Over to Sunil Mittal in the battle of the telcos

In the high stakes battle of the telcos, it is Reliance Jio which has reeled off all the early winners. Bearing down on the market with freebies, including zero-price phones and aggressively low tariff plans, the Mukesh Ambani-led venture has caused mayhem in the ranks of the incumbents.

Yet writing off Jio’s main rival, Bharti Airtel, would be a serious mistake. Sunil Mittal, the company’s feisty founder and chairman, has proved a formidable adversary ever since he picked up the first tender document for the first four mobile phone network licences auctioned in 1992. Mittal, who till then was marketing push button telephones in the country, is one of the great success stories of Indian business post-liberalization, largely because of his combative skills. As he told Mint in an interview, “All my peers were in telecom. I am the lone survivor. We brought so much passion and energy into this business.”

Today, almost a year after the launch of Jio, Bharti still leads India’s telecom services market with a 33% share. Last quarter the company added 2.45 million data subscribers, on top of the 274 mobile subscribers it already has and while its latest results are likely to cause some distress, most analysts reckon it hasn’t lost customers to Jio. The new company has set itself a steep 50% market share target by 2021 with early success lending credibility to this. But eventually this battle will go beyond price.

That’s where Bharti’s core strength will come into play. In Mittal’s corner is the derived wisdom of the service business: acquiring a customer is a tad more tough than retaining one unless of course you have screwed up big time, which with the benefit of several surveys and the small matter of having been a Airtel customer for over 18 years now, I can safely say isn’t the case. Of course, even those customers that stay loyal to Airtel may well put pressure on the company to match some of the competitor’s pricing. In that situation, it will be about who has the financial muscle to last the course.

Bharti has already written off Rs70,000 crore of network infrastructure in its books. Its current debt includes a substantial portion accruing from its Zain acquisition in Africa. The key is for Zain to start servicing its share of debt and if current numbers are to be believed that could be soon. Last quarter, Zain turned profitable for the first time since Bharti bought the business in 2010 for over $10 billion.

The stock markets, if not the most accurate but certainly an indicative barometer of a company’s fortunes, have been bullish on Bharti. The stock is up almost 30% since Jio launched its services in September last year. This despite the temporary slip backs as happened last week after Jio’s free phone—JioPhone— announcement.

The challenge for Mittal is that Jio has clearly restructured the entire cellphone value chain in such a way as to collapse costs dramatically thus destabilizing the market. Bharti, therefore, cannot just follow suit and cut its own end-user pricing without redesigning its supply chain. Its network management skills will also be tested under these circumstances and optimizing performance for its premium paying customers will have to be a key focus area. Companies like Southwest Airlines have been seen as price warriors while in reality their biggest strength has been asset utilization, much like IndiGo is doing.

Among the options available to Bharti Airtel is to leapfrog current technology. It can actually choose to largely ignore the current round of jousting and bid aggressively to bring in the next generation of mobile phone technology to India. The regulatory environment for 5G, a key enabler of next-generation Internet of Things and applications such as autonomous vehicles and augmented reality, is already under development globally while trials are on for the technology.

Bharti’s top end customer base is safe for the moment and isn’t likely to shift to Jio and for a while Reliance will have its hands full managing the full scale of its aggressive roll out. That gives Bharti the bandwidth to look at the demands of the market 3-4 years from now and work on having the products and features in place when that demand rolls out.

It is a risky proposition but Mittal has rarely shied away from taking risks. The art of war says there are no winners, only survivors and right now Sunil Mittal will be concentrating on that.