spectrum which will allow

telecom companies to offer additional valued services like high resolution video and

multimedia services with high data rate transmission capabilities Airtel has already

qualified to bid for the auctionAlso Airtel has signed a 13 billion deal with Ericsson

to expand and upgrade its network for 3G services in 15 of Indias 22 telecom circles

Environment and Legal

Radio frequency waves emitted from the mobile phones harms body cells and

damages the DNA This is not yet proved that such changes were risk to human

health

Mobilenumber portability (MNP) implementation would enable subscribers to move

to different service provider retaining the original number This implementation

would hamper Bharti Airtel as customers would keep switching to any possible

networks available

In India legal obligations are defined regarding 3G auction and bidding which proves

to be in favour of Bharti Airtel as this auction is not available to the new entrants

This political factor forbids the entry of new companies in to 3G services

Due to rising terrorist activities and hacking of confidential data on air India

Department of Telecommunication (DoT) has made amendments related to security

features which states that telecom companies should have good policies for security

and they should be responsible for the security of the network

Industry Environment

INDUSTRY STAGE

The industry growth stage lasted from 2005-2012 At this point the industry is almost at the

shakeout stage The industry is rapidly approaching the matured market stage But another

theory refutes the claim The economic growth in India currently the market is growing

more on the Network area growth providers are moving to smaller cities from big cities

demand is generated from Blsquo class amp Clsquo class cities ndash middle class population A major

section of middle class population of India in smaller cities couldnlsquot enjoy the advantages of

Telecom service due to the Govt monopoly poor capacity regulations they are the

immediate customers of the Mobile operators

14 | P a g e

The Landline is no more the preferable choice for the new telecom users people like to use

mobile phones because of its added advantages and easy subscription Also the middle class

size is expected to grow in India in next decades so the Mobile market in India will be

probably in Growth ndash Shakeout phase for a longer period 8 Indian mobile operators

offerings are segmented in two broad categories ndash Pre-paid and Post-paid Although mobile

market is growing positively the Post-paid market is declining and prepaid market is

increasing by leaps and bounds

The Indian telecom sector has witnessed tremendous growth over the past decade Today

the Indian telecom network is the second largest in the world after China A liberal policy

regime and involvement of the private sector have played an important role in transforming

this sector The total number of telephones as on 31st April 2013 was 89702 million The

telecom industry has witnessed significant growth in subscriber base over the last decade

with increasing network coverage and a competition-induced decline in tariffs acting as

catalysts for the growth in subscriber base The growth story and the potential have also

served to attract newer players in the industry with the result that the intensity of

competition has kept increasing Internet subscribers in India grew to 16481 million as of

March 31 2013 with as many as seven out of eight net users in the country accessing the

services via their mobile phones according to telecom regulator TRAI The total number of

mobile internet subscribers stood at 1432 million at the end of the last fiscal

The number of broadband subscribers increased to 1505 million as of March 31 2013 from

1498 million as of December 31 2012 The number of non-mobile internet subscribers in

the quarter ended March 31 2013 grew to 2161 million from 2157 million registering a

quarterly growth rate of 016 per cent

15 | P a g e

GROWTH IN TELECOM

Growth Drivers - Key factors which will fuel the growth of the sector include increased

access to services owing to launch of newer telecom technologies like 3G and BWA better

devices changing consumer behaviour and the emergence of cloud technologies A majority

of the investments will go into the capital expenditure for setting up newer networks like 3G

and developing the backhaul among other things

Subscriber Base - The mobile subscriber base in India is estimated rise by 9 per cent to 696

million connections this year according to technology researcher Gartner The mobile

service penetration in the country is currently at 51 per cent and is expected to grow to 72

per cent by 2016

Mobile Value Added Services (MVAS) - Indias current MVAS industry has an estimated size

of US$ 27 billion The industry derives its revenues majorly from the top five to six products

such as game based applications music downloads etc which continue to form close to 80

per cent of VAS revenues The Indian MVAS industry estimated to grow to US$ 108 billion

by 2015 with the next wave of growth in subscriptions expected to come from semi-urban

and rural areas

Mobile Number Portability (MNP) - Mobile Number Portability requests increased from

8970 million subscribers at the end of March 2013 to 9173 million at the end of April 2013

Handsets - The mobile handset markets revenues in India will grow from US$ 57 billion in

2010 to US$ 78 billion in 2016 according to the study India is the second largest mobile

handset market in the world and is set to become an even larger market with unit shipment

of 2084 million in 2016 at a CAGR of 118 per cent from 2010 to 2016The Indian mobile

handset market posted revenue of Rs 35946 billion in 2012-2013 compared to Rs 31330

billion in the earlier fiscal year on the back of increasing sale of Smartphonersquos In 2012-2013

Karbonn grew 731 per cent Samsung ended the year with revenue of Rs 11328 billion

compared to Rs 7891 billion last year showing a growth of 436 per cent The iconic Apple

16 | P a g e

posted revenue of Rs 1293 billion in FY 2013 in the country compared to Rs 250 billion in

the previous financial year

GAME THEORY

Indiarsquos telecom Industry an oligopoly has witnessed significant price-cutting since 2005 A

metric called Average Revenue per user (ARPU) which defines a companyrsquos per subscriber

monthly revenue has fallen from ₹37001 in Decemberrsquo05 to ₹12825 in Decemberrsquo13 This

implies that either people lowered usage of cell phones drastically or call rates fell over the

period

TABLE 1

The former is unlikely in a growing economy and the phenomenon actually resulted due to

aggressive price cutting by firms during this period

Currently Airtel Vodafone and Idea control 70+ of the industryrsquos market share Table 1

shows the ARPU and subscriber base (in Crores) of these 3 over the past 6 years The

average subscriber base for a particular year is shown in the table Table 2 shows change

in ARPU of the three companies over the past 5 years and their respective individual share

of the total subscriber base of these 3 companies

Quarter Ended December

Airtels ARPU (in ₹)

Airtels subscribers

Vodafones ARPU (in ₹)

Vodafones subscribers

Ideas ARPU (in ₹)

Ideas subscribers

2008 26059 611737305 22792 4323223725 21541 2689632113

2009 20058 7982973638 17055 597358665 17209 3668136038

2010 15398 1049672524 13005 8423015475 12782 5366251725

2011 1364 1282383818 11742 1074420281 11486 7323344775

2012 13667 1399592696 12192 1148899553 1072 8723590463

2013 14354 1441124333 1385 1164663934 12249 9457361213

17 | P a g e

TABLE 2

TABLE 3

Why are the companies cutting their prices Game theory is at work here Airtel (A)

Vodafone (V) and Idea (I) respectively had 47 33 and 20 market share in 2008 During

this period all companies in the industry were reducing their rates Given this scenario I

assume that companies that didnrsquot reduce their rates during this period would not have

gained more customers (they would have actually lost customers but for sake of simplicity I

donrsquot take this into account) Also I assume that proportional price cuts by all companies

would have resulted in no change in their relative market shares during these years

Airtel Vodafone Idea

Year Change in ARPU

Relative Market Share ()

Change in ARPU

Relative Market Share ()

Change in ARPU

Relative Market Share ()

2009 -2302851222

452942479 -25171113 338932742 -2011048698

20812478

2010 -2323262539

432213148 -23746702 346826077 -2572491138

220960776

2011 -1141706715

415126672 -97116494 347805789 -1013925833

237067538

2012 0197947214 40913579 383239653 335851943 -6668988334

255012268

2013 5026706666 405776274 135990814 327933531 142630597 266290195

Situation V reduces rates V doesnrsquot reduce

A Reduces Rates A and V retain market share V loses market share

A doesnrsquot Reduce A loses market share A and V retain market share

18 | P a g e

In such a case A and V would have faced the following situation at the beginning of 2009

This is a variant of the classical prisonerrsquos dilemma (say A and B) wherein two prisoners are

separately asked about the true culprit The situations that A and B face is shown below

TABLE 4

In this scenario no prisoner can trust the other one and the optimal solution for each one

would be to betray the other Similar is the case in Telecom industry No company can trust

the others In a bid to save their respective market shares companies kept cutting their own

rates Each set of companies each year would have faced a situation similar to the one in

table 3 If A didnrsquot reduce its rates in 2009 its market share could have fallen to 388

under the assumptions made at the beginning of analysis Hence A decided to cut prices

Similarly all firms in the industry decided to reduce rates Another question that I seek to

answer is what the ideal action for these firms would have been during this period Did they

make a mistake due to these price wars

In the case of the prisonerrsquos dilemma discussed above each prisonerrsquos ideal choice is to stay

silent and spend a year in jail instead of 3 that would result if they betray each other Would

the telecom companies also have achieved better results if they had not indulged in price

wars No The subscriber base of the 3 companies discussed above increased at a

compounded rate of 37 from 2008-2012 (Table 1) It would be reasonable to attribute this

change to the falling prices given that the economy was performing poorly during this

period Again taking into account the assumptions made in deriving Table 3 the revenues of

A and V in 2013 could be demonstrated by the following table

TABLE 5

Situation V reduces rates V doesnrsquot reduce

A Reduces Rates ( 2068 1400) (2068 984)

A doesnrsquot Reduce (1590 1400) (1590 984)

Situation B betrays A B stays silent

A Betrays B A and B imprisoned for 2 years A goes free and B imprisoned for 3 years

A stays silent B goes free and A imprisoned for 3 years A and B imprisoned for 1 year

19 | P a g e

Table 5 shows the approximate monthly revenues (in Rupees Crores) of the two firms under

different situations with respect to price In the above table both the Nash equilibrium (the

action point from which no company has an incentive to deviate given the action of the

other company) as well as the ideal equilibrium is for both companies to reduce rates Thus

the telecom industry didnrsquot necessarily suffer due to price cuts at least in terms of

revenues However this strategy would have remained profitable as long as the price

elasticity of the industryrsquos demand remains greater than 1 In 2012 a rise in prices

(indicated by ARPU) led to an increase in the three companiesrsquo revenue Thus this year

marked an end to the telecom industryrsquos price-cutting strategy

Why is it that the automobile Industry in India another oligopoly has not faced similar price

wars It is so because companies cut prices only if the price-cut doesnrsquot result in economic

losses for them Return on assets is already low in automobile industry (about 10) The

telecom industry has also had very low (9-10) returns during the past 2 years This also

explains why that the effect of game theory has disappeared in 2012 and 2013 Young

Industries (such as e-commerce) earning economic profits may witness a similar price-

cutting and erosion of economic profits in the future

Strategy in Global Environment

BALs telecom model was considered as the new model for telecom and effective for

emerging markets like India BAL had established itself as a dominant player in India with its

innovative business processes and strong brand but was witnessing tapering growth

because of increasing competition and saturation of the more lucrative urban markets

While more and more players were eyeing the fast-growing Indian mobile market which was

experiencing high growth BAL put its sight on foreign shores BAL realized that its extensive

experience in India coupled with its unique business model would help it tap the

20 | P a g e

opportunity provided by other developing and emerging markets and create value for its

customers

Acquisition of Zain Groups telecom business in fifteen African counties gave it a boosted

start in the African continent There were talks about BAL having paid higher for the deal

Even though BAL was in the process of giving shape to its strategy for the African markets

the critical success factors in emerging markets

raquo BAL was trying to understand the importance of business process innovation and strategic

partnerships

raquo Appreciate the role of tailoring strategy to fit a specific industry and business

environment

raquo Analyze BALs internal and external environment

raquo Understand and discuss cross-country differences in Cultural demographic and market

conditions and its possible impact on business

raquo Probe the role importance and pros and cons of legal and regulatory framework

raquo Explore the ways a business can be successful in international markets

Though BAL was able to acquire a global footprint and a much larger customer base through

this deal industry experts believed it would be difficult for it to leverage on the business

model and strategies which had kept it afloat and ahead of the competition in India

Jaydeep Ghosh Executive Director of KPMG 7 said Bharti has replicated the low-cost

model through outsourcing in India but depending upon different geographies (in Africa) it

will not be easy

BAL also acquired stake in Bangladeshrsquos Warid Telecom The Company has used its

successful lsquominute factory modelrsquo (lowest-costmin) in these territories Bharti Airtel has

about 2712 million subscribers worldwide ndash 1996 million in India 62 million in Bangladesh

17 million in Sri Lanka and 637 million in Africa as of the end of March 2013Telecom

penetration is low in Africa and hence huge opportunities are available for Bharti Airtel So

far turning around the African operations has been a challenging task for the company in

the past three years This is due to the high competition currency movements and political

unrest in some countries and regions However the African operations offer good

opportunities and it can be expected that these acquisitions will enhance the companyrsquos

global presence in telecom space and will help it to increase its profitability in the coming

years

14 | P a g e

The Landline is no more the preferable choice for the new telecom users people like to use

mobile phones because of its added advantages and easy subscription Also the middle class

size is expected to grow in India in next decades so the Mobile market in India will be

probably in Growth ndash Shakeout phase for a longer period 8 Indian mobile operators

offerings are segmented in two broad categories ndash Pre-paid and Post-paid Although mobile

market is growing positively the Post-paid market is declining and prepaid market is

increasing by leaps and bounds

The Indian telecom sector has witnessed tremendous growth over the past decade Today

the Indian telecom network is the second largest in the world after China A liberal policy

regime and involvement of the private sector have played an important role in transforming

this sector The total number of telephones as on 31st April 2013 was 89702 million The

telecom industry has witnessed significant growth in subscriber base over the last decade

with increasing network coverage and a competition-induced decline in tariffs acting as

catalysts for the growth in subscriber base The growth story and the potential have also

served to attract newer players in the industry with the result that the intensity of

competition has kept increasing Internet subscribers in India grew to 16481 million as of

March 31 2013 with as many as seven out of eight net users in the country accessing the

services via their mobile phones according to telecom regulator TRAI The total number of

mobile internet subscribers stood at 1432 million at the end of the last fiscal

The number of broadband subscribers increased to 1505 million as of March 31 2013 from

1498 million as of December 31 2012 The number of non-mobile internet subscribers in

the quarter ended March 31 2013 grew to 2161 million from 2157 million registering a

quarterly growth rate of 016 per cent

15 | P a g e

GROWTH IN TELECOM

Growth Drivers - Key factors which will fuel the growth of the sector include increased

access to services owing to launch of newer telecom technologies like 3G and BWA better

devices changing consumer behaviour and the emergence of cloud technologies A majority

of the investments will go into the capital expenditure for setting up newer networks like 3G

and developing the backhaul among other things

Subscriber Base - The mobile subscriber base in India is estimated rise by 9 per cent to 696

million connections this year according to technology researcher Gartner The mobile

service penetration in the country is currently at 51 per cent and is expected to grow to 72

per cent by 2016

Mobile Value Added Services (MVAS) - Indias current MVAS industry has an estimated size

of US$ 27 billion The industry derives its revenues majorly from the top five to six products

such as game based applications music downloads etc which continue to form close to 80

per cent of VAS revenues The Indian MVAS industry estimated to grow to US$ 108 billion

by 2015 with the next wave of growth in subscriptions expected to come from semi-urban

and rural areas

Mobile Number Portability (MNP) - Mobile Number Portability requests increased from

8970 million subscribers at the end of March 2013 to 9173 million at the end of April 2013

Handsets - The mobile handset markets revenues in India will grow from US$ 57 billion in

2010 to US$ 78 billion in 2016 according to the study India is the second largest mobile

handset market in the world and is set to become an even larger market with unit shipment

of 2084 million in 2016 at a CAGR of 118 per cent from 2010 to 2016The Indian mobile

handset market posted revenue of Rs 35946 billion in 2012-2013 compared to Rs 31330

billion in the earlier fiscal year on the back of increasing sale of Smartphonersquos In 2012-2013

Karbonn grew 731 per cent Samsung ended the year with revenue of Rs 11328 billion

compared to Rs 7891 billion last year showing a growth of 436 per cent The iconic Apple

16 | P a g e

posted revenue of Rs 1293 billion in FY 2013 in the country compared to Rs 250 billion in

the previous financial year

GAME THEORY

Indiarsquos telecom Industry an oligopoly has witnessed significant price-cutting since 2005 A

metric called Average Revenue per user (ARPU) which defines a companyrsquos per subscriber

monthly revenue has fallen from ₹37001 in Decemberrsquo05 to ₹12825 in Decemberrsquo13 This

implies that either people lowered usage of cell phones drastically or call rates fell over the

period

TABLE 1

The former is unlikely in a growing economy and the phenomenon actually resulted due to

aggressive price cutting by firms during this period

Currently Airtel Vodafone and Idea control 70+ of the industryrsquos market share Table 1

shows the ARPU and subscriber base (in Crores) of these 3 over the past 6 years The

average subscriber base for a particular year is shown in the table Table 2 shows change

in ARPU of the three companies over the past 5 years and their respective individual share

of the total subscriber base of these 3 companies

Quarter Ended December

Airtels ARPU (in ₹)

Airtels subscribers

Vodafones ARPU (in ₹)

Vodafones subscribers

Ideas ARPU (in ₹)

Ideas subscribers

2008 26059 611737305 22792 4323223725 21541 2689632113

2009 20058 7982973638 17055 597358665 17209 3668136038

2010 15398 1049672524 13005 8423015475 12782 5366251725

2011 1364 1282383818 11742 1074420281 11486 7323344775

2012 13667 1399592696 12192 1148899553 1072 8723590463

2013 14354 1441124333 1385 1164663934 12249 9457361213

17 | P a g e

TABLE 2

TABLE 3

Why are the companies cutting their prices Game theory is at work here Airtel (A)

Vodafone (V) and Idea (I) respectively had 47 33 and 20 market share in 2008 During

this period all companies in the industry were reducing their rates Given this scenario I

assume that companies that didnrsquot reduce their rates during this period would not have

gained more customers (they would have actually lost customers but for sake of simplicity I

donrsquot take this into account) Also I assume that proportional price cuts by all companies

would have resulted in no change in their relative market shares during these years

Airtel Vodafone Idea

Year Change in ARPU

Relative Market Share ()

Change in ARPU

Relative Market Share ()

Change in ARPU

Relative Market Share ()

2009 -2302851222

452942479 -25171113 338932742 -2011048698

20812478

2010 -2323262539

432213148 -23746702 346826077 -2572491138

220960776

2011 -1141706715

415126672 -97116494 347805789 -1013925833

237067538

2012 0197947214 40913579 383239653 335851943 -6668988334

255012268

2013 5026706666 405776274 135990814 327933531 142630597 266290195

Situation V reduces rates V doesnrsquot reduce

A Reduces Rates A and V retain market share V loses market share

A doesnrsquot Reduce A loses market share A and V retain market share

18 | P a g e

In such a case A and V would have faced the following situation at the beginning of 2009

This is a variant of the classical prisonerrsquos dilemma (say A and B) wherein two prisoners are

separately asked about the true culprit The situations that A and B face is shown below

TABLE 4

In this scenario no prisoner can trust the other one and the optimal solution for each one

would be to betray the other Similar is the case in Telecom industry No company can trust

the others In a bid to save their respective market shares companies kept cutting their own

rates Each set of companies each year would have faced a situation similar to the one in

table 3 If A didnrsquot reduce its rates in 2009 its market share could have fallen to 388

under the assumptions made at the beginning of analysis Hence A decided to cut prices

Similarly all firms in the industry decided to reduce rates Another question that I seek to

answer is what the ideal action for these firms would have been during this period Did they

make a mistake due to these price wars

In the case of the prisonerrsquos dilemma discussed above each prisonerrsquos ideal choice is to stay

silent and spend a year in jail instead of 3 that would result if they betray each other Would

the telecom companies also have achieved better results if they had not indulged in price

wars No The subscriber base of the 3 companies discussed above increased at a

compounded rate of 37 from 2008-2012 (Table 1) It would be reasonable to attribute this

change to the falling prices given that the economy was performing poorly during this

period Again taking into account the assumptions made in deriving Table 3 the revenues of

A and V in 2013 could be demonstrated by the following table

TABLE 5

Situation V reduces rates V doesnrsquot reduce

A Reduces Rates ( 2068 1400) (2068 984)

A doesnrsquot Reduce (1590 1400) (1590 984)

Situation B betrays A B stays silent

A Betrays B A and B imprisoned for 2 years A goes free and B imprisoned for 3 years

A stays silent B goes free and A imprisoned for 3 years A and B imprisoned for 1 year

19 | P a g e

Table 5 shows the approximate monthly revenues (in Rupees Crores) of the two firms under

different situations with respect to price In the above table both the Nash equilibrium (the

action point from which no company has an incentive to deviate given the action of the

other company) as well as the ideal equilibrium is for both companies to reduce rates Thus

the telecom industry didnrsquot necessarily suffer due to price cuts at least in terms of

revenues However this strategy would have remained profitable as long as the price

elasticity of the industryrsquos demand remains greater than 1 In 2012 a rise in prices

(indicated by ARPU) led to an increase in the three companiesrsquo revenue Thus this year

marked an end to the telecom industryrsquos price-cutting strategy

Why is it that the automobile Industry in India another oligopoly has not faced similar price

wars It is so because companies cut prices only if the price-cut doesnrsquot result in economic

losses for them Return on assets is already low in automobile industry (about 10) The

telecom industry has also had very low (9-10) returns during the past 2 years This also

explains why that the effect of game theory has disappeared in 2012 and 2013 Young

Industries (such as e-commerce) earning economic profits may witness a similar price-

cutting and erosion of economic profits in the future

Strategy in Global Environment

BALs telecom model was considered as the new model for telecom and effective for

emerging markets like India BAL had established itself as a dominant player in India with its

innovative business processes and strong brand but was witnessing tapering growth

because of increasing competition and saturation of the more lucrative urban markets

While more and more players were eyeing the fast-growing Indian mobile market which was

experiencing high growth BAL put its sight on foreign shores BAL realized that its extensive

experience in India coupled with its unique business model would help it tap the

20 | P a g e

opportunity provided by other developing and emerging markets and create value for its

customers

Acquisition of Zain Groups telecom business in fifteen African counties gave it a boosted

start in the African continent There were talks about BAL having paid higher for the deal

Even though BAL was in the process of giving shape to its strategy for the African markets

the critical success factors in emerging markets

raquo BAL was trying to understand the importance of business process innovation and strategic

partnerships

raquo Appreciate the role of tailoring strategy to fit a specific industry and business

environment

raquo Analyze BALs internal and external environment

raquo Understand and discuss cross-country differences in Cultural demographic and market

conditions and its possible impact on business

raquo Probe the role importance and pros and cons of legal and regulatory framework

raquo Explore the ways a business can be successful in international markets

Though BAL was able to acquire a global footprint and a much larger customer base through

this deal industry experts believed it would be difficult for it to leverage on the business

model and strategies which had kept it afloat and ahead of the competition in India

Jaydeep Ghosh Executive Director of KPMG 7 said Bharti has replicated the low-cost

model through outsourcing in India but depending upon different geographies (in Africa) it

will not be easy

BAL also acquired stake in Bangladeshrsquos Warid Telecom The Company has used its

successful lsquominute factory modelrsquo (lowest-costmin) in these territories Bharti Airtel has

about 2712 million subscribers worldwide ndash 1996 million in India 62 million in Bangladesh

17 million in Sri Lanka and 637 million in Africa as of the end of March 2013Telecom

penetration is low in Africa and hence huge opportunities are available for Bharti Airtel So

far turning around the African operations has been a challenging task for the company in

the past three years This is due to the high competition currency movements and political

unrest in some countries and regions However the African operations offer good

opportunities and it can be expected that these acquisitions will enhance the companyrsquos

global presence in telecom space and will help it to increase its profitability in the coming

years

15 | P a g e

GROWTH IN TELECOM

Growth Drivers - Key factors which will fuel the growth of the sector include increased

access to services owing to launch of newer telecom technologies like 3G and BWA better

devices changing consumer behaviour and the emergence of cloud technologies A majority

of the investments will go into the capital expenditure for setting up newer networks like 3G

and developing the backhaul among other things

Subscriber Base - The mobile subscriber base in India is estimated rise by 9 per cent to 696

million connections this year according to technology researcher Gartner The mobile

service penetration in the country is currently at 51 per cent and is expected to grow to 72

per cent by 2016

Mobile Value Added Services (MVAS) - Indias current MVAS industry has an estimated size

of US$ 27 billion The industry derives its revenues majorly from the top five to six products

such as game based applications music downloads etc which continue to form close to 80

per cent of VAS revenues The Indian MVAS industry estimated to grow to US$ 108 billion

by 2015 with the next wave of growth in subscriptions expected to come from semi-urban

and rural areas

Mobile Number Portability (MNP) - Mobile Number Portability requests increased from

8970 million subscribers at the end of March 2013 to 9173 million at the end of April 2013

Handsets - The mobile handset markets revenues in India will grow from US$ 57 billion in

2010 to US$ 78 billion in 2016 according to the study India is the second largest mobile

handset market in the world and is set to become an even larger market with unit shipment

of 2084 million in 2016 at a CAGR of 118 per cent from 2010 to 2016The Indian mobile

handset market posted revenue of Rs 35946 billion in 2012-2013 compared to Rs 31330

billion in the earlier fiscal year on the back of increasing sale of Smartphonersquos In 2012-2013

Karbonn grew 731 per cent Samsung ended the year with revenue of Rs 11328 billion

compared to Rs 7891 billion last year showing a growth of 436 per cent The iconic Apple

16 | P a g e

posted revenue of Rs 1293 billion in FY 2013 in the country compared to Rs 250 billion in

the previous financial year

GAME THEORY

Indiarsquos telecom Industry an oligopoly has witnessed significant price-cutting since 2005 A

metric called Average Revenue per user (ARPU) which defines a companyrsquos per subscriber

monthly revenue has fallen from ₹37001 in Decemberrsquo05 to ₹12825 in Decemberrsquo13 This

implies that either people lowered usage of cell phones drastically or call rates fell over the

period

TABLE 1

The former is unlikely in a growing economy and the phenomenon actually resulted due to

aggressive price cutting by firms during this period

Currently Airtel Vodafone and Idea control 70+ of the industryrsquos market share Table 1

shows the ARPU and subscriber base (in Crores) of these 3 over the past 6 years The

average subscriber base for a particular year is shown in the table Table 2 shows change

in ARPU of the three companies over the past 5 years and their respective individual share

of the total subscriber base of these 3 companies

Quarter Ended December

Airtels ARPU (in ₹)

Airtels subscribers

Vodafones ARPU (in ₹)

Vodafones subscribers

Ideas ARPU (in ₹)

Ideas subscribers

2008 26059 611737305 22792 4323223725 21541 2689632113

2009 20058 7982973638 17055 597358665 17209 3668136038

2010 15398 1049672524 13005 8423015475 12782 5366251725

2011 1364 1282383818 11742 1074420281 11486 7323344775

2012 13667 1399592696 12192 1148899553 1072 8723590463

2013 14354 1441124333 1385 1164663934 12249 9457361213

17 | P a g e

TABLE 2

TABLE 3

Why are the companies cutting their prices Game theory is at work here Airtel (A)

Vodafone (V) and Idea (I) respectively had 47 33 and 20 market share in 2008 During

this period all companies in the industry were reducing their rates Given this scenario I

assume that companies that didnrsquot reduce their rates during this period would not have

gained more customers (they would have actually lost customers but for sake of simplicity I

donrsquot take this into account) Also I assume that proportional price cuts by all companies

would have resulted in no change in their relative market shares during these years

Airtel Vodafone Idea

Year Change in ARPU

Relative Market Share ()

Change in ARPU

Relative Market Share ()

Change in ARPU

Relative Market Share ()

2009 -2302851222

452942479 -25171113 338932742 -2011048698

20812478

2010 -2323262539

432213148 -23746702 346826077 -2572491138

220960776

2011 -1141706715

415126672 -97116494 347805789 -1013925833

237067538

2012 0197947214 40913579 383239653 335851943 -6668988334

255012268

2013 5026706666 405776274 135990814 327933531 142630597 266290195

Situation V reduces rates V doesnrsquot reduce

A Reduces Rates A and V retain market share V loses market share

A doesnrsquot Reduce A loses market share A and V retain market share

18 | P a g e

In such a case A and V would have faced the following situation at the beginning of 2009

This is a variant of the classical prisonerrsquos dilemma (say A and B) wherein two prisoners are

separately asked about the true culprit The situations that A and B face is shown below

TABLE 4

In this scenario no prisoner can trust the other one and the optimal solution for each one

would be to betray the other Similar is the case in Telecom industry No company can trust

the others In a bid to save their respective market shares companies kept cutting their own

rates Each set of companies each year would have faced a situation similar to the one in

table 3 If A didnrsquot reduce its rates in 2009 its market share could have fallen to 388

under the assumptions made at the beginning of analysis Hence A decided to cut prices

Similarly all firms in the industry decided to reduce rates Another question that I seek to

answer is what the ideal action for these firms would have been during this period Did they

make a mistake due to these price wars

In the case of the prisonerrsquos dilemma discussed above each prisonerrsquos ideal choice is to stay

silent and spend a year in jail instead of 3 that would result if they betray each other Would

the telecom companies also have achieved better results if they had not indulged in price

wars No The subscriber base of the 3 companies discussed above increased at a

compounded rate of 37 from 2008-2012 (Table 1) It would be reasonable to attribute this

change to the falling prices given that the economy was performing poorly during this

period Again taking into account the assumptions made in deriving Table 3 the revenues of

A and V in 2013 could be demonstrated by the following table

TABLE 5

Situation V reduces rates V doesnrsquot reduce

A Reduces Rates ( 2068 1400) (2068 984)

A doesnrsquot Reduce (1590 1400) (1590 984)

Situation B betrays A B stays silent

A Betrays B A and B imprisoned for 2 years A goes free and B imprisoned for 3 years

A stays silent B goes free and A imprisoned for 3 years A and B imprisoned for 1 year

19 | P a g e

Table 5 shows the approximate monthly revenues (in Rupees Crores) of the two firms under

different situations with respect to price In the above table both the Nash equilibrium (the

action point from which no company has an incentive to deviate given the action of the

other company) as well as the ideal equilibrium is for both companies to reduce rates Thus

the telecom industry didnrsquot necessarily suffer due to price cuts at least in terms of

revenues However this strategy would have remained profitable as long as the price

elasticity of the industryrsquos demand remains greater than 1 In 2012 a rise in prices

(indicated by ARPU) led to an increase in the three companiesrsquo revenue Thus this year

marked an end to the telecom industryrsquos price-cutting strategy

Why is it that the automobile Industry in India another oligopoly has not faced similar price

wars It is so because companies cut prices only if the price-cut doesnrsquot result in economic

losses for them Return on assets is already low in automobile industry (about 10) The

telecom industry has also had very low (9-10) returns during the past 2 years This also

explains why that the effect of game theory has disappeared in 2012 and 2013 Young

Industries (such as e-commerce) earning economic profits may witness a similar price-

cutting and erosion of economic profits in the future

Strategy in Global Environment

BALs telecom model was considered as the new model for telecom and effective for

emerging markets like India BAL had established itself as a dominant player in India with its

innovative business processes and strong brand but was witnessing tapering growth

because of increasing competition and saturation of the more lucrative urban markets

While more and more players were eyeing the fast-growing Indian mobile market which was

experiencing high growth BAL put its sight on foreign shores BAL realized that its extensive

experience in India coupled with its unique business model would help it tap the

20 | P a g e

opportunity provided by other developing and emerging markets and create value for its

customers

Acquisition of Zain Groups telecom business in fifteen African counties gave it a boosted

start in the African continent There were talks about BAL having paid higher for the deal

Even though BAL was in the process of giving shape to its strategy for the African markets

the critical success factors in emerging markets

raquo BAL was trying to understand the importance of business process innovation and strategic

partnerships

raquo Appreciate the role of tailoring strategy to fit a specific industry and business

environment

raquo Analyze BALs internal and external environment

raquo Understand and discuss cross-country differences in Cultural demographic and market

conditions and its possible impact on business

raquo Probe the role importance and pros and cons of legal and regulatory framework

raquo Explore the ways a business can be successful in international markets

Though BAL was able to acquire a global footprint and a much larger customer base through

this deal industry experts believed it would be difficult for it to leverage on the business

model and strategies which had kept it afloat and ahead of the competition in India

Jaydeep Ghosh Executive Director of KPMG 7 said Bharti has replicated the low-cost

model through outsourcing in India but depending upon different geographies (in Africa) it

will not be easy

BAL also acquired stake in Bangladeshrsquos Warid Telecom The Company has used its

successful lsquominute factory modelrsquo (lowest-costmin) in these territories Bharti Airtel has

about 2712 million subscribers worldwide ndash 1996 million in India 62 million in Bangladesh

17 million in Sri Lanka and 637 million in Africa as of the end of March 2013Telecom

penetration is low in Africa and hence huge opportunities are available for Bharti Airtel So

far turning around the African operations has been a challenging task for the company in

the past three years This is due to the high competition currency movements and political

unrest in some countries and regions However the African operations offer good

opportunities and it can be expected that these acquisitions will enhance the companyrsquos

global presence in telecom space and will help it to increase its profitability in the coming

years

16 | P a g e

posted revenue of Rs 1293 billion in FY 2013 in the country compared to Rs 250 billion in

the previous financial year

GAME THEORY

Indiarsquos telecom Industry an oligopoly has witnessed significant price-cutting since 2005 A

metric called Average Revenue per user (ARPU) which defines a companyrsquos per subscriber

monthly revenue has fallen from ₹37001 in Decemberrsquo05 to ₹12825 in Decemberrsquo13 This

implies that either people lowered usage of cell phones drastically or call rates fell over the

period

TABLE 1

The former is unlikely in a growing economy and the phenomenon actually resulted due to

aggressive price cutting by firms during this period

Currently Airtel Vodafone and Idea control 70+ of the industryrsquos market share Table 1

shows the ARPU and subscriber base (in Crores) of these 3 over the past 6 years The

average subscriber base for a particular year is shown in the table Table 2 shows change

in ARPU of the three companies over the past 5 years and their respective individual share

of the total subscriber base of these 3 companies

Quarter Ended December

Airtels ARPU (in ₹)

Airtels subscribers

Vodafones ARPU (in ₹)

Vodafones subscribers

Ideas ARPU (in ₹)

Ideas subscribers

2008 26059 611737305 22792 4323223725 21541 2689632113

2009 20058 7982973638 17055 597358665 17209 3668136038

2010 15398 1049672524 13005 8423015475 12782 5366251725

2011 1364 1282383818 11742 1074420281 11486 7323344775

2012 13667 1399592696 12192 1148899553 1072 8723590463

2013 14354 1441124333 1385 1164663934 12249 9457361213

17 | P a g e

TABLE 2

TABLE 3

Why are the companies cutting their prices Game theory is at work here Airtel (A)

Vodafone (V) and Idea (I) respectively had 47 33 and 20 market share in 2008 During

this period all companies in the industry were reducing their rates Given this scenario I

assume that companies that didnrsquot reduce their rates during this period would not have

gained more customers (they would have actually lost customers but for sake of simplicity I

donrsquot take this into account) Also I assume that proportional price cuts by all companies

would have resulted in no change in their relative market shares during these years

Airtel Vodafone Idea

Year Change in ARPU

Relative Market Share ()

Change in ARPU

Relative Market Share ()

Change in ARPU

Relative Market Share ()

2009 -2302851222

452942479 -25171113 338932742 -2011048698

20812478

2010 -2323262539

432213148 -23746702 346826077 -2572491138

220960776

2011 -1141706715

415126672 -97116494 347805789 -1013925833

237067538

2012 0197947214 40913579 383239653 335851943 -6668988334

255012268

2013 5026706666 405776274 135990814 327933531 142630597 266290195

Situation V reduces rates V doesnrsquot reduce

A Reduces Rates A and V retain market share V loses market share

A doesnrsquot Reduce A loses market share A and V retain market share

18 | P a g e

In such a case A and V would have faced the following situation at the beginning of 2009

This is a variant of the classical prisonerrsquos dilemma (say A and B) wherein two prisoners are

separately asked about the true culprit The situations that A and B face is shown below

TABLE 4

In this scenario no prisoner can trust the other one and the optimal solution for each one

would be to betray the other Similar is the case in Telecom industry No company can trust

the others In a bid to save their respective market shares companies kept cutting their own

rates Each set of companies each year would have faced a situation similar to the one in

table 3 If A didnrsquot reduce its rates in 2009 its market share could have fallen to 388

under the assumptions made at the beginning of analysis Hence A decided to cut prices

Similarly all firms in the industry decided to reduce rates Another question that I seek to

answer is what the ideal action for these firms would have been during this period Did they

make a mistake due to these price wars

In the case of the prisonerrsquos dilemma discussed above each prisonerrsquos ideal choice is to stay

silent and spend a year in jail instead of 3 that would result if they betray each other Would

the telecom companies also have achieved better results if they had not indulged in price

wars No The subscriber base of the 3 companies discussed above increased at a

compounded rate of 37 from 2008-2012 (Table 1) It would be reasonable to attribute this

change to the falling prices given that the economy was performing poorly during this

period Again taking into account the assumptions made in deriving Table 3 the revenues of

A and V in 2013 could be demonstrated by the following table

TABLE 5

Situation V reduces rates V doesnrsquot reduce

A Reduces Rates ( 2068 1400) (2068 984)

A doesnrsquot Reduce (1590 1400) (1590 984)

Situation B betrays A B stays silent

A Betrays B A and B imprisoned for 2 years A goes free and B imprisoned for 3 years

A stays silent B goes free and A imprisoned for 3 years A and B imprisoned for 1 year

19 | P a g e

Table 5 shows the approximate monthly revenues (in Rupees Crores) of the two firms under

different situations with respect to price In the above table both the Nash equilibrium (the

action point from which no company has an incentive to deviate given the action of the

other company) as well as the ideal equilibrium is for both companies to reduce rates Thus

the telecom industry didnrsquot necessarily suffer due to price cuts at least in terms of

revenues However this strategy would have remained profitable as long as the price

elasticity of the industryrsquos demand remains greater than 1 In 2012 a rise in prices

(indicated by ARPU) led to an increase in the three companiesrsquo revenue Thus this year

marked an end to the telecom industryrsquos price-cutting strategy

Why is it that the automobile Industry in India another oligopoly has not faced similar price

wars It is so because companies cut prices only if the price-cut doesnrsquot result in economic

losses for them Return on assets is already low in automobile industry (about 10) The

telecom industry has also had very low (9-10) returns during the past 2 years This also

explains why that the effect of game theory has disappeared in 2012 and 2013 Young

Industries (such as e-commerce) earning economic profits may witness a similar price-

cutting and erosion of economic profits in the future

Strategy in Global Environment

BALs telecom model was considered as the new model for telecom and effective for

emerging markets like India BAL had established itself as a dominant player in India with its

innovative business processes and strong brand but was witnessing tapering growth

because of increasing competition and saturation of the more lucrative urban markets

While more and more players were eyeing the fast-growing Indian mobile market which was

experiencing high growth BAL put its sight on foreign shores BAL realized that its extensive

experience in India coupled with its unique business model would help it tap the

20 | P a g e

opportunity provided by other developing and emerging markets and create value for its

customers

Acquisition of Zain Groups telecom business in fifteen African counties gave it a boosted

start in the African continent There were talks about BAL having paid higher for the deal

Even though BAL was in the process of giving shape to its strategy for the African markets

the critical success factors in emerging markets

raquo BAL was trying to understand the importance of business process innovation and strategic

partnerships

raquo Appreciate the role of tailoring strategy to fit a specific industry and business

environment

raquo Analyze BALs internal and external environment

raquo Understand and discuss cross-country differences in Cultural demographic and market

conditions and its possible impact on business

raquo Probe the role importance and pros and cons of legal and regulatory framework

raquo Explore the ways a business can be successful in international markets

Though BAL was able to acquire a global footprint and a much larger customer base through

this deal industry experts believed it would be difficult for it to leverage on the business

model and strategies which had kept it afloat and ahead of the competition in India

Jaydeep Ghosh Executive Director of KPMG 7 said Bharti has replicated the low-cost

model through outsourcing in India but depending upon different geographies (in Africa) it

will not be easy

BAL also acquired stake in Bangladeshrsquos Warid Telecom The Company has used its

successful lsquominute factory modelrsquo (lowest-costmin) in these territories Bharti Airtel has

about 2712 million subscribers worldwide ndash 1996 million in India 62 million in Bangladesh

17 million in Sri Lanka and 637 million in Africa as of the end of March 2013Telecom

penetration is low in Africa and hence huge opportunities are available for Bharti Airtel So

far turning around the African operations has been a challenging task for the company in

the past three years This is due to the high competition currency movements and political

unrest in some countries and regions However the African operations offer good

opportunities and it can be expected that these acquisitions will enhance the companyrsquos

global presence in telecom space and will help it to increase its profitability in the coming

years

17 | P a g e

TABLE 2

TABLE 3

Why are the companies cutting their prices Game theory is at work here Airtel (A)

Vodafone (V) and Idea (I) respectively had 47 33 and 20 market share in 2008 During

this period all companies in the industry were reducing their rates Given this scenario I

assume that companies that didnrsquot reduce their rates during this period would not have

gained more customers (they would have actually lost customers but for sake of simplicity I

donrsquot take this into account) Also I assume that proportional price cuts by all companies

would have resulted in no change in their relative market shares during these years

Airtel Vodafone Idea

Year Change in ARPU

Relative Market Share ()

Change in ARPU

Relative Market Share ()

Change in ARPU

Relative Market Share ()

2009 -2302851222

452942479 -25171113 338932742 -2011048698

20812478

2010 -2323262539

432213148 -23746702 346826077 -2572491138

220960776

2011 -1141706715

415126672 -97116494 347805789 -1013925833

237067538

2012 0197947214 40913579 383239653 335851943 -6668988334

255012268

2013 5026706666 405776274 135990814 327933531 142630597 266290195

Situation V reduces rates V doesnrsquot reduce

A Reduces Rates A and V retain market share V loses market share

A doesnrsquot Reduce A loses market share A and V retain market share

18 | P a g e

In such a case A and V would have faced the following situation at the beginning of 2009

This is a variant of the classical prisonerrsquos dilemma (say A and B) wherein two prisoners are

separately asked about the true culprit The situations that A and B face is shown below

TABLE 4

In this scenario no prisoner can trust the other one and the optimal solution for each one

would be to betray the other Similar is the case in Telecom industry No company can trust

the others In a bid to save their respective market shares companies kept cutting their own

rates Each set of companies each year would have faced a situation similar to the one in

table 3 If A didnrsquot reduce its rates in 2009 its market share could have fallen to 388

under the assumptions made at the beginning of analysis Hence A decided to cut prices

Similarly all firms in the industry decided to reduce rates Another question that I seek to

answer is what the ideal action for these firms would have been during this period Did they

make a mistake due to these price wars

In the case of the prisonerrsquos dilemma discussed above each prisonerrsquos ideal choice is to stay

silent and spend a year in jail instead of 3 that would result if they betray each other Would

the telecom companies also have achieved better results if they had not indulged in price

wars No The subscriber base of the 3 companies discussed above increased at a

compounded rate of 37 from 2008-2012 (Table 1) It would be reasonable to attribute this

change to the falling prices given that the economy was performing poorly during this

period Again taking into account the assumptions made in deriving Table 3 the revenues of

A and V in 2013 could be demonstrated by the following table

TABLE 5

Situation V reduces rates V doesnrsquot reduce

A Reduces Rates ( 2068 1400) (2068 984)

A doesnrsquot Reduce (1590 1400) (1590 984)

Situation B betrays A B stays silent

A Betrays B A and B imprisoned for 2 years A goes free and B imprisoned for 3 years

A stays silent B goes free and A imprisoned for 3 years A and B imprisoned for 1 year

19 | P a g e

Table 5 shows the approximate monthly revenues (in Rupees Crores) of the two firms under

different situations with respect to price In the above table both the Nash equilibrium (the

action point from which no company has an incentive to deviate given the action of the

other company) as well as the ideal equilibrium is for both companies to reduce rates Thus

the telecom industry didnrsquot necessarily suffer due to price cuts at least in terms of

revenues However this strategy would have remained profitable as long as the price

elasticity of the industryrsquos demand remains greater than 1 In 2012 a rise in prices

(indicated by ARPU) led to an increase in the three companiesrsquo revenue Thus this year

marked an end to the telecom industryrsquos price-cutting strategy

Why is it that the automobile Industry in India another oligopoly has not faced similar price

wars It is so because companies cut prices only if the price-cut doesnrsquot result in economic

losses for them Return on assets is already low in automobile industry (about 10) The

telecom industry has also had very low (9-10) returns during the past 2 years This also

explains why that the effect of game theory has disappeared in 2012 and 2013 Young

Industries (such as e-commerce) earning economic profits may witness a similar price-

cutting and erosion of economic profits in the future

Strategy in Global Environment

BALs telecom model was considered as the new model for telecom and effective for

emerging markets like India BAL had established itself as a dominant player in India with its

innovative business processes and strong brand but was witnessing tapering growth

because of increasing competition and saturation of the more lucrative urban markets

While more and more players were eyeing the fast-growing Indian mobile market which was

experiencing high growth BAL put its sight on foreign shores BAL realized that its extensive

experience in India coupled with its unique business model would help it tap the

20 | P a g e

opportunity provided by other developing and emerging markets and create value for its

customers

Acquisition of Zain Groups telecom business in fifteen African counties gave it a boosted

start in the African continent There were talks about BAL having paid higher for the deal

Even though BAL was in the process of giving shape to its strategy for the African markets

the critical success factors in emerging markets

raquo BAL was trying to understand the importance of business process innovation and strategic

partnerships

raquo Appreciate the role of tailoring strategy to fit a specific industry and business

environment

raquo Analyze BALs internal and external environment

raquo Understand and discuss cross-country differences in Cultural demographic and market

conditions and its possible impact on business

raquo Probe the role importance and pros and cons of legal and regulatory framework

raquo Explore the ways a business can be successful in international markets

Though BAL was able to acquire a global footprint and a much larger customer base through

this deal industry experts believed it would be difficult for it to leverage on the business

model and strategies which had kept it afloat and ahead of the competition in India

Jaydeep Ghosh Executive Director of KPMG 7 said Bharti has replicated the low-cost

model through outsourcing in India but depending upon different geographies (in Africa) it

will not be easy

BAL also acquired stake in Bangladeshrsquos Warid Telecom The Company has used its

successful lsquominute factory modelrsquo (lowest-costmin) in these territories Bharti Airtel has

about 2712 million subscribers worldwide ndash 1996 million in India 62 million in Bangladesh

17 million in Sri Lanka and 637 million in Africa as of the end of March 2013Telecom

penetration is low in Africa and hence huge opportunities are available for Bharti Airtel So

far turning around the African operations has been a challenging task for the company in

the past three years This is due to the high competition currency movements and political

unrest in some countries and regions However the African operations offer good

opportunities and it can be expected that these acquisitions will enhance the companyrsquos

global presence in telecom space and will help it to increase its profitability in the coming

years

18 | P a g e

In such a case A and V would have faced the following situation at the beginning of 2009

This is a variant of the classical prisonerrsquos dilemma (say A and B) wherein two prisoners are

separately asked about the true culprit The situations that A and B face is shown below

TABLE 4

In this scenario no prisoner can trust the other one and the optimal solution for each one

would be to betray the other Similar is the case in Telecom industry No company can trust

the others In a bid to save their respective market shares companies kept cutting their own

rates Each set of companies each year would have faced a situation similar to the one in

table 3 If A didnrsquot reduce its rates in 2009 its market share could have fallen to 388

under the assumptions made at the beginning of analysis Hence A decided to cut prices

Similarly all firms in the industry decided to reduce rates Another question that I seek to

answer is what the ideal action for these firms would have been during this period Did they

make a mistake due to these price wars

In the case of the prisonerrsquos dilemma discussed above each prisonerrsquos ideal choice is to stay

silent and spend a year in jail instead of 3 that would result if they betray each other Would

the telecom companies also have achieved better results if they had not indulged in price

wars No The subscriber base of the 3 companies discussed above increased at a

compounded rate of 37 from 2008-2012 (Table 1) It would be reasonable to attribute this

change to the falling prices given that the economy was performing poorly during this

period Again taking into account the assumptions made in deriving Table 3 the revenues of

A and V in 2013 could be demonstrated by the following table

TABLE 5

Situation V reduces rates V doesnrsquot reduce

A Reduces Rates ( 2068 1400) (2068 984)

A doesnrsquot Reduce (1590 1400) (1590 984)

Situation B betrays A B stays silent

A Betrays B A and B imprisoned for 2 years A goes free and B imprisoned for 3 years

A stays silent B goes free and A imprisoned for 3 years A and B imprisoned for 1 year

19 | P a g e

Table 5 shows the approximate monthly revenues (in Rupees Crores) of the two firms under

different situations with respect to price In the above table both the Nash equilibrium (the

action point from which no company has an incentive to deviate given the action of the

other company) as well as the ideal equilibrium is for both companies to reduce rates Thus

the telecom industry didnrsquot necessarily suffer due to price cuts at least in terms of

revenues However this strategy would have remained profitable as long as the price

elasticity of the industryrsquos demand remains greater than 1 In 2012 a rise in prices

(indicated by ARPU) led to an increase in the three companiesrsquo revenue Thus this year

marked an end to the telecom industryrsquos price-cutting strategy

Why is it that the automobile Industry in India another oligopoly has not faced similar price

wars It is so because companies cut prices only if the price-cut doesnrsquot result in economic

losses for them Return on assets is already low in automobile industry (about 10) The

telecom industry has also had very low (9-10) returns during the past 2 years This also

explains why that the effect of game theory has disappeared in 2012 and 2013 Young

Industries (such as e-commerce) earning economic profits may witness a similar price-

cutting and erosion of economic profits in the future

Strategy in Global Environment

BALs telecom model was considered as the new model for telecom and effective for

emerging markets like India BAL had established itself as a dominant player in India with its

innovative business processes and strong brand but was witnessing tapering growth

because of increasing competition and saturation of the more lucrative urban markets

While more and more players were eyeing the fast-growing Indian mobile market which was

experiencing high growth BAL put its sight on foreign shores BAL realized that its extensive

experience in India coupled with its unique business model would help it tap the

20 | P a g e

opportunity provided by other developing and emerging markets and create value for its

customers

Acquisition of Zain Groups telecom business in fifteen African counties gave it a boosted

start in the African continent There were talks about BAL having paid higher for the deal

Even though BAL was in the process of giving shape to its strategy for the African markets

the critical success factors in emerging markets

raquo BAL was trying to understand the importance of business process innovation and strategic

partnerships

raquo Appreciate the role of tailoring strategy to fit a specific industry and business

environment

raquo Analyze BALs internal and external environment

raquo Understand and discuss cross-country differences in Cultural demographic and market

conditions and its possible impact on business

raquo Probe the role importance and pros and cons of legal and regulatory framework

raquo Explore the ways a business can be successful in international markets

Though BAL was able to acquire a global footprint and a much larger customer base through

this deal industry experts believed it would be difficult for it to leverage on the business

model and strategies which had kept it afloat and ahead of the competition in India

Jaydeep Ghosh Executive Director of KPMG 7 said Bharti has replicated the low-cost

model through outsourcing in India but depending upon different geographies (in Africa) it

will not be easy

BAL also acquired stake in Bangladeshrsquos Warid Telecom The Company has used its

successful lsquominute factory modelrsquo (lowest-costmin) in these territories Bharti Airtel has

about 2712 million subscribers worldwide ndash 1996 million in India 62 million in Bangladesh

17 million in Sri Lanka and 637 million in Africa as of the end of March 2013Telecom

penetration is low in Africa and hence huge opportunities are available for Bharti Airtel So

far turning around the African operations has been a challenging task for the company in

the past three years This is due to the high competition currency movements and political

unrest in some countries and regions However the African operations offer good

opportunities and it can be expected that these acquisitions will enhance the companyrsquos

global presence in telecom space and will help it to increase its profitability in the coming

years

19 | P a g e

Table 5 shows the approximate monthly revenues (in Rupees Crores) of the two firms under

different situations with respect to price In the above table both the Nash equilibrium (the

action point from which no company has an incentive to deviate given the action of the

other company) as well as the ideal equilibrium is for both companies to reduce rates Thus

the telecom industry didnrsquot necessarily suffer due to price cuts at least in terms of

revenues However this strategy would have remained profitable as long as the price

elasticity of the industryrsquos demand remains greater than 1 In 2012 a rise in prices

(indicated by ARPU) led to an increase in the three companiesrsquo revenue Thus this year

marked an end to the telecom industryrsquos price-cutting strategy

Why is it that the automobile Industry in India another oligopoly has not faced similar price

wars It is so because companies cut prices only if the price-cut doesnrsquot result in economic

losses for them Return on assets is already low in automobile industry (about 10) The

telecom industry has also had very low (9-10) returns during the past 2 years This also

explains why that the effect of game theory has disappeared in 2012 and 2013 Young

Industries (such as e-commerce) earning economic profits may witness a similar price-

cutting and erosion of economic profits in the future

Strategy in Global Environment

BALs telecom model was considered as the new model for telecom and effective for

emerging markets like India BAL had established itself as a dominant player in India with its

innovative business processes and strong brand but was witnessing tapering growth

because of increasing competition and saturation of the more lucrative urban markets

While more and more players were eyeing the fast-growing Indian mobile market which was

experiencing high growth BAL put its sight on foreign shores BAL realized that its extensive

experience in India coupled with its unique business model would help it tap the

20 | P a g e

opportunity provided by other developing and emerging markets and create value for its

customers

Acquisition of Zain Groups telecom business in fifteen African counties gave it a boosted

start in the African continent There were talks about BAL having paid higher for the deal

Even though BAL was in the process of giving shape to its strategy for the African markets

the critical success factors in emerging markets

raquo BAL was trying to understand the importance of business process innovation and strategic

partnerships

raquo Appreciate the role of tailoring strategy to fit a specific industry and business

environment

raquo Analyze BALs internal and external environment

raquo Understand and discuss cross-country differences in Cultural demographic and market

conditions and its possible impact on business

raquo Probe the role importance and pros and cons of legal and regulatory framework

raquo Explore the ways a business can be successful in international markets

Though BAL was able to acquire a global footprint and a much larger customer base through

this deal industry experts believed it would be difficult for it to leverage on the business

model and strategies which had kept it afloat and ahead of the competition in India

Jaydeep Ghosh Executive Director of KPMG 7 said Bharti has replicated the low-cost

model through outsourcing in India but depending upon different geographies (in Africa) it

will not be easy

BAL also acquired stake in Bangladeshrsquos Warid Telecom The Company has used its

successful lsquominute factory modelrsquo (lowest-costmin) in these territories Bharti Airtel has

about 2712 million subscribers worldwide ndash 1996 million in India 62 million in Bangladesh

17 million in Sri Lanka and 637 million in Africa as of the end of March 2013Telecom

penetration is low in Africa and hence huge opportunities are available for Bharti Airtel So

far turning around the African operations has been a challenging task for the company in

the past three years This is due to the high competition currency movements and political

unrest in some countries and regions However the African operations offer good

opportunities and it can be expected that these acquisitions will enhance the companyrsquos

global presence in telecom space and will help it to increase its profitability in the coming

years

20 | P a g e

opportunity provided by other developing and emerging markets and create value for its

customers

Acquisition of Zain Groups telecom business in fifteen African counties gave it a boosted

start in the African continent There were talks about BAL having paid higher for the deal

Even though BAL was in the process of giving shape to its strategy for the African markets

the critical success factors in emerging markets

raquo BAL was trying to understand the importance of business process innovation and strategic

partnerships

raquo Appreciate the role of tailoring strategy to fit a specific industry and business

environment

raquo Analyze BALs internal and external environment

raquo Understand and discuss cross-country differences in Cultural demographic and market

conditions and its possible impact on business

raquo Probe the role importance and pros and cons of legal and regulatory framework

raquo Explore the ways a business can be successful in international markets

Though BAL was able to acquire a global footprint and a much larger customer base through

this deal industry experts believed it would be difficult for it to leverage on the business

model and strategies which had kept it afloat and ahead of the competition in India

Jaydeep Ghosh Executive Director of KPMG 7 said Bharti has replicated the low-cost

model through outsourcing in India but depending upon different geographies (in Africa) it

will not be easy

BAL also acquired stake in Bangladeshrsquos Warid Telecom The Company has used its

successful lsquominute factory modelrsquo (lowest-costmin) in these territories Bharti Airtel has

about 2712 million subscribers worldwide ndash 1996 million in India 62 million in Bangladesh

17 million in Sri Lanka and 637 million in Africa as of the end of March 2013Telecom

penetration is low in Africa and hence huge opportunities are available for Bharti Airtel So

far turning around the African operations has been a challenging task for the company in

the past three years This is due to the high competition currency movements and political

unrest in some countries and regions However the African operations offer good

opportunities and it can be expected that these acquisitions will enhance the companyrsquos

global presence in telecom space and will help it to increase its profitability in the coming

years

21 | P a g e

Data business expected to be a future growth driver - The data business is expected to be

the next phase of growth for telecom operators Data services usage and penetration in

India is very low when compared to other countries However the data usage and

penetration has been on a rising trend The trend is expected to continue with availability of

affordable smart phones and tablets popularity of applications coupled with the expansion

of 3G networks and introduction of 4G networks

Concerns -

Africa operations concerns - The African operations have been a drag on the companyrsquos

overall performance The performance has been below par because of high competition

currency movements political unrests regulatory issues etc The company could not

turnaround the African operations in the time it expected to do so The performance in

Africa has a bearing on the companyrsquos value creation potential in the future

Falling market share - Bharti Airtel is a market leader both in terms of subscriber base and

market share Although the company has maintained its leadership position it has been

losing market share to other players like Idea and Vodafone which is a cause of concern

Corporate Level Strategy

Corporate level Strategy for India

Division of various business unit segments

bull Mobile Services Division bull Tele-media services Division bull Enterprise division unit bull Corporate Business unit bull Carrier business unit

1) Mobile Services Division

bull The Mobile Services division is probably the most valuable division of Bharti Airtel bull Airtel offers GSM mobile services in all the 23-telecom circles of India and is the

largest mobile service provider in the country based on the number of customers bull It provides numerous value added services such as mobile apps hello tunes m-

commerce wireless internet etc

2) Tele-media services Division

22 | P a g e

bull The Airtel Telemedia Services division provides high speed broadband internet and related services

bull Airtel Provides landline service in 93 cities across India bull It launched its DTH services in 2008 and is present in more than 150 cities now

3) Enterprise division unit

bull The Enterprise Services division provides a diverse portfolio of services to large Enterprise and Carrier customers

bull Further divided into two units

Carrier business unit Corporate business unit

4) Corporate Business unit

bull The Corporate Business Unit provides end to end telecom solutions to Indiarsquos large corporate

bull It specializes in providing customized solutions unique to each industry

5) Carrier business unit

bull The Carrier Business Unit provides long distance wholesale voice and data services to carrier customers as well as to other business units of Airtel

International Corporate level strategy

bull Need for Cost responsiveness bull Need for local responsiveness also known as multidomestic strategy

1) Cost responsiveness

bull Local Pricing strategy bull Varies from country to country as well as state to state bull Depending upon the needs of the customer segment bull Depends on the demographic conditions

2) Local responsiveness

bull It Focuses on the needs of customers and provide solutions to customers according to their requirements

bull The kind of services offers plans and value addition that they offer in India is very different than what they offer in other nations

bull For Airtel need to address local responsiveness have always been of the utmost importance

Value Creation through Diversification

23 | P a g e

bull Airtel seeks to create value through diversification by moving across businesses that are both operationally and corporately related

bull Main objectives

High resource sharing Significant cost reduction

Operational Similarity

bull It looks at operational relatedness since a number of its businesses operate across similar technologies and thus the platform for a given product can be used directly for extending the service from a completely new product

bull For example the cables for a telephone connection provided by Airtel can be used to provide broadband service to the customer without any significant change in infrastructure

bull The skills required from the technicians are also not very different and thus economies of scale are quite possible

Targeting the same industry

bull In pursuing this strategy Airtel will have to be conscious of the fact that it can lead to diseconomies of scope

bull This can arise primarily from the very factor which Airtel is banking on ndash similarity across its businesses This is the very reason that Airtel just cannot afford to lsquogo easyrsquo on any of its domains and needs to keep up to speed in all its businesses

Corporate Governance amp Ethics

Corporate Governance is defined as a set of systems processes and principles which ensure

that a company is governed in the best interest of all stakeholders It is the system that

directs and controls respective companies It is about promoting corporate fairness

transparency and accountability In other words lsquoGood Corporate Governancersquo is simply a

lsquogoodbusinessrsquo

Corporate Governance consists of procedures and processes according to which an

organization is directed and controlled Its structure specifies the distribution of rights and

responsibilities among different pan-organizational participants such as the Board

managers shareholders and other stakeholders

The objective of Good Corporate Governance is to ensure the Boardrsquos commitment towards

transparent management to maximize long-term value for the Companyrsquos shareholders and

24 | P a g e

all other partners It integrates all the participants involved in a process which is economic

and at the same time social

At Bharti Airtel Corporate Governance practices are aimed to adhere to the highest

governance standards through continuous evaluation and benchmarking

At Bharti Airtel Corporate Governance practices aim to adhere to the highest governance

standards through continuous evaluation and benchmarking Hence they are based on the

following broad principles

Bharti Airtel maintains a well-experienced and diverse Board of Directors with

experts across banking administrative services finance telecommunication and

consulting

Bharti Airtel follows transparent practices and arrives at decisions based on depth

research

Ensures compliance with regulatory and fiduciary requirements in letter and spirit

Adopted policies on tenure of Directors rotation of Auditors and a Code of Conduct

for Directors and senior management

Creates various committees for audit senior management compensation HR policy

and management compensation employee stock option plans and investor

grievances Keeps in place a well-defined corporate structure that establishes checks

and balances and delegates decision making to appropriate levels in the organization

though the Board remains in effective control of affairs at all times

Complete and timely disclosure of relevant financial and operational information to

allow the Board to play an important role in the guiding strategy

Organizes informal meeting of Independent Directors without the presence of any

Non-IndependentExecutive Directors to identify areas where they need more clarity

or information and then put them before the Board or management

Offers high levels of disclosures to disseminate corporate financial and operational

information to all stakeholders

Offers a formal induction schedule for new Board members that enable them to

meet individually with the top management team

Reviews regularly and establishes effective meeting practices that encourage active

participation and contribution from all members

Ensures independence of Directors in reviewing and approving corporate strategy

major business plans and activities as well as senior managementrsquos appointments

25 | P a g e

Bibliography Reference

httpwwwukessayscom

httpwwwairtelin

Porter Five Forces Analysis of the Leading Mobile Cellular Telephony Service Provider

in India by Subhasish Majumdar Partha Pratim Bhattacharya

WordPress SWOT analysis of leading Telecom companies by Gunjan Indrayan

httpwwwdotgovinasAuction20of20Spectrum20for3G20amp20BWAnew

indexhtml

httpwwwbusinessworldinbw2010_04_05_DoT_Conducts_Mock_Auction_For_

3G_Spectrumhtml

httpwwwairtelinwpswcmconnectAbout20Bharti20Airtelbharti+airtelme

dia+centrebharti+airtel+newstelemediapg-airtel-introduces-fastest-ever-speed-

for-broadband-users-in-india

httpwwwbharticom136htmlamptx_ttnews[tt_news]=317amptx_ttnews[backPid]=1

16ampcHash=c9cb9d3479

httpsiadippnicinpolicychangespn3_2007pdf

httpwwwthehinducom20041222stories2004122202441700htm

httpwwwdotgovinasAuction20of20Spectrum20for3G20amp20BWAnew

indexhtml

httpwwwbusinessworldinbw2010_04_05_DoT_Conducts_Mock_Auction_For_

3G_Spectrumhtmlhttpwwwtelecomasianetcontentericsson-inks-13b-bharti-

dealsrc=related

httpwwwbharticom136htmlamptx_ttnews[tt_news]=317amptx_ttnews[backPid]=1

16ampcHash=c9cb9d3479

httpindiabudgetnicinub2008-09bhbh1pdf

httpwwwciolcomTechnologyFeatureWill-the-second-pulse-win-over-

minutes2010091265730

httpwwwbharticom132htmlamptx_ttnews[pointer]=3amptx_ttnews[tt_news]=220

amptx_ttnews[backPid]=131ampcHash=d707a41d3c

httpinreuterscomarticletopNewsidINIndia-47332720100330

httpsiadippnicinpolicychangespn3_2007pdf

22 | P a g e

bull The Airtel Telemedia Services division provides high speed broadband internet and related services

bull Airtel Provides landline service in 93 cities across India bull It launched its DTH services in 2008 and is present in more than 150 cities now

3) Enterprise division unit

bull The Enterprise Services division provides a diverse portfolio of services to large Enterprise and Carrier customers

bull Further divided into two units

Carrier business unit Corporate business unit

4) Corporate Business unit

bull The Corporate Business Unit provides end to end telecom solutions to Indiarsquos large corporate

bull It specializes in providing customized solutions unique to each industry

5) Carrier business unit

bull The Carrier Business Unit provides long distance wholesale voice and data services to carrier customers as well as to other business units of Airtel

International Corporate level strategy

bull Need for Cost responsiveness bull Need for local responsiveness also known as multidomestic strategy

1) Cost responsiveness

bull Local Pricing strategy bull Varies from country to country as well as state to state bull Depending upon the needs of the customer segment bull Depends on the demographic conditions

2) Local responsiveness

bull It Focuses on the needs of customers and provide solutions to customers according to their requirements

bull The kind of services offers plans and value addition that they offer in India is very different than what they offer in other nations

bull For Airtel need to address local responsiveness have always been of the utmost importance

Value Creation through Diversification

23 | P a g e

bull Airtel seeks to create value through diversification by moving across businesses that are both operationally and corporately related

bull Main objectives

High resource sharing Significant cost reduction

Operational Similarity

bull It looks at operational relatedness since a number of its businesses operate across similar technologies and thus the platform for a given product can be used directly for extending the service from a completely new product

bull For example the cables for a telephone connection provided by Airtel can be used to provide broadband service to the customer without any significant change in infrastructure

bull The skills required from the technicians are also not very different and thus economies of scale are quite possible

Targeting the same industry

bull In pursuing this strategy Airtel will have to be conscious of the fact that it can lead to diseconomies of scope

bull This can arise primarily from the very factor which Airtel is banking on ndash similarity across its businesses This is the very reason that Airtel just cannot afford to lsquogo easyrsquo on any of its domains and needs to keep up to speed in all its businesses

Corporate Governance amp Ethics

Corporate Governance is defined as a set of systems processes and principles which ensure

that a company is governed in the best interest of all stakeholders It is the system that

directs and controls respective companies It is about promoting corporate fairness

transparency and accountability In other words lsquoGood Corporate Governancersquo is simply a

lsquogoodbusinessrsquo

Corporate Governance consists of procedures and processes according to which an

organization is directed and controlled Its structure specifies the distribution of rights and

responsibilities among different pan-organizational participants such as the Board

managers shareholders and other stakeholders

The objective of Good Corporate Governance is to ensure the Boardrsquos commitment towards

transparent management to maximize long-term value for the Companyrsquos shareholders and

24 | P a g e

all other partners It integrates all the participants involved in a process which is economic

and at the same time social

At Bharti Airtel Corporate Governance practices are aimed to adhere to the highest

governance standards through continuous evaluation and benchmarking

At Bharti Airtel Corporate Governance practices aim to adhere to the highest governance

standards through continuous evaluation and benchmarking Hence they are based on the

following broad principles

Bharti Airtel maintains a well-experienced and diverse Board of Directors with

experts across banking administrative services finance telecommunication and

consulting

Bharti Airtel follows transparent practices and arrives at decisions based on depth

research

Ensures compliance with regulatory and fiduciary requirements in letter and spirit

Adopted policies on tenure of Directors rotation of Auditors and a Code of Conduct

for Directors and senior management

Creates various committees for audit senior management compensation HR policy

and management compensation employee stock option plans and investor

grievances Keeps in place a well-defined corporate structure that establishes checks

and balances and delegates decision making to appropriate levels in the organization

though the Board remains in effective control of affairs at all times

Complete and timely disclosure of relevant financial and operational information to

allow the Board to play an important role in the guiding strategy

Organizes informal meeting of Independent Directors without the presence of any

Non-IndependentExecutive Directors to identify areas where they need more clarity

or information and then put them before the Board or management

Offers high levels of disclosures to disseminate corporate financial and operational

information to all stakeholders

Offers a formal induction schedule for new Board members that enable them to

meet individually with the top management team

Reviews regularly and establishes effective meeting practices that encourage active

participation and contribution from all members

Ensures independence of Directors in reviewing and approving corporate strategy

major business plans and activities as well as senior managementrsquos appointments

25 | P a g e

Bibliography Reference

httpwwwukessayscom

httpwwwairtelin

Porter Five Forces Analysis of the Leading Mobile Cellular Telephony Service Provider

in India by Subhasish Majumdar Partha Pratim Bhattacharya

WordPress SWOT analysis of leading Telecom companies by Gunjan Indrayan

httpwwwdotgovinasAuction20of20Spectrum20for3G20amp20BWAnew

indexhtml

httpwwwbusinessworldinbw2010_04_05_DoT_Conducts_Mock_Auction_For_

3G_Spectrumhtml

httpwwwairtelinwpswcmconnectAbout20Bharti20Airtelbharti+airtelme

dia+centrebharti+airtel+newstelemediapg-airtel-introduces-fastest-ever-speed-

for-broadband-users-in-india

httpwwwbharticom136htmlamptx_ttnews[tt_news]=317amptx_ttnews[backPid]=1

16ampcHash=c9cb9d3479

httpsiadippnicinpolicychangespn3_2007pdf

httpwwwthehinducom20041222stories2004122202441700htm

httpwwwdotgovinasAuction20of20Spectrum20for3G20amp20BWAnew

indexhtml

httpwwwbusinessworldinbw2010_04_05_DoT_Conducts_Mock_Auction_For_

3G_Spectrumhtmlhttpwwwtelecomasianetcontentericsson-inks-13b-bharti-

dealsrc=related

httpwwwbharticom136htmlamptx_ttnews[tt_news]=317amptx_ttnews[backPid]=1

16ampcHash=c9cb9d3479

httpindiabudgetnicinub2008-09bhbh1pdf

httpwwwciolcomTechnologyFeatureWill-the-second-pulse-win-over-

minutes2010091265730

httpwwwbharticom132htmlamptx_ttnews[pointer]=3amptx_ttnews[tt_news]=220

amptx_ttnews[backPid]=131ampcHash=d707a41d3c

httpinreuterscomarticletopNewsidINIndia-47332720100330

httpsiadippnicinpolicychangespn3_2007pdf

23 | P a g e

bull Airtel seeks to create value through diversification by moving across businesses that are both operationally and corporately related

bull Main objectives

High resource sharing Significant cost reduction

Operational Similarity

bull It looks at operational relatedness since a number of its businesses operate across similar technologies and thus the platform for a given product can be used directly for extending the service from a completely new product

bull For example the cables for a telephone connection provided by Airtel can be used to provide broadband service to the customer without any significant change in infrastructure

bull The skills required from the technicians are also not very different and thus economies of scale are quite possible

Targeting the same industry

bull In pursuing this strategy Airtel will have to be conscious of the fact that it can lead to diseconomies of scope

bull This can arise primarily from the very factor which Airtel is banking on ndash similarity across its businesses This is the very reason that Airtel just cannot afford to lsquogo easyrsquo on any of its domains and needs to keep up to speed in all its businesses

Corporate Governance amp Ethics

Corporate Governance is defined as a set of systems processes and principles which ensure

that a company is governed in the best interest of all stakeholders It is the system that

directs and controls respective companies It is about promoting corporate fairness

transparency and accountability In other words lsquoGood Corporate Governancersquo is simply a

lsquogoodbusinessrsquo

Corporate Governance consists of procedures and processes according to which an

organization is directed and controlled Its structure specifies the distribution of rights and

responsibilities among different pan-organizational participants such as the Board

managers shareholders and other stakeholders

The objective of Good Corporate Governance is to ensure the Boardrsquos commitment towards

transparent management to maximize long-term value for the Companyrsquos shareholders and

24 | P a g e

all other partners It integrates all the participants involved in a process which is economic

and at the same time social

At Bharti Airtel Corporate Governance practices are aimed to adhere to the highest

governance standards through continuous evaluation and benchmarking

At Bharti Airtel Corporate Governance practices aim to adhere to the highest governance

standards through continuous evaluation and benchmarking Hence they are based on the

following broad principles

Bharti Airtel maintains a well-experienced and diverse Board of Directors with

experts across banking administrative services finance telecommunication and

consulting

Bharti Airtel follows transparent practices and arrives at decisions based on depth

research

Ensures compliance with regulatory and fiduciary requirements in letter and spirit

Adopted policies on tenure of Directors rotation of Auditors and a Code of Conduct

for Directors and senior management

Creates various committees for audit senior management compensation HR policy

and management compensation employee stock option plans and investor

grievances Keeps in place a well-defined corporate structure that establishes checks

and balances and delegates decision making to appropriate levels in the organization

though the Board remains in effective control of affairs at all times

Complete and timely disclosure of relevant financial and operational information to

allow the Board to play an important role in the guiding strategy

Organizes informal meeting of Independent Directors without the presence of any

Non-IndependentExecutive Directors to identify areas where they need more clarity

or information and then put them before the Board or management

Offers high levels of disclosures to disseminate corporate financial and operational

information to all stakeholders

Offers a formal induction schedule for new Board members that enable them to

meet individually with the top management team

Reviews regularly and establishes effective meeting practices that encourage active

participation and contribution from all members

Ensures independence of Directors in reviewing and approving corporate strategy

major business plans and activities as well as senior managementrsquos appointments

25 | P a g e

Bibliography Reference

httpwwwukessayscom

httpwwwairtelin

Porter Five Forces Analysis of the Leading Mobile Cellular Telephony Service Provider

in India by Subhasish Majumdar Partha Pratim Bhattacharya

WordPress SWOT analysis of leading Telecom companies by Gunjan Indrayan

httpwwwdotgovinasAuction20of20Spectrum20for3G20amp20BWAnew

indexhtml

httpwwwbusinessworldinbw2010_04_05_DoT_Conducts_Mock_Auction_For_

3G_Spectrumhtml

httpwwwairtelinwpswcmconnectAbout20Bharti20Airtelbharti+airtelme

dia+centrebharti+airtel+newstelemediapg-airtel-introduces-fastest-ever-speed-

for-broadband-users-in-india

httpwwwbharticom136htmlamptx_ttnews[tt_news]=317amptx_ttnews[backPid]=1

16ampcHash=c9cb9d3479

httpsiadippnicinpolicychangespn3_2007pdf

httpwwwthehinducom20041222stories2004122202441700htm

httpwwwdotgovinasAuction20of20Spectrum20for3G20amp20BWAnew

indexhtml

httpwwwbusinessworldinbw2010_04_05_DoT_Conducts_Mock_Auction_For_

3G_Spectrumhtmlhttpwwwtelecomasianetcontentericsson-inks-13b-bharti-

dealsrc=related

httpwwwbharticom136htmlamptx_ttnews[tt_news]=317amptx_ttnews[backPid]=1

16ampcHash=c9cb9d3479

httpindiabudgetnicinub2008-09bhbh1pdf

httpwwwciolcomTechnologyFeatureWill-the-second-pulse-win-over-

minutes2010091265730

httpwwwbharticom132htmlamptx_ttnews[pointer]=3amptx_ttnews[tt_news]=220

amptx_ttnews[backPid]=131ampcHash=d707a41d3c

httpinreuterscomarticletopNewsidINIndia-47332720100330

httpsiadippnicinpolicychangespn3_2007pdf

24 | P a g e

all other partners It integrates all the participants involved in a process which is economic

and at the same time social

At Bharti Airtel Corporate Governance practices are aimed to adhere to the highest

governance standards through continuous evaluation and benchmarking

At Bharti Airtel Corporate Governance practices aim to adhere to the highest governance

standards through continuous evaluation and benchmarking Hence they are based on the

following broad principles

Bharti Airtel maintains a well-experienced and diverse Board of Directors with

experts across banking administrative services finance telecommunication and

consulting

Bharti Airtel follows transparent practices and arrives at decisions based on depth

research

Ensures compliance with regulatory and fiduciary requirements in letter and spirit

Adopted policies on tenure of Directors rotation of Auditors and a Code of Conduct

for Directors and senior management

Creates various committees for audit senior management compensation HR policy

and management compensation employee stock option plans and investor

grievances Keeps in place a well-defined corporate structure that establishes checks

and balances and delegates decision making to appropriate levels in the organization

though the Board remains in effective control of affairs at all times

Complete and timely disclosure of relevant financial and operational information to

allow the Board to play an important role in the guiding strategy

Organizes informal meeting of Independent Directors without the presence of any

Non-IndependentExecutive Directors to identify areas where they need more clarity

or information and then put them before the Board or management

Offers high levels of disclosures to disseminate corporate financial and operational

information to all stakeholders

Offers a formal induction schedule for new Board members that enable them to

meet individually with the top management team

Reviews regularly and establishes effective meeting practices that encourage active

participation and contribution from all members

Ensures independence of Directors in reviewing and approving corporate strategy

major business plans and activities as well as senior managementrsquos appointments

25 | P a g e

Bibliography Reference

httpwwwukessayscom

httpwwwairtelin

Porter Five Forces Analysis of the Leading Mobile Cellular Telephony Service Provider

in India by Subhasish Majumdar Partha Pratim Bhattacharya

WordPress SWOT analysis of leading Telecom companies by Gunjan Indrayan

httpwwwdotgovinasAuction20of20Spectrum20for3G20amp20BWAnew

indexhtml

httpwwwbusinessworldinbw2010_04_05_DoT_Conducts_Mock_Auction_For_

3G_Spectrumhtml

httpwwwairtelinwpswcmconnectAbout20Bharti20Airtelbharti+airtelme

dia+centrebharti+airtel+newstelemediapg-airtel-introduces-fastest-ever-speed-

for-broadband-users-in-india

httpwwwbharticom136htmlamptx_ttnews[tt_news]=317amptx_ttnews[backPid]=1

16ampcHash=c9cb9d3479

httpsiadippnicinpolicychangespn3_2007pdf

httpwwwthehinducom20041222stories2004122202441700htm

httpwwwdotgovinasAuction20of20Spectrum20for3G20amp20BWAnew

indexhtml

httpwwwbusinessworldinbw2010_04_05_DoT_Conducts_Mock_Auction_For_

3G_Spectrumhtmlhttpwwwtelecomasianetcontentericsson-inks-13b-bharti-

dealsrc=related

httpwwwbharticom136htmlamptx_ttnews[tt_news]=317amptx_ttnews[backPid]=1

16ampcHash=c9cb9d3479

httpindiabudgetnicinub2008-09bhbh1pdf

httpwwwciolcomTechnologyFeatureWill-the-second-pulse-win-over-

minutes2010091265730

httpwwwbharticom132htmlamptx_ttnews[pointer]=3amptx_ttnews[tt_news]=220

amptx_ttnews[backPid]=131ampcHash=d707a41d3c

httpinreuterscomarticletopNewsidINIndia-47332720100330

httpsiadippnicinpolicychangespn3_2007pdf

25 | P a g e

Bibliography Reference

httpwwwukessayscom

httpwwwairtelin

Porter Five Forces Analysis of the Leading Mobile Cellular Telephony Service Provider

in India by Subhasish Majumdar Partha Pratim Bhattacharya

WordPress SWOT analysis of leading Telecom companies by Gunjan Indrayan

httpwwwdotgovinasAuction20of20Spectrum20for3G20amp20BWAnew

indexhtml

httpwwwbusinessworldinbw2010_04_05_DoT_Conducts_Mock_Auction_For_

3G_Spectrumhtml

httpwwwairtelinwpswcmconnectAbout20Bharti20Airtelbharti+airtelme

dia+centrebharti+airtel+newstelemediapg-airtel-introduces-fastest-ever-speed-

for-broadband-users-in-india

httpwwwbharticom136htmlamptx_ttnews[tt_news]=317amptx_ttnews[backPid]=1

16ampcHash=c9cb9d3479

httpsiadippnicinpolicychangespn3_2007pdf

httpwwwthehinducom20041222stories2004122202441700htm

httpwwwdotgovinasAuction20of20Spectrum20for3G20amp20BWAnew

indexhtml

httpwwwbusinessworldinbw2010_04_05_DoT_Conducts_Mock_Auction_For_

3G_Spectrumhtmlhttpwwwtelecomasianetcontentericsson-inks-13b-bharti-

dealsrc=related

httpwwwbharticom136htmlamptx_ttnews[tt_news]=317amptx_ttnews[backPid]=1

16ampcHash=c9cb9d3479

httpindiabudgetnicinub2008-09bhbh1pdf

httpwwwciolcomTechnologyFeatureWill-the-second-pulse-win-over-

minutes2010091265730

httpwwwbharticom132htmlamptx_ttnews[pointer]=3amptx_ttnews[tt_news]=220

amptx_ttnews[backPid]=131ampcHash=d707a41d3c

httpinreuterscomarticletopNewsidINIndia-47332720100330

httpsiadippnicinpolicychangespn3_2007pdf