Bharti Airtel's scale economies can overwhelm competitors, but to maintain momentum it will need to innovate, like Nokia
Bharti Airtel increased its market share from 22.4% a year ago to 23.8% in 2007-08. This helped it deliver scorching returns: 57% rise in net profits, 46% jump in revenues, and a user base up 65% from a year earlier.
This momentum was maintained despite an average-revenue-per-user (ARPU) decline of over 12%. Increased subscriber base, and a 7% rise in minutes of usage (MOU) per user, helped sustan revenues and profits.
Analysts are concerned with the decline in Bharti's operating margin. The operating margin shrank by 100 basis points during the latest quarter on account of aggressive marketing campaign that increased selling costs and Bharti's decision to cut rates on outgoing calls. "This indicates competition has forced the company to give away a portion of its profitability to retain growth. Given the current nature of competition, Bharti may have to compromise its profitability further in return of volume growth".
Bharti, however, sees many future factors in its favour: "The Indian telecom story is now entering the second wave of growth, which will come from rural India," CMD, Bharti Airtel, Sunil Mittal says. "over 55% of the net additions are coming from rural
areas", MD Akhil Gupta adds
Mittal sees "another year of strong demand in all business segments...including a foray into Sri Lanka and launch of DTH services". For FY09, the company plans to invest around $2.5 billion on network expansion and new services. This excludes investment in passive infrastructure business that has been separated into another entity, Bharti Infratel. The company has plans to start new service initiatives including DTH and IPTV services apart from starting mobile services in Sri Lanka.
Bharti has the momentum and scale economies to hurt its competitors. But will so many new players on the horizon, each with its own box of tricks to gain profits, Bharti is in the same position Nokia is today in mobile phones. It will have to innovate in the product, cost, marketing and expansion departments in order to maintain its growth momentum
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