Bharti Airtel Ltd

BSTR-300

ICMR Center for Management Research

Bharti Airtel Limited and the Indian Telecom Sector

This case was written by Adapa Srinivasa Rao, under the direction of Debapratim Purkayastha, ICMR Center for

Management Research. It was compiled from published sources, and is intended to be used as a basis for class discussion

rather than to illustrate either effective or ineffective handling of a management situation

License to use for the MBA class of 2011, IBS, Hyderabad. Course: Business Strategy - I, Semester - I.

2009, ICMR. All rights reserved.

To order copies, call 0091-40-2343-0462/63 or write to ICMR, Plot # 49, Nagarjuna Hills, Hyderabad 500 082, India or email [email protected].

www.icmrindia.org

License to use for the MBA class of 2011, IBS, Hyderabad. Course: Business Strategy-I, Semester I.

2


Brands entering India must understand that ubiquity in diversity is an inherent dynamic of the market. Marketers must always be ready to unlearn and re-imagine their mobile strategies to

succeed in India!1

- Manish Sinha, Planning Director, Digital & New Media, BatesAsia2, in 2008.

Sunil [Sunil Bharti Mittal, Chairman and Managing Director, Bharti Airtel Limited] has built an incredibly successful business from scratch, one which has had a truly transformational impact on

our industry, on the customers he serves and on Indias economy. His brave and ambitious strategies will continue to resonate across the country, our industry, and the business community

globally, becoming a benchmark for emerging markets worldwide.3

- Craig Ehrlich, Chairman, GSM Association4, in February 2008.

EMERGING MARKET CHAMPION

On February 13, 2008, Bharti Airtel Limited (BAL), the leading telecommunications (telecom)

company in India, crossed the 60-million customer mark.5 BAL had crossed the crucial 50 million

subscriber mark in the fourth quarter of 2007 and had become the tenth largest telecom company

in the world in terms of subscriber base.6 (Refer to Exhibit I for the worlds top 10 wireless

telecom operators) The wireless segment constituted 96% of BALs total customer base. According to the Cellular Operators Association of India (COAI)7, BAL retained its leadership position in the Indian telecom market with a market share of 31.88% in 2007. The valuation of

BAL stood at US$ 40 billion as of February 2008.8

BALs spectacular growth matched the growth in the Indian telecom sector, which was the fastest in the world. The Indian telecom sector was adding 8 million customers per month as of early

2008. On becoming the tenth largest telecom company in the world, the CEO of BAL Manoj Kohli

(Kohli), said, The last journey for first 50 million (customers) was completed within 12 years of starting operations in November 1995. This puts Bharti Airtel among the top telecom companies in

the world. Our next target is to reach 100 million mark by 2010. 9

1 Manish Sinha, Segmenting Indias Mobile Market, www.imediaconnection.com, March 18, 2008. 2 BatesAsia is a brand consultancy firm focused on the Asian market. 3 Sunil Bharti Mittal Awarded Global Telecom Sectors Highest Honour, www.bharti.com, February 13, 2008. 4 The GSM Association (GSMA) is the global trade association representing over 700 GSM mobile phone operators

across the world. GSM (acronym for Global System for Mobile Communications) is the most popular mobile telecommunications standard used in the world.

5 Bharti Airtel Crosses 60mn Customer Mark, www.moneycontrol.com, February 13, 2008. 6 Darpana Kutty, Bharti Airtel among Top 10 Global Telecom Majors; Plans to Enter DTH, www.topnews.in,

October 1, 2007. 7 Cellular Operators Association of India (COAI) was the industry body for GSM operators in India. 8 M.Rajendran, The Great War, www.businessworld.in, February 15, 2008. 9 Surojit Chatterjee, Bharti Airtel among Top telecom Companies in the World with 50 Million Wireless Subscribers,

www.in.ibtimes.com, November 17, 2007.


3

BAL was the only small initial entrant in the Indian telecom market which managed to survive

consolidation in the sector. Despite tough competition from other private companies such as

Hutchison Essar Ltd10

(Hutch), Reliance Communications Ltd11

(Reliance), Tata Teleservices Ltd12

(Tata), and the state-owned Bharat Sanchar Nigam Ltd13

(BSNL), it emerged as the undisputed

leader in the Indian mobile telecom market. Over the years, it established itself not only as the

most dominant player in the Indian telecom market but also as one of the best telecom operators in

the emerging markets. Some analysts opined that with the developed markets in the West

approaching saturation and global operators moving toward emerging markets, BALs unique business model would prove to be the new business model for telecom.

But BAL faced new challenges to its leadership position with the entry of strong international

telecom companies into the Indian market such as Vodafone Group Plc14

(Vodafone) in 2007. In

2007, the Indian government also allowed mobile operators such as Reliance and Tata, who had

been offering mobile services using CDMA15

technology, to use GSM. The entry of CDMA

players into the GSM space was expected to put heavy pressure on existing GSM players like

BAL. Also, the telecom market in India was expected to witness many changes as the growth

opportunities provided by it were attracting new players both from India and from outside. To

counter these threats, BAL was taking various initiatives which included massive expansion plans

in the rural areas. As of 2008, BAL, which already had a limited international presence, was also

readying itself to replicate its success story in some other emerging markets.

BACKGROUND NOTE

Mobile Telephony in India

The mobile telephony revolution started in India when the government decided to allow private

sector participation in the Indian telecom sector. In 1994, the Department of Telecommunications

(DoT), Government of India (GoI), issued licenses to private operators to start mobile services in

the four Metropolitan cities of Delhi, Mumbai, Chennai, and Calcutta (now Kolkata). In August

1995, 19 more circles obtained mobile licenses. Kolkata became the first city in India to get a

mobile network when mobile services were started there on July 31, 1995, by Mobile Net, a joint

venture between the Modi group of India and the Australian company Telstra.

In the initial days of mobile telephones being introduced, they were out of the reach of most

Indians as airtime charges were extremely high. But all this changed when the government

introduced the revenue sharing method in the National Telecom Policy announced in 1999.

Companies such as BAL lobbied heavily for the introduction of a revenue sharing policy. On

October 19, 2002, BSNL became the third operator to start mobile services in the country by

starting its cellular services in the country. The market became more competitive with the entry of

more players into the sector.

10 Hutchison Essar Ltd was a major telecom company in India. It was a joint venture between the Hutchison Whampoa

Group of Hong Kong and the Essar Group of India. It was acquired by Vodafone Group Plc in 2007 and Vodafone

Essar was formed. 11 Reliance Communications Ltd is one of the major telecom companies in India and is headquartered in Navi Mumbai,

India. Its revenues for the fiscal year 2006 were US$ 4 billion. 12 Tata Teleservices Ltd is one of the major Indian telecom companies and is headquartered in Mumbai, Maharashtra,

India. Its revenues for the fiscal year 2006 were US$ 579.1 million. 13 Bharat Sanchar Nigam Ltd is the largest telecom company in India and is state owned. Its revenues for the fiscal year

2006 were US$ 9.04 billion. 14 Vodafone Group Plc is the largest mobile telecommunications company in the world and is headquartered in

Newbury, England, U.K. It revenues for the fiscal year 2006 were 31.104 billion. 15 CDMA (acronym for Code Division Multiple Access) is a mobile communication technology.

D&Bs Blueprint for Growth Strategy

4

The subscriber numbers started to swell with tariffs falling due to the intense competition among the players and the reduction in the license fees paid to the government. In 1999, the fixed service operators were allowed to provide mobile services over a limited area using CDMA technology. A bitter legal conflict arose between the fixed service operators and the cellular operators when Reliance Infocomm Ltd. (now a part of Reliance Communications Ltd.), a fixed service operator, started to provide virtually complete mobile services using CDMA-WLL (Wireless in local loop), without a cellular license, allegedly by misusing the loopholes in the telecom policy of 1993. Eventually the GoI stepped in and cleared up the mess by introducing the Universal service telecom license in 2004. The Uniform telecom license did away with the practice of issuing separate licenses for fixed, cellular, ISP, long distance etc. and introducing a single license whereby the service providers could provide any service using the technology of their choice. This further fuelled the growth in the sector with almost all the fixed service operators (including Tata) starting to provide cellular services. The number of service providers increased to six in almost all the circles. This also fuelled a convergence in the telecom services being offered as the service providers started providing all the services. The number of mobile phone users overtook that of landline users in October 2004, going up to 44.9 million.

With competition intensifying in this sector, small players like RPG cellular and Fascel sold out to bigger players and exited from the sector as they could not infuse the capital needed. This resulted in consolidation of the telecom sector, with only a few big players remaining in the market. During the same period, some foreign players like AT&T exited the Indian telecom market citing reasons such as lack of clarity in the policy regarding foreign investment in the sector and the falling average revenues per user (ARPU).

As of January 2008, mobile subscribers accounted for 86% of the telecom subscribers in India.16

The mobile subscriber base grew from 10 million in 2002 to 150 million by 2007 (Refer to Figure I for Growth of Mobile subscriber base in India). With the mobile sector growing at an average rate of 90% year on year, India overtook China as the fastest growing mobile market in the world. The GSM operators accounted for 74% of the mobile phone subscribers, while the rest were held by CDMA operators.

17

Figure I

Growth of Mobile Subscriber Base in India

10.5

28

48

76

99

165

242

5.5

0

50

100

150

200

250

300

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

*

2007

*

2008

*

Year

Mobil

e Subsc

riber

Base

(M

illi

on)

* Figures for 2006, 2007 and 2008 are for March 2006, March 2007 and

February 2008 respectively.

Source: The Indian Telecom Services Performance Indicators July September 2007, www.trai.gov.in, and other sources.

16 TRAI, Information note to the Press (Press Release No. 20/2008), www.trai.gov.in. 17 The Indian Telecom Services Performance Indicators July September 2007, www.trai.gov.in.


5

In addition to the huge population and high growth rates, the attractiveness of the Indian telecom

market stemmed from the fact that mobile tele-density in the country still remained quite low as

compared to developed countries or China (Refer to Table I for tele-density figures). Though there

was still scope for further growth in urban areas, the huge rural population in India provided the

companies with a big growth opportunity. As of end-2007, rural consumers accounted for just

21%.18

According to leading information technology research and advisory firm, Gartner Inc.

(Gartner), the Indian mobile services market would witness a huge growth by 2012, with the

subscriber base increasing to more than 737 million and revenues exceeding US$37 billion.19

By

this time, rural telephony was expected to grow by four times.

Table I

Tele-density in India compared to that in China and the US

The overall tele-density in India stood at 24.63% as of January 2008.

The mobile tele-density in India stood at 21.2% as of January 2008.

The rural tele-density in India areas stood at 8% as of January 2008.

The urban tele-density in India stood at 60% at the end of 2007.

The mobile phone density in China stood at 41.6% as of February 2008.

The mobile phone density in the US stood at 84.2% as of February 2008. (Based on

the estimated US population of 304 million in 2008 and a mobile subscriber base of

256 million).

Source: Information note to the Press (Press Release No. 20/2008), www.trai.gov.in; Bid to Close Tele-density Gap, www.thehindubusinessline.com, March 1, 2008; India to Oust US in Number of Cell Phone Users, www.computing.in.msn.com, March 26, 2008.

The GDP of the country was growing at a sound pace and the per capita income of India stood at

US$ 797 for the year 2006-2007 while it was US$ 460 in 2000-2001.20

Analysts felt that this

boded well for the companies operating in this segment. The rise in income of the people in India

coupled with the fact that call tariffs were the lowest in the country were expected to help the

market grow further. The blended ARPU per month for GSM operators stood at Rs. 275 while that

of CDMA operators stood at Rs. 173, as of January 2008.21

The ARPU was expected to fall further

in the future with the major telecom companies constantly engaging in price wars to drive up

volumes at the cost of margins.

The market was also expected to witness many changes with the introduction of new technologies

such as WiMAX and 3G22

in 2009 and mobile number portability23

some time later. Moreover,

with the developing market in the West reaching high levels of saturation (70% in US and 100% in

some European markets), many global telecom operators were looking toward emerging markets

for their growth.24

And with India witnessing the fastest growth in this sector, and the country

increasing the limit on foreign investment in it to 74% in 2007, many of these companies were

18 The Indian Telecom Services Performance Indicators July September 2007, www.trai.gov.in. 19 Cellular Services Revenue to Cross $37 b, www.hindu.com, July 3, 2008. 20 Indias Per Capita Income to Touch $ 4,000 by 2025: Chidambaram, www.pratyush.instablogs.com, November 6,

2007. 21 Shobhana Subramanian, Spectrum: Why Reliance Comm has an Edge, www.rediff.com, January 19, 2008. 22 WiMAX and 3G refers to a set of technologies which provide faster Internet access on the mobile phones. 23 Mobile number portability allows customers to switch between service providers without changing their mobile

numbers. 24 The Cell Phone Megatrend: The Battle for Africa, www.theglobalguru.com, 2008.


6

eyeing the market keenly. However, analysts felt that the multinational companies entering India

would find the ground realities of operating in this market rather challenging. The Indian

companies operating in this market had a good understanding of the market and many of them

were being led by powerful people who had immense clout in India. Analysts felt that these people

would have no qualms about manipulating the public policy to their advantage.25

Bharti Airtel Ltd.

The foundations of the Bharti Enterprises (Bharti) were laid when its Chairman and Managing

Director (CMD) Sunil Bharti Mittal (Mittal) started a bicycle-parts business in 1976 in his home

state Punjab. In 1980, he sold off this business and moved to Mumbai. Mittal entered the telecom

equipment manufacturing business in 1985 when he established Bharti Telecom Limited (BTL). In

the same year, BTL entered into a technical collaboration with leading German engineering

conglomerate Siemens AG (Siemens) for manufacturing push button telephones.

Bharti entered the telecom industry in 1995 when it launched its cellular services in Delhi. The

telecom business of the group was run by the group company Bharti Tele-Ventures (BTV). BTV

initially offered cellular services through its subsidiary Bharti Cellular Ltd. (BCL) under the brand

name Airtel in Delhi. BTV redefined the way in which cellular services were being marketed in

the country. Through the Airtel brand, it set many benchmarks in the Indian cellular industry. It

was the first cellular operator to set up exclusive stores for mobile phones. The company opened

its first store Airtel Connect in Delhi in late 1995. Airtel Connect was a one stop store for mobile

phones where customers could purchase handsets, get new connections, subscribe to various value-

added services (VAS), and pay their mobile bills.

BTV later entered other telecom circles by securing licenses for them as well as through

acquisitions. Some of the major acquisitions that it made were JT Mobile (Andhra Pradesh and

Karnataka), SkyCell (Chennai), and Spice Cell (Kolkata). BTV started offering fixed line services

in 2001 under the brand name Touchtel. It also entered the long distance services in the same

year under the brand name IndiaOne. BTV launched Internet Services under the brand name

Mantra in the year 2001. Its cellular services expanded very rapidly with the introduction of the

revenue sharing system between the GoI and operators under the New Telecom Policy (NTP) of

1999. Though BTV initially focused on the premium segment of customers, it rapidly reduced the

tariffs and made the cellular services affordable to the masses. It went in for an Initial Public Offer

(IPO) in 2002 through a 100% book building process. This helped bring in the funds that proved

vital in expanding the companys business in India.

Analysts felt that BTV had revolutionized the mobile telecom services market in India through its

innovative marketing strategies, adoption of new technologies, offering the latest VAS, and

efficient customer service. BTV introduced wireless Internet access services in 2003 for its

corporate users with the introduction of its GPRS26

network. In 2004, BTV discontinued its multi-

branding strategy for its various services and brought all its telecom services under the Airtel

brand. BTV was renamed Bharti Airtel Ltd (BAL) in 2006.

For the year ended March 31, 2007, BALs total revenue stood at Rs. 185.2 billion and profit at

Rs. 42.57 billion (Refer to Exhibit II(A) and Exhibit II(B) for the consolidated financial statements

of BAL). The parent company, Bharti, had since its inception diversified into other sectors such as

Agro-business, Retail, Insurance and Broadcasting.

25 M Rajendran, The Great War, www.businessworld.com, February 15, 2008. 26 GPRS (acronym for General Packet Radio Services) is a technology used for accessing wireless Internet on the

mobile phones.


7

THE CZAR OF INDIAN TELECOM

BAL had focused on differentiating itself in the Indian telecom market by ensuring customer

delight and a cost-effective business model a business model of being profitable despite having the lowest tariff in the world.

Building a Strong Brand

Right from its early days, the company focused on building a strong brand through innovation in

sales, marketing, and customer service. BAL adopted some innovative promotional strategies for

its products. It enrolled celebrities as its brand ambassadors to take mobile services to the masses.

It initially used Indian cricket star Sachin Tendulkar to promote its services. It also made Hindi

film actors Shahrukh Khan and Kareena Kapoor its brand ambassadors to promote its products and

services. The promotion of BALs services by Shahrukh Khan proved very successful, especially for its erstwhile prepaid mobile services brand Magic. BAL later used Shahrukh Khan in its ads for the launch of many of its other services. It also got noted Indian music director AR Rahman to

compose special ring tones for its Airtel brand. Campaigns such as Express Yourself launched in 2003 went a long way in making Airtel a big brand in India. By the mid-2000s, the company

had gone on to become one of the biggest advertisers in India, with total expenditure on marketing,

distribution, and advertising of Rs. 12.55 billion (Rs.4.02 billion on advertising alone) in 2006-

07.27

Business Model Innovation

BAL also focused on remaining a lean organization. It was one of the first telecom companies to

outsource its network deployment (to Ericsson and Nokia), IT services (to IBM), and customer

contact centers (to Nortel). It utilized different payment models from revenue per share to cost per

all, depending on what worked for the parties involved. According to analysts, this helped the

company save on capital expenditures and lower its operational expenses. According to

management consulting firm Oliver Wyman, BALs operating expenses as a share of revenue had declined 8% annually since 2003.

28 Analysts felt that this had helped BAL in offering customers

its services at low cost and also to focus on its core business while handling any changes in

consumer demand in a flexible way. With the price of calls per minute becoming lower by the day,

it became important for the company to control costs if it wanted to invest in building a sustainable

business. We were seeing people laugh at us, saying how can you give away your lifeline to vendors? We were very clear that the technology was not something we need to focus on. Technology is something we buy to sell to the customers. Ericsson, Nokia, and IBM do technology

for a living, so lets give it to them because they know best. It has made the business model of Bharti very, very sustainable,29 said Mittal.

In addition to this, analysts felt that the company had negotiated the challenges posed by new

entrants into the mobile phone market rather deftly. Competing with BSNL in the early 2000s was

particularly tough. After entering the mobile phone market, BSNL introduced free incoming calls

for its mobile phone users. This was a first in the Indian telecom market. BSNL also made use of

its then strong fixed line user base -- incoming calls made to its mobile phone users from its fixed

line users were free. Private players like BAL, on the other hand, could not afford to provide free

incoming calls to customers as they had to pay interconnection charges. But BAL later lobbied

heavily through the COAI to get the GoI to reduce the interconnection charges and made the

incoming calls free across all operators and the services offered.

27 Mobile Industry Overtakes FMCG in Advertising, www.economictimes.indiatimes.com, December 15, 2007. 28 Leaping Tigers, Roaring Dragons: Emerging Market Companies Take the Lead in Oliver Wyman Study of

Communications, Media, and Technology Industries, Business Wire. Feb 22, 2008. FindArticles.com. 01 Jul. 2008. http://findarticles.com/p/articles/mi_m0EIN/is_2008_Feb_22/ai_n24320251

29 Jo Johnson, Profile; Sunil Bharti Mittal, www.ft.com, November 27, 2006.


8

RESULTS

BALs various initiatives helped it attain a dominant position in the market (Refer to Table II for the top mobile telecom operators in India) As of March 2008, its ARPU was US$ 10, higher than

that of other operators in India. From a small company operating in only one circle, it had become

the market leader in India operating in all the circles. According to a report published by

management consulting firm Oliver Wyman, BAL had been the best performing communications,

media, and technology (CMT) company for five years (2001-2005), in terms of Shareholder

Performance Index30

. According to the research firm, BAL had outperformed the average CMT

company by five times. 31

In 2007, a leading business magazine BusinessWeek ranked BAL third in

their ranking of infotech companies in terms of shareholder return.

Table II

Top Mobile Telecom Operators in India

Company Subscriber Base

(million)

Approx. Valuation

(US$ billion)

Revenue

(Rs. billion)

Bharti Airtel 60 40 185.20

Reliance Comm 44 30 48.74

Vodafone Essar 44 28-30 NA

BSNL 33 55 397.50

Tata Tele Services 24 16 NA

Idea Cellular 21 18 56.94

Spice Comm 3.5 1.5 285.22

MTNL 3 3 12.20

Shyam Telelink 2.5 0.116 1.6

HFCL Infotel 0.4 0.090 NA

Adapted from M Rajendran, The Great War, www.businessworld.com, February 15, 2008.

In addition to fuelling high growth, Airtels marketing strategy and its business model attracted the admiration of many industry experts. In 2007, it was recognized as the Best Indian Emerging Market Carrier in the prestigious Telecom Asia Awards 2007. In 2005 and 2006 too, it received awards such as the Best Indian Carrier at the Telecom Asia Awards 2006 and the 2005 Indian Mobile Operator of the Year by Asian MobileNews.32 In 2006, in the Frost and Sullivan Asia Pacific ICT

33 2006 awards, BAL bagged the awards for Wireless Service Provider and the

Competitive Service Provider of the Year, while its CMD, Mittal, won the CEO of the Year award.

34

30 According to Oliver Wyman, the calculation of the Shareholder Performance Index enables consistent comparison of

shareholder returns by adjusting for the volatility of returns, differences in local interest rates, and mergers and acquisitions.

31 Leaping Tigers, Roaring Dragons: Emerging Market Companies Take the Lead in Oliver Wyman Study of Communications, Media, and Technology Industries, Business Wire. Feb 22, 2008. FindArticles.com. 01 Jul. 2008. http://findarticles.com/p/articles/mi_m0EIN/is_2008_Feb_22/ai_n24320251

32 Keeping Pace with Customer Service in Indias Expanding Mobile Market, www.nortel.com, May 2006. 33 ICT is an acronym for information and communication technology. 34 Sunil Mittal is CEO of the Year, www.thehindubusinessline.com, June 19, 2006.


9

Its business model too attracted the attention of industry experts and competitors. In 2005 and

2006, this model received three awards from Asias leading IT management magazine MIS Asia - MIS Asia IT Excellence Award for Best Change Management in 2005; the MIS Asia IT Excellence Award for Best Bottom Line IT in 2006; and the MIS Asia IT Excellence Award for Best Knowledge Management in 2006.35 In 2006, it also received the Nasscom36 IT Innovation Award for the Business Model Innovation.

37 Besides, BAL had been ranked among the top innovative infotech companies by BusinessWeek magazine since 2004. For instance, in 2006 and

2007, it was ranked 10th and 14

th respectively in the list of top 100 infotech companies, ahead of

many illustrious infotech firms.38

(Refer to Exhibit III for the top ten innovative infotech

companies)

For his contribution to the development of the Indian telecom sector, Mittal was awarded the GSM

Association Chairmans Award 2008, the highest honor in the global telecom sector. Analysts felt that he had built up BAL from scratch with a business model that had become the benchmark for

emerging markets. They felt that the BAL business model had generated a lot of interest among

competitors and MNCs venturing into the emerging markets had a lot to learn from it. Some of its

competitors, particularly the Indian ones, had even started imitating this model.

However, some industry experts charged that BAL had grown by taking advantage of GoIs

ignorance of the telecom sector in the earlier years of the roll-out. Critics alleged that BAL had

manipulated the governments policy by acquiring the bulk of the scarce spectrum for a very cheap

price. Some experts also felt that despite its claims of providing excellent customer service, its

service quality was among the worst as its network was often clogged due to the huge number of

customers it had.39

NEW CHALLENGES AND COMPETITORS

When Vodafone acquired Hutch, BAL faced the first major threat to its supremacy in the Indian

mobile market since the entry of Reliance into this market. Reliance was not able to overtake BAL

as the CDMA technology it had adopted did not do too well in the Indian telecom market.

Vodafone entered the Indian telecom market with high growth plans as the developed markets in

which it operated were becoming saturated. It wanted most of its future growth to come from

emerging markets like India. Vodafone said that it would invest US$ 2 billion over a period of two

years to introduce services in new circles where Vodafone Essar was not operating and also to

expand its services in rural areas.40

It also said that it would roll out 3G mobile services in India as

and when the GoI declared its policy for 3G mobile services. Vodafones mobile services were

offered only in 16 circles while BAL was providing services in all the 23 telecom circles in India.

But Vodafones application for the allocation of spectrum to start services in six more telecom

circles where it already held licenses, was cleared on January 11, 2008.41

This put BAL in a neck-

and-neck position with Vodafone Essar. Vodafone Essar started offering low-priced self-branded

entry level handsets to expand its services in rural areas.

35 Bharti AirTel Limited and BM India Private Limited,

http://www.nasscom.in/upload/51252/Bharti%20and%20IBM.pdf. 36 Nasscom (acronym for the National Association of Software and Services Companies) is a consortium that serves as

an interface to the Indian IT and ITES industry. 37 Bharti Airtel wins NASSCOM IT Innovation Award 2006, www.moneycontrol.com, February 9, 2007. 38 Bharti Airtel 10th in Global 100 Infotech List, www.domain-b.com, June 27, 2006. 39 M Rajendran, The Great War, www.businessworld.com, February 15, 2008. 40 Vodafone to Invest US$ 2 bn in India, www.thetribuneonline.com, February 14, 2007. 41 DOT Clears 2G Line for Vodafne, Aircel, Idea, www.economictimes.indiatimes.com, January 11, 2008.


10

Many industry experts said that the entry of Vodafone would bring about dramatic changes in the

Indian telecom market. They felt that it would increase competition, bring global practices and better services to the domestic market.42 Analysts said that Vodafone Essar could easily close the gap with BAL in terms of reach and subscriber base once it started operating in all the 23 circles in

the country.

Meanwhile, the GoI allowed the telecom companies to offer mobile telecom services using both

CDMA and GSM technologies in October 2007.43

This helped CDMA players like Reliance and

Tata to provide mobile services using GSM technology. Reliance, which had been lobbying

heavily with the government to allow CDMA operators to operate mobile telecom services using

both CDMA and GSM technologies, was allotted a spectrum to offer nationwide GSM services on

January 11, 2008. Analysts said that the main reason for Reliances entry into the GSM mobile

telecom services was to target the lucrative high-end mobile customers whom it was losing due to

the scarcity of feature rich CDMA mobile handsets. Reliance said that its GSM rollout would

enable it to effectively target the fast-growing subscriber additions of 6 million GSM subscribers

every month.44 The entry of cash rich players like Reliance and Tata into the GSM mobile

telecom services was expected to break the oligopoly of the existing GSM players in the market.

Analysts said that Tata and Reliance would have an advantage over the pure GSM players as the

combination of CDMA and GSM would give them an edge in both voice (using GSM) and data

(using CDMA) services. In January 2008, BSNL, the only operator which had traditionally had a

presence in both GSM and CDMA, said it would offer roaming services to its CDMA WLL45

customers. BSNL, which had been offering only limited mobility services using CDMA till then,

rolled out an investment plan of US$ 500 million for its CDMA services.46

The GSM players, such

as BAL and Vodafone Essar, did not have any plans to start CDMA mobile telecom services as it

needed further heavy investments.

Reliance said that with its entry, it would further lower the tariffs of the GSM mobile services,

which were already among the lowest in the world. With the existing players earning good profits,

the Indian government too was keen to further reduce the mobile telephony tariffs by allowing in

more players. Companies such as Videocon, Unitech, and Russias Sistema were trying to enter

this market while AT&T was trying to stage a re-entry. But Mittal dismissed the threat from new

entrants, saying that minor players could not play the volumes game in the telecom business. He

said, Only six or seven operators, amongst whom two-three are still struggling, will share more

than 90 per cent of the market. That leaves little scope for a dark horse.47 But the confidence

shown by BAL notwithstanding, analysts felt that the telecom operator was facing real threats to

its leadership position. BAL also had to face a steady fall in its ARPU and the ARPU of the Indian

telecom market was expected to decline to US$ 6.79 by 2008-2009.48

42 Vodafones Entry to Benefit India: Industry, www.rediff.com, February 12, 2007. 43 RCoM, HFCL, Shyam Get Nod for GSM Services, www.economictimes.indiatimes.com, October 20, 2007. 44 RCOM Receives Start-up GSM Spectrum to Offer Nationwide GSM Services Shortly under its existing UASL.

www.rcom.co.in, January 12, 2008. 45 WLL (acronym for Wireless in Local Loop) is a technology used to provide wireless telecom services over a limited

geographical area. 46 Joji Thomas Philip, BSNL to Invest $500 mn for CDMA Services, www.economictimes.indiatimes.com, January

14, 2008. 47 Rajendran M, The Great War, www.businessworld.in, February 15, 2008. 48 ARPU of Mobile Operators to Decline Further, www.financialexpress.com, August 23, 2004.


11

COUNTERING THE THREATS

Network Expansion

BAL focused on expanding its network coverage all over the country before other players could expand on a big scale. In February 2008, it announced an annual investment plan of US $ 2 billion to expand its network over the next 3 years. This was substantially higher than its average annual investment plans of US$ 1.5 billion. BAL planned to add an additional 30,000 base stations to its existing 40,000 base stations for the fiscal year 2007 and thereby cover 70% of the country. Nearly 50 to 60% of the future expansion was to be in the rural areas. BAL also planned to cover 97% of the country by 2010.

In July 2007, BAL entered into a memorandum of understanding (MOU) with leading telecommunications solutions company Nokia Siemens Networks (NSN) for an end-to-end network expansion across all of BALs mobile, fixed, and intelligent network platforms. As part of the MOU, which was worth US$ 900 million, NSN was to expand BALs GSM network in 8 circles under a two-year project.

49 It was one of the largest GSM expansion deals in India. BALs

main aim of expanding its GSM network under the MOU with NSN was to increase its footprint in rural areas and increase its overall network capacity to face competition from the new players. Commenting on this major expansion deal, Kohli said, The expansion and integration exercise across mobile and fixed networks will help us in augmenting our service delivery capacity.50 As part of the deal, NSN was to also deploy 1.8 million next generation network ports across BALs national long distance and international long distance networks.

Targeting All Segments

On the value added services (VAS) front, BAL planned to launch new cutting edge VAS such as Mobile Payment Services and Mobile Money Transfer Services. BAL also planned to roll out complete mobile commerce (m-commerce) services which would facilitate services like online purchases with handsets.

BAL entered into a tie-up with Nokia in 2007 to offer entry-level handsets to its customers. BAL was to offer Nokia handsets bundled with its connections at subsidized prices. This tie-up was aimed at countering the self-branded handsets offered by operators such as Vodafone and Tata and also to facilitate its expansion in the rural areas. As part of the tie-up, the two companies were also to combine their advertising and marketing initiatives to tap the lower segments of the market.

BAL also did away with the practice of using a single marketing strategy to target all the customers. It categorized the customers based on ARPU and adaptability to new VAS and technologies. High-end customers were segmented into a separate category called funsters.51 Industry experts said that as the mobile telecom market matured in India, the days of using a single marketing strategy for the whole mobile market were over and proper segmentation of the market would be the key for better targeting. BAL planned to focus its marketing efforts on these tech savvy heavy VAS users who were generally in the age group of 18-35 years.

To improve its revenues and deal with the steadily falling ARPUs, BAL decided to get into tie-ups with leading manufacturers of high-end hand-held devices such as High Tech Computer Corporation (HTC) and Research in Motion Ltd (RIM). Through these tie-ups, it offered products like the HTC Touch and the BlackBerry, which provided features such as push email, document support, and touch screen interface. These products were aimed at high-end corporate users whose ARPUs were high. BAL hoped to increase its falling ARPUs through a slew of such high-end offers.

49 Bharti Airtel and Nokia Siemens Networks Sign Memorandum of Understanding for a USD 900 Mn. End-to-end

Network Expansion, www.nokiasiemensnetworks.com, July 3, 2007. 50 Nokia Siemens Bags $ 900m Bharti Deal, www.hindu.com, July 4, 2007. 51 Manikandan G, Airtel + Nokia, www.financialexpress.com, September 21, 2007.


12

BAL also reduced its overall tariffs to woo its low-end users. On January 15, 2008, BAL reduced

its tariffs to Re. 1 (around 2 cents) for its lifetime prepaid users -- a reduction of 50% when

compared to the previous rate of Rs. 2 per minute.52

It even reduced the fixed charges for lifetime

validity for prepaid subscribers to Rs. 495 from Rs. 999. BAL also introduced a number of

postpaid plans like the Airtel Supersaver-399 which provided users with free talk time equal to the value of monthly rental paid by them. This brought the effective recurring monthly rental

charges to zero. BAL aimed at removing the entry barriers and reducing the recurring maintenance

charges for consumers so as to create a whole new customer base to feed its growth. The reduction

in the tariffs and the lowering of the fixed and recurring charges were intended to increase the user

base by further expanding the market. Analysts said that reduction in the entry as well as monthly

recurring charges was the key to expanding in the rural markets. BAL also started new advertising

campaigns to reposition the Airtel brand.

Wooing the Rural Masses

Analysts felt that increasing rural penetration was a very challenging task. Not only did the

telecom companies have to contend with low ARPUs as most of the people living in rural areas

had low incomes, but they also had to face other challenges like getting power connections and

supply and having to build more and higher towers as population density in rural areas was low.

This only added to the costs. India being a diverse country, there were various languages and

dialects with some even not having alphabets and this made targeting the groups speaking these

languages or dialects and providing mobile services to them that much tougher.53

In what analysts saw as another innovative approach to rural markets, BAL started to tie up with

shop owners in remote areas of India and bundled information on issues important to the rural

population (such as weather, crop yield, fertilizers, etc.) with the mobile phone. It also began

providing economical plans (with handset bundling) to rural people to increase uptake. Our next 50 million will largely come from rural India as our plan is to reach 5,200 census towns and over

five lakh (500,000) villages, covering 96 per cent of the Indian population,54 said Kohli.

In 2008, BAL launched a joint venture company, IFFCO Kisan Sanchar Limited (IKSL) with

Indian Farmers Fertilizer Cooperative Ltd (IFFCO) to provide VAS and voice services to farmers

throughout India. In addition to the low tariff of Rs.0.50 per minute between IFFCO members, it

planned to offer economical handsets bundled with the mobile connection. The VAS platform was

to broadcast 5 free voice messages daily on mandi55

prices, farming techniques, weather forecasts,

diary farming, animal husbandry, rural health initiatives, fertilizers, etc.56

The farmers would also

have access to a dedicated helpline manned by experts in various fields to answer their queries.

BAL said that the initiative would help in the development of the community as well as the rural

economy.

New Advertising Strategy

Since branding played an important role in telecom, BAL also started a new advertising campaign

to reposition the Airtel brand. From early 2007, it began to roll out some new promotional

campaigns, one of the important ones being the Kuch Bandhan atoot hote hain [Some bonds are unbreakable] campaign launched in March 2007.

57 The campaign stressed the wide coverage

52 Airtel Chants its Affordability Mantra to the Masses, www.moneycontrol.com, January 23, 2008. 53 Mobile Phones Widen Market, Raise Incomes for Rural Poor, www.indiaprwire.com, September 9, 2007. 54 Darpana Kutty, Bharti Airtel among Top 10 Global Telecom Majors; Plans to Enter DTH, www.topnews.in,

October 1, 2007. 55 Mandi is a market center found in an urban area for trading agricultural products, generally having storing and

warehousing facilities. 56 IFFCO and Bharti Airtel Join Hands to Usher in the Second Green Revolution to Benefit Millions of Rural

Consumers, www.bharti.com, May 2, 2008. 57 GovindKrishna Seshan, Airtel & How to Sell a Message, www.rediff.com, April 10, 2007.


13

that the nationwide mobile network of BAL provided. The advertisement featured a divided family

reuniting after a gap of 22 years. The ad depicted a young man, who comes to his ancestral village

to meet his grandparents for the first time. His father had left the village 22 years ago apparently

due to some differences with his father, never to return. The grandfather refuses to talk to the boy

first but relents later after speaking to his son on the mobile phone with BALs network. Not being purely emotional like its earlier Express Yourself campaign, the new advertisement campaign highlighted the capabilities of BALs mobile telecom network.

BAL launched another major advertising campaign in December 2007 called Barriers break when people talk. The theme of the new advertisement was that communication dissolved boundaries and barriers broke down when people started communicating. The advertisement was shot in Morocco and the characters in it spoke a French dialect. The ad was based upon the story of two boys separated by border fencing. When one of the boys starts playing with a football it falls on the other side of the fence. Hearing the sound, the boy on the other side of the fence comes out of his house. The first boy persuades him to kick the ball over the border fence. Eventually, the two boys crawl under the fence and start playing football with each other. No celebrities were used in the film and the two protagonists in the advertisement were picked up from the streets of Morocco.

This new advertising campaign from BAL was considered one of the most creative advertising campaigns in the Indian telecom sector. Marketing experts said that the main aim of this new advertisement campaign was to bring iconic status to its Airtel brand. As BAL was expanding into foreign telecom markets, the ad campaign also aimed at projecting Airtel as a global brand. The campaign aimed to achieve this by making the advertisement in a foreign land. The need to project Airtel as a global brand was felt more urgently as it had to face competition from global brands such as Vodafone, they said.

New Technology

The next generation 3G services were another area on which BAL decided to focus so as to retain its dominant position in the Indian mobile telecom services market. It also planned to start the next generation 3G mobile services as and when GoI declared its policy and allotted the spectrum. Analysts said that 3G could help BAL to increase its revenues in view of its steadily falling ARPU and that 3G could also be a new growth engine in saturated circles like the big metros. Mittal said, Bharti wants to be an early player in 3G and as and when the auction for spectrum is announced, Bharti will participate in the process.58

READY TO TAP OTHER EMERGING MARKETS?

By early 2008, BAL was not only the dominant player in the Indian market but also had an

international presence in Seychelles through its subsidiary Telecom Seychelles Ltd., and Europe

(Channel Islands) through its subsidiaries Jersey Airtel Limited (JAL) and Guernsey Airtel

Limited (GAL). It has been providing telecom services in Seychelles since 1998. In 2006, it

became the first Indian telecom operator to launch 3G services as it started its 3G operations in

Seychelles.59

In May 2007, JAL and GAL entered into a partnership with Vodafone to launch

mobile services in Channel Islands under the Airtel-Vodafone brand. The following month, mobile

services were launched in Jersey. The services in Guernsey were launched in March 2008.60

In

mid-2007, BAL also made a foray into neighboring Sri Lanka, which had around 4.5 million

mobile users by the end of 2006. The company entered into an agreement with Sri Lankas main foreign investment promotion body to invest US$150 million in the country.

61 BAL was expected

to roll out its operations in Sri Lanka in 2008.

58 Bharti Airtel Chalks Out $3.5 billion Investment Plan, www.thehindubusinessline.com, April 28, 2007. 59 Bharti Becomes the First Indian Telecom Operator to Launch 3G Services, www.bharti.com, December 21, 2006. 60 Bharti Expands Telecom Footprint in the Channel Islands, www.bharti.com, March 26, 2008. 61 Surojit Chatterjee, Bharti Airtel Begins Sri Lankan Foray with $150 Million Investment, http://in.ibtimes.com, May

17, 2007.


14

In what was viewed as BALs attempt to make its first major foray into international markets, BAL and Africa-based MTN Group (MTN), which had a presence in 24 African and Middle East

countries, initiated talks on BALs possible takeover of the African telecom major in February 2008. In May 2008, the companies announced that they were considering a deal valued at US$40

billion, the biggest in the emerging market. Analysts said that the deal would propel the merged

entity to the sixth position among the top telecom companies in terms of subscriber base, which

would touch 130 millions with MTN bringing in 68 million subscribers. Madhudusan Gupta,

telecoms analyst at Gartner, said, This would give the combined entity a footprint in one of the least penetrated mobile markets.62 With the market in Africa experiencing high growth (and projected to grow at 11% through 2010, according to Gartner), and there being a huge disparity in

income like in India, analysts expected that BAL could replicate the success achieved in India in

Africa.63

However, on May 24, 2008, BAL pulled out of the deal, as MTN allegedly went back on an in-

principal merger agreement and proposed that BAL become a subsidiary of MTN instead. Earlier,

BAL had pushed for a 51% stake in MTN, but MTN insisted on a 100% buy out. It was then

agreed that 50% of the deal amount (US$40 billion) was to be paid in cash and the rest in share-

swaps.64

Analysts felt that BAL would face regulatory hurdles in India as such an arrangement

would lead to the merged entity exceeding the foreign stake allowed in the sector (74%).65

But

later, with MTN changing its terms, BAL pulled out of the deal saying that it would not be in the

interests of its minority shareholders. Bhartis vision of transforming itself from a home-grown Indian company to a true Indian multinational telecom giant, symbolizing the pride of India, would

have been severely compromised and this was completely unacceptable to Bharti Group,66 said Mittal. According to some industry experts, the other roadblocks in the merger attempt were

decisions such as the degree of control to be vested with both the parties, location of the

headquarters, and the price component.

OUTLOOK

Analysts felt that its success notwithstanding, BAL faced some challenges to its leadership

position in the Indian telecom market. It had to focus on devising aggressive strategies to continue

its dominance and grow at the same rate at which it had been growing. Industry experts said that

the key to future growth lay in making the Airtel brand attractive to both the tech-savvy urban

population and the rural masses where the bulk of the future growth was expected. This in itself

was a big challenge. Gopal Vittal (Vittal), Director, Marketing and Communication, BAL, said,

The challenge before us was in having just one brand that had to address many different customer profiles, from peons to executives, from rural to urban.67 The entry of youth-specific telecom brands into the Indian market such as Virgin Mobile

68, which entered India in March 2008 under a

brand franchise agreement with Tata, too put heavy pressure on BAL to tone up its branding

strategies.69

62 Bharti-MTN Tie-up a Win-Win for Both Companies: Analysts, http://economictimes.indiatimes.com, May 8, 2008. 63 The Economist, Eyes on Africa, www.economist.com, May 6, 2008. 64 Prabhakar Sinha, Bharti's MTN Chase Hits Hurdle, http://timesofindia.indiatimes.com, May 17, 2008. 65 Foreign investors including the Singapore-based Singapore Telecommunications Ltd. already held 65 percent of

BAL. 66 Sandeep Joshi, Bharti Airtel Disengages Merger Talks with MTN, www.thehindubusinessline.com, May 25, 2008. 67 Mobile Industry Overtakes FMCG in Advertising, www.economictimes.indiatimes.com, December 15, 2007. 68 Virgin Mobile was a worlds first Mobile Virtual Network Operator which operates by buying airtime form other

operators and owns no infrastructure and telecom license. 69 COAI Seeks Clarity From DoT on Virgin Mobile Entry into India, www.economictimes.indiatimes.com, March 4,

2008.


15

Finding alternate revenue streams in view of the rapidly falling ARPUs was one more significant

challenge that lay before BAL. The company also had to expand in other countries to achieve scale

and compete with global players like Vodafone. Many analysts predicted that BAL would maintain

its leadership position in the Indian telecom market despite the fact that the sector was on the verge

of another round of consolidation. But there were others who were skeptical about it. They felt that

the market was still in its early stages of maturity and the real challenge lay in competing with new

entrants into the market. BAL, however, said that it was prepared to meet the challenge. Regarding

the competition from Vodafone, which was being viewed as the biggest threat to BALs leadership position, Mittal said, I will say that (Vodafone CEO) Arun Sarin has already won his quarter-final and semi-final matches, as Vodafone has emerged as the number two cellular operator in India.

But his final match is with us and I am sure to win that.70

As regards its plan for international expansion, BAL said it was on the look out for an acquisition

target in the developing and emerging markets. It was looking for a firm with the right fit and over

US$500 million in size.71

BAL felt that its extensive experience in India coupled with its unique

business model would help it tap the opportunity provided by other developing and emerging

markets and create value for its customers.

70 Airtel Will Continue Ruling Indian Mobile Phone Space: Mittal, www.thehindu.com, February 14, 2008. 71 www.businessweek.com


16

Exhibit I

The Worlds Top 10 Wireless Telecom Operators

Rank Operator Country Subscriber Base*

1 China Mobile China 31,61,20,000

2 China Unicom China 14,68,82,000

3 Cingular Wireless US 6,12,43,694

4 Verizon Wireless US 6,07,16,000

5 Sprint USA US 5,36,42,000

6 NTT DoCoMo Japan 5,26,21,000

7 Mobile TeleSystems Russia 5,15,00,000

8 Vimplecom Russia 4,83,45,308

9 America Movil-Telcel Mexico 4,49,46,000

10 Bharti Airtel India 3,71,41,210

* Data as of Quarter 1, 2007.

Source: Bharti Airtel Crosses 40-m Subscriber Mark, www.thehindubusinessline.com, May 24, 2007.

Exhibit II(A)

BALs Consolidated Balance Sheets

(Amounts in thousands of Indian

rupees, except per share data and as

stated otherwise)

March 31,

2006

March 31,

2007

March 31, 2007

(Unaudited)

ASSETS US$, 000

Cash and cash equivalents 2,649,379 7,463,632 173,171

Accounts receivable, net of allowances

for doubtful debt

10,573,690 13,092,524 303,770

Unbilled receivables 3,629,076 4,889,563 113,447

Inventories 381,320 912,142 21,164

Short term investments 2,526,649 2,003,609 46,487

Deferred taxes on income (current) 1,562,481 1,178,404 27,341

Derivative financial instruments 531,815 728,969 16,913

Restricted Cash 188,958 133,672 3,101

Prepaid expenses and other current

Assets

9,589,918 13,711,376 318,130

Due from related parties 625,022 728,637 16,905

Total Current Assets 32,308,308 44,842,528 1,040,429


17



stated otherwise)

March 31,

2006

March 31,

2007

March 31, 2007

(Unaudited)

Property and equipment, net 142,411,233 210,603,768 4,886,399

Acquired intangible assets, net 14,872,964 14,115,568 327,506

Goodwill, net 23,687,179 23,683,549 549,502

Investment in joint ventures 189,566 182,237 4,228

Investments 500,000 500,130 11,604

Restricted cash, non-current 56,058 53,687 1,246

Deferred taxes on income - 19,522 453

Other assets 3,217,853 3,886,776 90,181

Total Assets 217,243,161 297,887,765 6,911,548

LIABILITIES & STOCKHOLDERS EQUITY

Short-term borrowings and current

portion of long-term debt

12,892,457 10,925,150 253,483

Trade payables 14,129,534 16,877,498 391,587

Equipment supply payables 25,041,000 42,632,682 989,157

Accrued expenses 8,312,982 12,523,244 290,564

Unearned income 12,690,393 17,034,522 395,233

Unearned income indefeasible right to use sales

335,763 335,763 7,790

Derivative financial instruments 1,582,559 1,981,046 45,964

Due to related parties 49,921 30,406 704

Other current liabilities 2,945,689 4,294,648 99,644

Deferred taxes on income - 13,836 321

Total Current Liabilities 77,980,298 106,648,795 2,474,447

Long-term debt, net of current portion 34,502,503 41,535,506 963,701

Deferred taxes on income 3,508,024 3,616,335 83,906

Unearned income indefeasible right to use sales

4,135,804 3,800,040 88,168

Other liabilities 3,981,186 4,933,225 114,460

Total Liabilities 124,107,815 160,533,901 3,724,682

Contingencies and commitments

Minority Interest 957,136 1,800,825 41,783

(Amounts in thousands of Indian rupees, except per share data and as stated otherwise)

2006 2007 2007 (US$ 000)


18



stated otherwise)

March 31,

2006

March 31,

2007

March 31, 2007

(Unaudited)

Stockholders Equity

Common stock, par value Rs.10 per

share*

18,938,793 18,959,342 439,892

Additional paid in capital 56,363,471 56,644,900 1,314,267

Deferred stock based compensation (419,339) - -

Treasury stock (215,539) (133,793) (3,104)

Retained earnings 17,510,824 60,082,590 1,394,028

Total Stockholders Equity 92,178,210 135,553,039 3,145,083

Total liabilities and Stockholders Equity

217,243,161 297,887,765 6,911,548

*2,500,000,000 equity shares authorized; and 1,893,879,304 and 1,895,934,157 issued and

outstanding as of March 31, 2006 and march 31, 2007, respectively

Exhibit II(B)

BALs Consolidated Statements of Operations


rupees, except per share data and

as stated otherwise)

March 31,

2005

March 31,

2006

March 31,

2007

March 31,

2007

(Unaudited)

Revenues US$, 000

Services 78,726,865 114,638,009 184,152,362 4,272,677

Indefeasible right to use sales 209,257 417,683 436,299 10,123

Equipment 1,091,654 1,159,761 607,331 14,091

Total Revenues 80,027,776 116,215,453 185,195,992 4,296,891

Operating Expenses

Cost of service* (47,254,693) (68,295,069) (106,743,685) (2,476,652)

Cost of equipment sales (1,020,564) (1,168,771) (588,569) (13,655)

Selling, general and

administrative expenses**

(13,029,106) (19,145,884) (28,564,086) (662,740)

Pre-operating costs (533,326) (119,670) (8,565) (199)

Total Operating Expenses (61,837,689) (88,729,394) (135,904,905) (3,153,246)

Operating Income 18,190,087 27,486,059 49,291,087 1,143,645

Interest Expense (net) (3,114,323) (2,958,039) (3,044,252) (70,632)

Interest income (net) 1,118,765 446,045 1,605,930 37,261

Share of losses in joint ventures (37,662) (5,039) (2,379) (55)


19


rupees, except per share data and

as stated otherwise)

March 31,

2005

March 31,

2006

March 31,

2007

March 31,

2007

(Unaudited)

Other income 478,580 499,225 1,064,165 24,690

Non operating expenses (31,137) (102,534) (54,140) (1,256)

Income Before Income Taxes 16,604,310 25,365,717 48,860,411 1,133,653

Income tax expense (1,527,944) (2,539,495) (5,821,692) (135,074)

Minority interest (98,477) (259,512) (466,953) (10,834)

Net Income 14,977,889 22,566,710 42,571,766 987,745

Earnings per share for profit

attributable to common

shareholders

Basic 8.12 12.04 22.50 0.522

Diluted 7.96 11.97 22.47 0.520

Weighted average number of

shares used in computing

earnings per share


common shares (in thousands)

1,844,414 1,873,890 1,891,840 1,891,840


diluted shares (in thousands)

1,881,433 1,892,344 1,894,132 1,894,132

* including depreciation and amortization of Rs. 10,963,977, Rs. 15,375,585, and 24,825,118

for the years ended march 31, 2005, 2006, and 2007, respectively

** including depreciation and amortization of Rs. 377,384, Rs. 234,233 and rs. 147,924 for the

years ended march 31, 2005, 2006, and 2007, respectively

Source: Bharti Airtel Limited and Subsidiaries, Consolidated Financial Statements for the Years Ended March 31, 2005, 2006, 2007, www.bhartiairtel.in


20

Exhibit III

The Top Ten: Most Innovative Infotech Companies

Rank 2006 2007

1 America Movil (Mexico) Amazon.com (the US)

2 Hon Hai Precision (Taiwan) America Movil (Mexico)

3 High Tech Computer (Taiwan) Telefonica (Spain)

4 Apple Computers (the US) Hon Hai Precision (Taiwan)

5 Softbank (Japan) Telenor (Norway)

6 Telefonica Moviles (Spain) Apple Computers (the US)

7 Telefonica (Spain) AT&T (the US)

8 China Mobile (Hong Kong) Nintendo (Japan)

9 Nokia (Finland) Microsoft (the US)

10 Bharti Airtel (India) China Mobile (China)

* In the 2007 rankings, BAL held the 14th position.

Adapted from www.businessweek.com.


21

References & Suggested Readings:

1. ARPU of Mobile Operators to Decline Further, www.financialexpress.com, August 23, 2004.

2. Keeping Pace with Customer Service in Indias Expanding Mobile Market, www.nortel.com, May 2006.

3. Sunil Mittal is CEO of the Year, www.thehindubusinessline.com, June 19, 2006.

4. Bharti Airtel 10th in Global 100 Infotech List, www.domain-b.com, June 27, 2006.

5. Jo Johnson, Profile; Sunil Bharti Mittal, www.ft.com, November 27, 2006.

6. Bharti Airtel wins NASSCOM IT Innovation Award 2006, www.moneycontrol.com, February 9, 2007.

7. Vodafones Entry to Benefit India: Industry, www.rediff.com, February 12, 2007.

8. Vodafone to Invest US$ 2 bn in India, www.thetribuneonline.com, February 14, 2007.

9. GovindKrishna Seshan, Airtel & How to Sell a Message, www.rediff.com, April 10, 2007.

10. Bharti Airtel is the Best Emerging Market Carrier, www.moneycontrol.com, April 25, 2007.

11. Bharti Airtel Chalks Out $3.5 billion Investment Plan, www.thehindubusinessline.com, April 28, 2007.

12. Surojit Chatterjee, Bharti Airtel Begins Sri Lankan Foray with $150 Million Investment, http://in.ibtimes.com, May 17, 2007.

13. Bharti Airtel Crosses 40-m Subscriber Mark, www.thehindubusinessline.com, May 24, 2007.

14. Bharti Airtel and Nokia Siemens Networks Sign Memorandum of Understanding for a USD 900 Mn. End-to-end Network Expansion, www.nokiasiemensnetworks.com, July 3, 2007.

15. Nokia Siemens Bags $ 900m Bharti Deal, www.hindu.com, July 4, 2007.

16. Mobile Phones Widen Market, Raise Incomes for Rural Poor, www.indiaprwire.com, September 9, 2007.

17. Manikandan G, Airtel + Nokia, www.financialexpress.com, September 21, 2007.

18. Darpana Kutty, Bharti Airtel among Top 10 Global Telecom Majors; Plans to Enter DTH, www.topnews.in, October 1, 2007.

19. RCoM, HFCL, Shyam Get Nod for GSM Services, www.economictimes.indiatimes.com, October 20, 2007.

20. Indias Per Capita Income to Touch $ 4,000 by 2025: Chidambaram, www.pratyush.instablogs.com, November 6, 2007

21. Surojit Chatterjee, Bharti Airtel among Top telecom Companies in the World with 50 Million Wireless Subscribers, www.in.ibtimes.com, November 17, 2007.

22. More Telecom Consolidation Post Spectrum Policy: Vodafone, www.moneycontrol.com, December 10, 2007.

23. Mobile Industry Overtakes FMCG in Advertising, www.economictimes.indiatimes.com, December 15, 2007.

24. DOT Clears 2G Line for Vodafne, Aircel, Idea, www.economictimes.indiatimes.com, January 11, 2008.

25. RCOM Receives Start-up GSM Spectrum to Offer Nationwide GSM Services Shortly under its existing UASL. www.rcom.co.in, January 12, 2008.


22

26. Joji Thomas Philip, BSNL to Invest $500 mn for CDMA Services, www.economictimes.indiatimes.com, January 14, 2008.

27. Shobhana Subramanian, Spectrum: Why Reliance Comm has an Edge, www.rediff.com, January 19, 2008.

28. Airtel Chants its Affordability Mantra to the Masses, www.moneycontrol.com, January 23, 2008.

29. Bharti Airtel Crosses 60mn Customer Mark, www.moneycontrol.com, February 13, 2008.

30. Airtel will Continue Ruling Indian Mobile Phone Space: Mittal, www.thehindu.com, February 14, 2008.

31. M.Rajendran, The Great War, www.businessworld.in, February 15, 2008.

32. Leaping Tigers, Roaring Dragons: Emerging Market Companies Take the Lead in Oliver Wyman Study of Communications, Media, and Technology Industries, Business Wire. Feb 22, 2008. FindArticles.com. 01 Jul. 2008. http://findarticles.com/p/articles/mi_m0EIN/is_2008_Feb_22/ai_n24320251

33. Bid to Close Teledensity Gap, www.thehindubusinessline.com, March 1, 2008

34. COAI Seeks Clarity From DoT on Virgin Mobile Entry into India, www.economictimes.indiatimes.com, March 4, 2008.

35. Manish Sinha, Segmenting Indias Mobile Market, www.imediaconnection.com, March 18, 2008.

36. India to Oust US in Number of Cell Phone Users, www.computing.in.msn.com, March 26, 2008.

37. The Economist, Eyes on Africa, www.economist.com, May 6, 2008.

38. Bharti-MTN Tie-up a Win-Win for Both Companies: Analysts, http://economictimes.indiatimes.com, May 8, 2008.

39. Prabhakar Sinha, Bhartis MTN Chase Hits Hurdle, http://timesofindia.indiatimes.com, May 17, 2008.

40. Sandeep Joshi, Bharti Airtel Disengages Merger Talks with MTN, www.thehindubusinessline.com, May 25, 2008.

41. Cellular Services Revenue to Cross $37 b, www.hindu.com, July 3, 2008.

42. The Cell Phone Megatrend: The Battle for Africa, www.theglobalguru.com, 2008.

43. Bharti AirTel Limited and BM India Private Limited, http://www.nasscom.in/upload/51252/Bharti%20and%20IBM.pdf.

44. www.airtel.in

45. www.bharti.com

46. www.businessweek.com

47. www.en.wikipedia.org

48. www.moneycontrol.com

49. www.trai.gov.in

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