Quotes of the Day
Time passes slowly in India, but not for Sunil Mittal. Four years ago, the 45-year-old entrepreneur was a bit player in the Indian telecommunications market, the owner of cellular franchises in Delhi and the small neighboring state of Himachal Pradesh. Total customer base: 116,000. Today, his Bharti Tele-Ventures is the largest mobile phone company on the subcontinent. Customer base: 2.5 million. He recently wrapped up a $1 billion expansion that quadrupled the size of his network in less than a year. Mittal even completed an acquisition of a competitor—from initial offer to signed contract—in 48 hours. "Our biggest weapon," Mittal says, "has been speed."
That, and timing. While the rest of the world's telecommunications companies stagger through what is being described as an industry depression—one marked by network overcapacity, crushing debt loads, stalling customer growth and desiccated stock prices—Mittal sits atop what is probably the world's last great growth market. India has more than a billion citizens, and most missed the late-1990s surge in mobile phone adoption. That means there's a near- virgin market of a billion (albeit mostly impoverished) people still waiting to join the wireless world. Now they are starting to sign up. In the last 12 months, the number of cell-phone customers surged nearly 80% to around nine million; meanwhile in China, the globe's biggest market with almost 200 million users, growth slackened this year to about 40%.
While India's telecom pond is still small, Mittal, a former bicycle parts maker, has used first-mover advantage to become a big fish. Bharti has the largest market share nationally, at 28%, and his lead is widening by the day. In September, two out of three consumers joining mobile phone services chose his Airtel network, which covers an area with a potential 600 million customers—a market nearly twice the size of the U.S. He has even branched into domestic long-distance services, and this year Bharti became the first private company in India to launch an international long-distance network. "We're cleaning up the market everywhere," he says.
Whether he can continue to mop up cell-phone subscribers, however, remains to be seen. India's notoriously obstructionist regulatory policies are being reformed, allowing prices to slide and competition to increase. The market has drawn potent players in the form of cell-phone subsidiaries backed by foreign heavyweights such as Hong Kong's Hutchison Whampoa and AT&T Wireless. Other rivals are piling in: a government phone company, Bharat Sanchar Nigam, is expanding its mobile network. And in December, India's powerful Ambani family, which controls Reliance Industries, India's largest private sector company, is launching a discount national cellular service. Industry experts say the market is becoming too crowded given India's relatively poor population—and Mittal is fighting on too many fronts. "He's chewed way more than he can eat," says an executive at a foreign telecom firm in New Delhi. "If I were Sunil Mittal, I'd be very nervous right now."
Raising the money for his breakaway network expansion is one of those things. Mittal, a serial entrepreneur, is a master at attracting investments and getting loans in India, where capital has been in painfully short supply—a skill that is especially helpful when your rivals have more money than you. Bharti has garnered a total $1.2 billion of foreign equity investment, more than any other Indian company. Singapore Telecommunications has invested $650 million, and Warburg Pincus has a stake worth nearly $300 million, the private equity fund's third-largest overseas investment. Dalip Pathak, a managing director at Warburg in London, says Mittal was a key factor. "Once he makes a decision," Pathak says, "he moves very quickly."
Early in his career Mittal was aware of the importance of leverage. After graduating from college in 1976, he set up a 25-employee bicycle-crankshaft factory in his hometown of Ludhiana in the northwestern province of Punjab. Part of the seed capital was $400 from his family—although his late father was a member of India's Parliament, he was no tycoon. After Mittal parlayed the business into one large enough to be creditworthy, he made sure to carry a table tennis paddle in his pocket whenever he visited his local banker. The manager loved to play, so Mittal, who was on his college team, would offer up a game; in return, Mittal got help with credit for suppliers.
Subsequent ventures included an import business dealing in Japanese-made electric generators and one that, in 1982, furnished India with push-button phones (until then rotary dial was the norm). By the early 1990s, Mittal was making fax machines, cordless phones and other telecom gear.
In 1992 Mittal smelled another opportunity, one potentially bigger than those that had come before. The Indian government was awarding licenses for mobile phone services for the first time, and two years later Mittal secured rights to serve New Delhi. "We were a tiny company," remembers his brother Rajan, a managing director at the firm, "but we knew we had to take a shot." Right away Bharti went head-to-head with India's industrial titans. The other Delhi operator was controlled by Essar Group, a steel-making giant. But Mittal found ways to compete. He convinced European telecom equipment-maker Ericsson to supply Bharti's network on credit; he promised to pay "when the customers are happy," he says. Bharti (the name is derived from the Hindi word for Indian) expanded its distribution network for prepaid customers, a large part of the market in India, to allow drugstores, corner groceries, even stalls peddling paan, a popular mix of betel nut and spices chewed as a digestive, to sell added minutes. Bharti gave goodies to the storekeepers, like free phone calls or silver coins, to get them to push Airtel over its competitors.
Today, Bharti controls 54% of the Delhi market, India's largest. One former Essar executive said Bharti's secret was focus. While management at Essar, a conglomerate in numerous businesses, didn't have their eye full-time on the telecom market, Mittal "was never distracted by anything else," the executive says.
He has also caught some breaks. In the mid-1990s, Bharti was unable to expand out of Delhi because the company lost bids for licenses in other markets. "People thought we would be a bit player," Mittal says. That proved to be a blessing in disguise. His competitors miscalculated. In a country where per capita income is only about $450, a mobile phone is beyond the reach of most of the population. After bidding high sums to get the licenses, carriers found they were unable to meet overly optimistic revenue projections. They couldn't pay their license fees to the government nor their network-construction-related debts. In a bid to rescue the nascent industry from crib death, regulators shifted to a revenue-sharing scheme in 1999 that lifted the burden of license payments.
Mittal took full advantage. Preying on financially-strapped companies, he acquired control of operators in the huge southern Indian city of Madras and two other rich southern states. In one case, Mittal bought out a rival over a weekend. One Friday night in 2001, Bharti was contacted by an investment banker representing Spice, a cellular carrier with a franchise in Calcutta, the capital of West Bengal state, and asked if they were interested in a deal. At the time, Bharti was considering an independent bid for a license to serve the area. The deadline was the following Monday. The two sides met at Bharti's Delhi offices. Mittal and his top managers worked 20-hour days negotiating; some of his staffers napped on the conference tables while the documents were being drawn. First thing Monday morning, Mittal handed $90 million to Spice and put managers on a plane to take control of Spice's Calcutta operation.
Bharti may be India's No. 1 cellular company today, but Mittal's challenges are far from over. The company's Bombay-listed shares are down nearly 50% from their February debut, reflecting investment uncertainty as much as general telecom jitters. Bharti is taking on well-entrenched competitors in mobile, fixed-line and long-distance services all at once. The regulatory environment, though improved, is still a minefield. The industry is facing a period of ferocious infighting for market share. Call rates—already the lowest in the world at under 3 a minute—are expected to keep falling, jeopardizing profitability.
Perhaps the biggest threat will come in December, when the Ambani family's Reliance Infocomm will launch a mobile phone service nationwide aimed at customers who need to make calls only in a limited area, such as one city. Based on regulations that allow fixed-line providers to use wireless technology to extend their networks without laying cable, Reliance is expected to be able to undercut the fees charged by incumbents. "We are very proud that wherever Reliance enters, we have dropped prices," says company chairman Mukesh Ambani.
Reliance, which already has a foothold in the market through a separate cellular subsidiary, poses such a threat that the established mobile operators have taken regulators to court to try to block the launch. Reliance, they argue, is slipping into the cellular business through a back door, without a proper license. The Supreme Court is currently hearing the case; a verdict is expected in early December. Analysts expect that Reliance, and other phone companies launching similar services, will be able to move ahead. Spokespeople for Reliance and India's telecom regulatory agency decline to comment on the issue because the case is ongoing.
But Mittal says "we don't lose sleep anymore" over Reliance. Perhaps that is because he understands just how large a market remains to be carved up. American technology consultancy Gartner forecasts India's mobile phone users will increase to about 44 million over the next four years, making the country Asia's third-largest market after Japan and China. Consolidation is inevitable—Mittal says he expects the mobile phone industry to whittle down to three or four major players from more than a dozen—and the advantage will belong to entrenched incumbents with deep pockets. Will Bharti stay on top? "It seems to be beyond doubt," responds Mittal, quickly.
- Michael Schuman/New Delhi
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