Industry

Indian telecommunications is a happening place to accumulate value with an astounding growth rate and large potential remaining to tapped.

        India has nearly 200 million telephone lines making it the third largest network in the world after China and USA. Indian telecom industry has the highest growth rate, over 45%, in the world. It was in 1851, the first operational land lines were laid by the government near Calcutta (seat of British power). The public got their telephones in 1881. After independence in 1947, all the foreign telecommunication companies were nationalized to form the Posts, Telephone and Telegraph (PTT), a monopoly run by the government's Ministry of Communications. The Government believed that the Telecom sector as a strategic service and brought it under state's control. During 1980s the private sector was allowed in telecommunications equipment manufacturing, the first of the initiatives to bring private sector to expand the services.

 In 1985, Department of Telecommunications (DOT) came up to provide domestic and long-distance service besides acting as its own regulator. Soon the Government responded to increasing needs of communication and created the Videsh Sanchar Nigam Limited (VSNL) for international telecommunications and Mahanagar Telephone Nigam Limited (MTNL) for service in metropolitan areas. The integration of private players in the telecom sector was further strengthened n 1990s when the communication part of the services was opened up. A national policy was formulated in 1994. In 1997 Telecom Regulatory Authority of India (TRAI) was established to become an independent regulator. Further changes were made to telecom policy in 1999 and cellular services were also launched in the same year.

Telecommunication sector in India can be divided into two segments: Fixed Service Provider (FSPs), and Cellular Services. Fixed line services consist of basic services, national or domestic long distance and international long distance services. The state operators (BSNL and MTNL), account for almost 90 per cent of revenues from basic services. Private sector services are presently available in selective urban areas, and collectively account for less than 5 per cent of subscriptions. However, private services focus on the business/corporate sector, and offer reliable, high- end services, such as leased lines, ISDN, closed user group and videoconferencing. Cellular services can be further divided into two categories: Global System for Mobile Communications (GSM) and Code Division Multiple Access (CDMA). The GSM sector is dominated by Airtel, Vodafone-Hutch, and Idea Cellular, while the CDMA sector is dominated by Reliance and Tata Indicom.

Opening up of international and domestic long distance telephony services are the major growth drivers for cellular industry. Cellular operators get substantial revenue from these services, and compensate them for reduction in tariffs on airtime, which along with rental was the main source of revenue. The reduction in tariffs for airtime, national long distance, international long distance, and handset prices has driven demand. The telecom sector is also afflicted by a number of restraints. These include: Sluggish pace of reform process, Lack of infrastructure in semi-rural and rural areas, which makes it difficult to make inroads into this market segment as service providers have to incur a huge initial fixed cost, Limited spectrum availability. But notwithstanding these constraints, telecom sector has undergone a revolution in the past decade and has played a major part in bridging the rural-urban divide.  ( My thanks to  Prakash, another contributor in this  column)

 Even now as the mobile phones have reached only 21 percent of India's more than 1.1 billion people, the momentum and growth are expected to continue to top double digits. The sector will maintain its top growth path will lead all other sectors. Incidentally the year 2007 ended with 233.63 million wireless users, up 56 percent from a year earlier.

The company

Bharti Airtel Limited, a group company of Bharti Enterprises, is India’s leading integrated telecom services provider with an aggregate of 57.34 million customers as of end of December 2007, consisting of 55.16 million mobile customers. Bharti Airtel has been rated among the best performing companies in the world in the Business Week IT 100 list 2007.

Bharti Airtel is structured into three strategic business units - Mobile services, Telemedia services and Enterprise services. The mobile business provides mobile & fixed wireless services using GSM technology across 23 telecom circles. The Telemedia business provides Telemedia services in 94 cities and is foraying into the IPTV and DTH segments. The Enterprise services provide end-to-end telecom solutions to corporate customers and national & international long distance services to carriers. All these services are provided under the Airtel brand. Airtel’s high-speed optic fiber network currently spans over 67,138 kms covering all the major cities in the country. The company has two international landing stations in Chennai that connects two submarine cable systems - i2i to Singapore and SEA-ME-WE-4 to Europe. In April 2007, the Company acquired a 49% stake in Bharti Aquanet Ltd from Singtel i2i Ltd. On September 28, 2007, the Company completed the acquisition of Network i2i Ltd.

Third quarter results

Bharti Airtel declared quarterly results on January 30, 2008. It has once again maintained its strong growth momentum. The Highlights for Third Quarter ended December 31, 2007 are

     Market leader with a market share of all India mobile subscribers at 23.6%.

    Highest ever-net addition of 63.9 lakh customers in a single quarter.

    Total Revenues of Rs. 6,964 crore (up 42%Y-o-Y).

     EBITDA of Rs. 2,963 crore (up 48%Y-o-Y).

    Cash Profit of Rs. 2,882 crore (up 35% Y-o-Y).

    Net Income of Rs. 1,722 crore (up 42%Y-o-Y).

The consolidated total revenues for the quarter ended December 31, 2007 of Rs. 6,964 crore grew by 42% and EBITDA of Rs. 2,963 crore grew by 48% on a year on year basis. The cash profit from operations of Rs. 2,882 crore grew by 35% over last year. The net profit for the quarter ended December 31, 2007 was Rs. 1,722 crore, a growth of 42% over last year.

The revenues and net profit for the nine months ended December 31, 2007 was Rs. 19,206 crore and Rs. 4,848 crore, a growth of 46% and 67% over the same period last year respectively.

Bharti had 5.7 crore customers, as on December 31, 2007, an increase in the total customer base of 70%, over the corresponding period last year and maintained its leadership position through an improved market share of all India wireless subscribers at 23.6% as on December 31, 2007, up from 21.8% corresponding to the same period of last year.

Commenting on the results and performance, Mr. Sunil Bharti Mittal, Chairman & Managing Director, Bharti Airtel Limited, said, “In the current quarter, Bharti Airtel has further consolidated its leadership position in the wireless market. We believe that the current growth momentum will receive further boost with our focus on setting new benchmarks in the market by driving affordability and availability. With aggressive expansion plans particularly in rural India, we are in a strong position to continue leading the telecom revolution in the country.”

What does the future holds for the Bharti Airtel?

 The company has shown resilience to grow in the traditional and non-traditional markets. It has reaffirmed its leadership with good numbers. The growth path it has chartered is yielding results and the investments it has made in its infrastructure are yielding results. Very good growth in revenues, high depreciation and low tax pay out reconfirm the utility of the recent investments made. The key strength of the company is its 55.16 mn Wireless subscribers and 2.1 million Telemedia subscribers. It is to be noted that 91% of Mobile subscribers are in pre-paid segment. The company has realized less revenue per unit, down from Rs 366 / month to Rs 358 / month during the current quarter. The customer average minutes usage is 474. The silver lining is that the value added services including SMS, Airtel Live, and Hellotunes etc contributed 9.3% to the total revenues of Wireless segment. The company has 751,000 broadband subscribers, which is 34.5% of its fixed wire subscribers, with a good average billing.

 The company is bound to take on Reliance Communication the second largest players in all the key telecom circles. The value added services will be a key determinant besides the reach and customer service. Soon the customers will have number portability when the competition between the various players is likely to hot up. Bharti Airtel tops the industry with net profit and operating margins. It is in the best position to play the price war and expand its client base.

 Investor may consider buying this share at the current levels as the price earning is still attractive.