Interview: Manoj Kohli of Bharti Airtel

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Interview: The CEO of market leader Bharti Airtel is struggling to maintain growth in the face of a shortage of spectrum, but he sees big prospects, though lower revenue, in rural areas. Manoj Kohli explains his strategy to Sonya Dutta Choudhury

Manoj Kohli: wants to make Bharti Airtel the Toyota of telecom

I meet Manoj Kohli at his office in New Delhi's spanking new business district. It's a wintry February afternoon in the Indian capital city's suburb of Gurgaon, and there's dust in the air.
Giant glass towers and sprawling malls dot the dry landscape, and cranes and construction are everywhere. Gurgaon, like much of urban India, is expanding — and expanding fast. So much so that the new Gurgaon-Delhi expressway is already congested.
It's a congestion that extends to the country's airwaves as well, as the growing telecom industry here faces its biggest resource crunch ever — that of spectrum.
For Bharti Airtel, India's largest mobile operator with revenues last year of $4 billion, this constraint could be critical. Indeed the last few months have seen the stocks of telecom majors, hitherto the darlings of India's stock market; take a beating in valuations on account of uncertainties of spectrum allocation.
I ask Bharti Airtel's president and CEO how big this problem really is. Kohli, flush from the awards at Barcelona's Mobile World Congress, is ebullient about the group's growth prospects.
Barcelona was also the setting for an important Airtel announcement: it now has 60 million subscribers.
Kohli says Airtel doesn't intend to slow down. "We want to give dial tone to 1.2 billion people," he declares. Sitting in his fourth-floor office at Unitech Park, surrounded by colourful posters of ad campaigns and red-and-white strategy statements, Kohli radiates a cool confidence.
He smiles when I refer to the telecom majors' battles over bandwidth as the Spectrum Wars. "It is a bit of a dichotomy," he admits. "On one hand the spectrum available is low. On the other hand, our market growth is the highest," he says.
"The average spectrum available to a telco across the world is 17 megahertz. Of this the majority — 10-15 megahertz — is allotted at the time of getting a licence."
In India it is different, he says. "We start with 4.4 megahertz. Then we get another two. Then we get another two, and so on."

New telecom licensees

But the matter is with the courts, he concludes. They will decide exactly how the government must allocate additional spectrum between existing players and also to a flush of new entrants that were awarded telecom licences earlier this year.
And in the interim? Will a shortage of bandwidth affect Airtel's 50%-plus annual rate of growth?
Kohli says no, and explains why not. The answer lies in two magic words, he says — words long chased by marketers of products as varied as shampoo and SIM cards: rural markets.
That's where the future market is, says Kohli, who spends long hours every month traversing these remote areas in an SUV.
This 48-year-old CEO recounts stories of meetings over steaming sweet tea and fried dumplings with village elders and with the kids — "They're our future market," he says.
And the results of this research? "It's amazing what kind of feedback I get," he says. On one such recent tour in the state of Gujarat in western India, Kohli was taken to a village hut.
"There were five men who lived there, immigrant labourers from the state of Bihar. They shared one phone between them. Each week one person recharged the phone by 50 rupees." This is equivalent to $1.25. "But in that half hour I spent with them I got so much feedback," he says.
Fortune, Kohli maintains, for Airtel at least, is clearly at the bottom of the pyramid.

Fall in average revenue

But what about the declining average revenues that come with expansion into these rural markets? How does Airtel propose to service such low value-added customers and still maintain its current 40%-plus ebitda margins?
The answer to this query maybe radical, but it's quite simple. Kohli rejects the ARPU — average revenue per user — model.
"Traditional ARPU models are meant for western markets," he says. "Those markets actually have ARPUs of $60 and $80 and they are pricing calls at 20-25 cents a minute. Our pricing is about less than two cents a minute. We need to have a new paradigm."
So we turn to page 31 of Airtel's quarterly report to study the new paradigm — the three-line graph that tracks absolute revenues, operating expenses productivity and capital expense productivity.
It's an approach that seems to make sense in a market where ARPUs are headed downwards, believes Kohli. The going-rural strategy means every new chunk of customers has a lower ARPU than the last set of customers.
Nevertheless as Kohli points out, rural markets with their low penetration rates are clearly where Bharti Airtel wants to go.
With network coverage of 320,000 villages, Airtel is still behind state telecom giant BSNL, which covers 550,000 villages.

Intensity of growth

But Kohli declares that Airtel is moving ahead and speedily. "In the last two to three years we have overtaken BSNL in coverage as well as quality of coverage — because our intensity of growth and roll-out has been much faster."
The village strategy here is four-pronged — good network coverage, good distribution, good service — including training of retailers — and good branding. He characterises his distribution policy to a "matchbox distribution strategy". What does that mean? "Wherever boxes of matches are sold, Airtel will be there," he says.
Airtel is serious about positioning. Its mission statement sets itself the goal of becoming, by 2010, India's most favoured brand.
"We can't just be a telecom brand," says Kohli. "We also have to be a media brand and an entertainment brand." He explains the company's decision to participate in the niche IPTV market as well as the mass direct to home satellite market.
"For an Indian consumer there is propensity to talk and there is a need for entertainment on a mass scale as well," Kohli explains. Direct-to-home satellite TV will be launched in the first quarter of the financial year, he says.
The 3G mobile policy announcements are still months away, but the next year will also probably see a flush of new telecom licensees. Will this intensify competition? Kohli is unfazed.

Building new towers

Of the existing operators, Airtel has been expanding at an ambitious rate, he says. Essential infrastructure such as towers is keeping up. "In the 30 minutes you've been here" Kohli tells me, "two or three new Airtel towers have gone up, in different areas across the country."
The new players themselves, Kohli feels, "will definitely have serious viability issues." So will Airtel, with its healthy debt-equity ratios, be raising debt and acquiring such players? "There may be consolidation opportunities in a few years," admits Kohli.
And in the mean time measures such as number portability will work to Airtel's advantage, Kohli confidently points out. "There are number of customers locked into CDMA who want to switch over to Airtel," he predicts.
We speak about Sunil Mittal, the visionary founder of the Bharti Group. Mittal began life as a small-time bicycle parts manufacturer in the northern state of Punjab and now presides over a vast business empire.
The two men are close. "We worked together when the industry was in its initial years," says Kohli. They were then in different companies: Kohli was with Escotel Services.
"Those were years of struggle for the industry, from 1995 to 1999 to 2000. The telecom industry was going through tough times; losses were being made by every company. Those days we worked shoulder to shoulder and hand in hand trying to get government to make changes in policy."

Quality of service

Since those days Kohli was recruited by Mittal to lead Bharti Airtel's mobile business.
It's a business that's booming and Kohli, who most admires China Mobile among telecom companies, is clearly looking at keeping Airtel ahead in the numbers game.
His priority, apart from numbers, is quality of service — taking his example for his other favourite company, Japanese carmaker Toyota.
Kohli, who now owns two Toyotas, is himself a great example of how mobile technology has transformed the life of a middle-class Indian to that of a globally savvy international manager.
"It is telecom that will help India to lead and plug the gap between India and the developed countries, and I want to make my company the Toyota of telecom," he concludes. GTB