Presented By: -Gaurav Aggarwal - 02Dhawal Kantawala - 12Yatin Mota - 19Hardik Shah - 29Anurag Surana - 31Jwalit Vyas - 33Suyash Gupta - 34

NMIMS- MBA Capital Markets- 2008-2010

Indian Telecom Sector

• Fastest Growing Sector – CAGR 22% (2002-08)

• Second Largest Telecom Market– Lowest tariff charges in the world– Wireless Subscribers – 315.3 Mn– Wireline Subscribers – 38.4 Mn– Teledensity – 30.6

• 23 Circles - 4 Categories ( Metro, A, B & C)

• Bharti Airtel – Largest player with presence in 23 Circles

2GROUP 7

Why Mad Rush for Telecom ??

3

225.21206

140.398.4

7653

19.9

5.17.0

9.112.8

18.3

0

50

100

150

200

250

2002–03 2003–04 2004–05 2005–06 2006–07 2007–08 (asof June2007)

Sub

scrib

ers

(in m

illion

)

0

4

8

12

16

20

24

Tel

eden

sity

(in

per

cent

)

Telecom Subscriber Base Teledensity

Large number of additions in telecom subscribers

Low teledensity (depicting large untapped potential)

TelecomAdvantage

GROUP 7

CAGR 40.4%

4

Go-ahead to the CDMA technology

IND

IA

Private players were allowed in Value Added Services

National Telecom Policy (NTP) was formulated

1992

1994

1997

Independent regulator, TRAI, was established

NTP-99 led to migration from high-cost fixed license fee to low-cost revenue sharing regime

1999

2000

2002

BSNL was established by DoT

ILD services was opened to competition

Internet telephony initiated

Reduction of licence fees

2003

Calling Party Pays (CPP) was implemented

Unified Access Licensing (UASL) regime was introduced

Reference Interconnect order was issued

2004

Intra-circle merger guidelines were established

Broadband policy 2004 was formulated—targeting 20 million subscribers by 2010

2005

FDI limit was increased from 49 to 74 percent

Attempted to boost Rural telephony

2006

Number portability was proposed (pending)

Decision on 3G services (awaited)

2007

Department of Telecommunication (DoT) is the main body formulating laws and various regulations for the Indian telecom industry.

ILD – International Long Distance

Evolution of Telecom In India

GROUP 7

Telecom Ecosystem

5

Indian Telecom Industry FrameworkIndian Telecom Industry Framework

Indian Government Bodies Independent Bodies

Wireless Planning and Coordination (WPC)

Department of Telecommunications

Telecom Commission

Group on Telecom and IT (GoT-IT)

Telecom Regulatory Authority of India (TRAI)

Telecom Disputes Settlement and Appellate Tribunal (TDSAT)

Handles spectrum allocation and management

DoT – Licensee and frequency management for telecom

Exclusive policy making body of DoT

Handles ad hoc issues of the telecom industry

Independent regulatory body

Telecom disputes settlement body

They formulate various policies and pass laws to regulate the telecom industry in India.

They undertake various research activities and monitor the quality of service provided in the Indian telecom industry. They also provide various recommendations to improve the status of telecom operations in India.

GROUP 7

Bharti Airtel

• Largest Private Integrated Telecom Company in India

• 3rd Largest Wireless Operator in the World

• Largest & Fastest Growing Wireless Operator in India

• Largest Telecom Company listed on Indian Stock Exchange

6GROUP 7

Vision 2010

• By 2010 Airtel will be the most admired brand in India:– Loved by more customers– Targeted by top talent– Benchmarked by more businesses

Vision 2020

• To build India's finest business conglomerate by 2020

• Supporting education of underprivileged children through Bharti Foundation

• Strategic Intent:– To create a conglomerate of the future by bringing

about “Big Transformations through Brave Actions.”

Mission

• “ We 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 more”

Core Values

• Empowering People - to do their best• Being Flexible - to adapt to the changing

environment and evolving customer needs• Making it Happen - by striving to change the status

quo, innovate and energize new ideas with a strong passion and entrepreneurial spirit

• Openness and transparency - with an innate desire to do good

• Creating Positive Impact – with a desire to create a meaningful difference in society.

Objectives/Goals

• To undertake transformational projects that have a positive impact on the society and contribute to the nation building process.

• To Diversify into new businesses in agriculture, financial services and retail business with world-class partners

• To lay the foundation for building a “conglomerate” of future

Regulatory Framework

Regulation

ADC

USOUASL

74% FDI Investment

Lack of Transparency in Spectrum & License Allocation

3G Policy & MNP still Pending

GROUP 7 12

Declinging Tariff – Rising Revenue

GROUP 7 13

Source: TRAI Report

GDP growth rate - Averaged around 7.9 % from 2002-2008

Rising Tele-density – Target of 45% by 2010

Growing per capita income/disposable Income Rs 12000 in 2002 to Rs 33000 in 2008)

Falling Handset Prices

Moderate inflation levels which were prevalent during the past 7 years – around 5-6%

Economic Factors

Demand for VAS & Broadband services Among Youth

28 % Urban Population

Rapid Urbanization

Rising Income level

Changing Demographics

Source: Mckinsey Report

CDMA – Already there are big players in this segment Reliance , Tata

3G – Value added services potential still to be tapped fully

2G/3G – GSM Currently commands 70% of mobile subscribers in India

Technology

2G/3G

CDMA

WIMAX

VoIP

Technology

Integrated Telecom Company(Product Portfolio)

Wireless Services– 2G/3G– Rural Market

Telemedia Services– Fixed Line– Broadband– DTH

Enterprise Services– Carrier– Corporate

Passive Infrastructure– Bharti Infratel– Indus Tower

GROUP 7 17

Bharti Airtel–Corporate structure

18

Wireless Market Share - India

GROUP 7 19

Geographical Presence India ...

Soucre: TRAI 20

Financials Snapshot

Details Q2 FY 09 Y-on-YCustomers 79.99 mn 57.00%Revenue $ 1,942 mn 42.30%EBITDA $ 796 mn 36.50%Cash Profit $ 673 mn 20.30%Net Income $ 441 mn 26.80%

21

Financial Snapshot - Ratios

22

Key Ratios - Airtel Mar-08 Mar-07 Mar-06 Mar-05 Mar-04Debt-Equity Ratio 0.38 0.54 0.83 0.6 0.07Long Term Debt-Equity Ratio 0.35 0.5 0.76 0.5 0.03ROCE (%) 34.88 34.07 22.55 23.96 0.16RONW (%) 39.53 43.04 31.82 23.88 -0.27 http://www.capitaline.com

Key Ratios - Industry 2007 2006 2005 2004 2003Debt-Equity Ratio 0.35 0.21 0.27 0.34 0.36Long Term Debt-Equity Ratio 0.3 0.19 0.24 0.29 0.33ROCE (%) 9.72 10.28 8.25 8.43 3.07RONW (%) 10.11 10.62 10.87 6.76 0.18

http://www.capitaline.com

SWOT ANALYSISStrengths• Largest Telecom player in India – subscriber base over

100mn• Pan India Presence• High Pat Margins – 24.8% • Low debt on books – D/E of 0.3• Good ARPU of RS 199• Strategic Alliance with other stakeholders in Bharti

Airtel include Sony-Ericsson, Nokia - and Sing Tel• Experience of launching 3G services in SriLanka• High cash balance of $1bn

SWOT ANALYSISWeakness• Tariff war at its peak• Increased competition due to new licenses &

issuance of cross over technology• ARPU drop is a certainty, expect drop of about 20%• Mobile Termination Charges reduced to .20 per

min, indications towards zero MTC• M & A regulations restrict attractive synergies• DTH – a big worry • Land Line & fixed line service are in a matured

stage

SWOT ANALYSISOpportunity• Lot of scope in rural areas• Current Tele-Density – 37 is still low among

developing countries• Low broadband penetration – company well

equipped to take business to next level• Fast extending IPLC market, only player other than

VSNL to have International Submarine cable network

• Expected consolidation in industry in medium term due to tariff wars

SWOT ANALYSISThreat• India centric - Major revenues from India • 93% revenues from Bharti Televentures, only

7% from other group companies• Mobile Number Portability by Jan 2010 –

impact on margins• Inability to obtain 3G spectrum in key circle • Revision of License fees• Revision of spectrum usage charges

BCG Matrix for Bharti Airtel

Stars• Mobile Services• Bharti Infratel

?• Broad Band• Insurance• Retail• Fixed Line Services

Cows Dogs • DTH

Market ShareLOWHIGH

Mar

ket G

row

th R

ate

HIG

HLO

W

Porter’s 5 Forces

Threat from Competition

Customer Bargaining

Power

Threat of Substitutes

Supplier Bargaining

Power

Threat of New Entrants

28

1. Threat from CompetitionWireless Market – Top 4 garnering 75% market share

29

HIGH

Competitor Analysis

Bharti Rcom IDEA MTNL0.00%5.00%

10.00%15.00%20.00%25.00%30.00%35.00%40.00%

Competitor Analysis

OP Margin Net Margin

Company Sep-07 Sep-08 Sep-072 Sep-083

Bharti 43.00% 38.00% 26.40% 19.30%

Rcom 37.90% 31.60% 23.90% 13.20%

IDEA 32.80% 26.60% 14.10% 6.50%

MTNL 23.70% 22.90% 7.00% 6.80%

30

Best OP Margins & Net Profit Margins

among Peers

Source: CMIE November 2008

AMOU & ARPU Stats

838

461

303

88Russia

China

India

USA

0

2

4

6

8

10

Q1 2006 Q2 2006 Q3 2006 Q4 2006 Q1 2007

AR

PU

(U

SD

per

mon

th)

GSM CDMA

Minutes of Usage per Month – Mobile Services

ARPU* in India – Mobile Services

Despite a low teledensity of approximately 19 percent, India has the second highest minutes of usage per month. This offers huge growth opportunity to telecom companies.

The declining ARPU implies that India Inc. is tapping a large market at the bottom of the pyramid by reducing tariffs; thereby, enhancing affordability.

31

2. Customer Bargaining Power Lack of differentiation among

Service Providers

Cut throat Competition

Low Switching Costs

Number Portability will have –Ve

Impact

Businesses & Consumers

32

HIGH

Market Scenario

33

Postpaid Vs Prepaid Customers & Market Share

3. Suppliers Bargaining Power

34

LOW

4. Threat of Substitutes

Landline CDMA

Video Conferencing

VOIP - Skype, Gtalk, Yahoo Messenger e-Mail & Social Networking Websites

35

BROADBAND SERVICES

DIMINISHING MARKET HIGH

5. Threat of New Entrants

Huge License Fees to be paid upfront & High

gestation period

Entry of MVNOs & WiMAX operators

Spectrum Availability & Regulatory Issues

Infrastructure Setup Cost - High

Rapidly changing technology

36

LOW

GE Matrix Classification M

arke

t Att

racti

vene

ss

Strong Medium Weak

Low

Med

ium

Hig

hBusiness Strength

5.00 1.002.333.67

5.00

3.67

2.33

37

Factors Weight Rating(1 –5)

Value =(Weight * Rating)

Resource availability 0.20 3.5 0.7

Overall market size 0.15 4 0.6

Annual Market growth rate 0.20 4 0.8

Profitability 0.15 4 0.6

Competitive intensity 0.10 4 0.4

Technological requirements 0.20 4.5 0.9

Total 1.0 4.0

Factors Underlying Market Attractiveness

39

Factors Weight Rating(1 –5)

Value =(Weight * Rating)

Market share 0.15 5 0.75

New product development 0.10 3.5 0.35

Brand Image 0.10 4 0.40

Sales force 0.15 3 0.45

Pricing 0.15 3 0.45

Distribution capacity 0.10 4.5 0.45

Product quality 0.10 4.5 0.45

R&D Performance 0.15 3 0.45

Total 1.0 3.75

Factors Underlying Market/Biz Strength

40

Airtel’s GE Matrix

Business Strengths

Mar

ket

Att

ract

iven

ess

Low

High

LowHigh

Attractive

Moderate Attractive

Unattractive

Mobile Airtel

TeleMedia

5.00 1.002.333.67

5.00

3.67

2.33

Enterprise

41

Airtel – Strategy

MANTRA : Focus on Core Competencies and Outsource the rest!

Core Competencies

Product Innovation

VAS

Marketing and Branding

Pricing

Strategy

• Airtel partnered with leading players in telecommunication players across the globe.

• It has managed to work with the best of domain specialists globally and emerge as a world class entity.

• Partnerships include operational contracts with marquee vendors and strategic investors ranging from private equity investors to global telecom giants.

Strategic partnerships/ Shareholders – Technology and Capital

• Warburg Pincus – a celebrated PE investor held a stake for a substantial period of time and was instrumental in providing Airtel support in its early stages.

• Vodafone was a strategic investor in Airtel.• Temasek – the Singapore based investor holds

a considerable stake in it.• Was also affiliated with Singapore Telecom.

Outsourcing deals in 2004

• Ericsson was given the mandate to provide, manage and maintain the equipment as well as provide quality assurance in Airtel‘s then 13 mobile circles.

• IBM was given the mandate to handle the back office requirements of Airtel’s presence in India

Operational Strategies.

• Higher emphasis on ARPU/min – stark contrast with other operators who concentrate on ARPU only.

• Aim to be become a one stop shop for all telecommunication services under the Bharti umbrella.

• Exploring opportunities in international markets.• Hived off tower infrastructure into a separate

entity.

Performance till date• Bharti Airtel has enjoyed an excellent run ever

since the telecom sector opened.• It has managed to hold on to its leadership

position inspite of the presence of other players with deep pockets – Ambani’s, Tata’s, Birla’s and Vodafone.

• Has coped well with regulatory changes.• Continues to attract and delight customers.

Future Strategies

• Translate its expertise in Indian markets to other emerging economies.

• This could call for acquisitions globally.• Technology leadership is a must – Airtel must

ensure that its reliance on GSM technology does not render it obsolete.

• Indian market inspite of being the worlds largest is still not matured. Opportunities abound in the hinterland which must be exploited.

Growth Factors

GrowthFactors

Infrastructure Sharing

Managed Services

Enterprise Telecom

Rural Telephony

GROUP 7 49

Road Map – Growth Path

GROUP 7 50

VPN & VoIP

WiMAX

3G

2G/2.5G

References

• Bharti Airtel, Annual Report -2009• Investors presentation, Bharti Airtel Limited, November

2009• Telecommunication Services, Indian Industry: A Monthly

Review, CMIE – November 2009• Analyst Report – Bharti Airtel, Asit C. Mehta Invesment

Intermediates Ltd.• Telecommunication Sector Report – March 2009, CRISIL • Capitaline Database http://capitaline.com• Indian Telecommunication Sector - August 2008, IBEF Report• “Next Big Spenders – Indian Middle Class”, Businessweek

GROUP 7 51

THANK YOU !!

GROUP 7 52