BackSunil Mittal | Ringing in the reforms
If 1991-92 hadn't happened in the way it happened, we wouldn't have been here, says chairman of Bharti Airtel
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Son of Sat Paul Mittal, a former Congress member of Parliament from Punjab, Sunil Mittal started small. He traded in bicycle parts initially.
Mittal, the eighth richest Indian according to Forbes with a net worth of $7 billion, is the controlling shareholder of Bharti Airtel Ltd, the world’s third largest telecom operator by users. Much of his success can be attributed to being able to make the most of the economic liberalization that began in 1991. In an interview, Mittal said he owes his very existence to liberalization. Edited excerpts:
The Indian telecom sector has come a long way in the past 25 years. What was it like pre-liberalization?
We all know of the difficulties at the time. You had to book a phone when you were born to hopefully get it by the time you were 18. From that to where we are today, where many people chase you for (providing you) a phone line, things have come a long way. To my mind, of the outcomes of liberalization process of 1991-92, telecom, without a doubt, will be at the No. 1 level. The kind of impact it has had on society, in terms of growth of the economy, connecting the length and breadth of this country, I think there is no parallel.
What do you think was done in the 1991 reforms that particularly helped the sector?
Prior to that period, telecom was solely the government’s domain. The breaking up of that monopoly, of DoT (department of telecommunications), that used to run services and not BSNL (Bharat Sanchar Nigam Ltd), was the big event. Then we said we will allow private sector to participate.
But, like all reform processes, it was done on a calibration basis—in fits and starts. The first was in January 1992 when the government announced that four metros—Delhi, Mumbai, Kolkata and Chennai—will have two mobile operators each. We went through the very hotly contested bidding process, then the high court, Supreme Court and finally, licences were awarded in 1994. In 1995, the services started. A year later, the government decided to open up the rest of the country for competition. It was still two operators per circle and then after a year or two, the public sector—which by then were BSNL and MTNL (Mahanagar Telephone Nigam Ltd), were given licences. That was another inflection point where the government itself came back to provide telecom services. And then, of course, the market opened up to full liberalization, from two operators to four and then to unlimited.
You make it sound very simple. I’m sure things didn’t fall into place just like that.
If you go back to 1999-2000, when more operators were being allowed in, there was a lot of stress. Incoming calls were charged at the time, tariffs were kept very high, volumes were very small and networks were not enough in terms of covering the rural areas or the hinterlands—there were mostly city-centric networks. Things like “calling party pays" were just being discussed. I remember that was one big fight.
At that time, prime minister (Atal Bihari) Vajpayee inaugurated BSNL’s services in Lucknow, where they announced incoming calls (would be) free. That was a big inflection point as the private industry was not covered under the regime. And that exploded the market as people were scared of paying for incoming calls.
Then there is the famous WLL (wireless local loop) licensing (that allowed fixed-line operators to offer mobile services without paying the high entry fees paid by mobile service providers), in which there was this backdoor entry in the mobile-telephone services by a few operators who did not have mobile licences. That went to massive litigation and was finally settled with them paying the same licence fee and penalties. There have been many battles that have been well chronicled. Things like the shift to revenue share, among others.
To what extent did liberalization help?
We are a product of liberalization. If 1991-92 hadn’t happened in the way it happened, we wouldn’t have been here. We would still have been in some business because we were determined, but we would have been a mid-sized business. To my mind, the opportunities that came through 1991-92 for Airtel, led by me in this case, Subhash Chandra in media, Naresh Goyal in Jet Airways and then the plethora of IT (information technology) companies... I think none of them would have come through if 1991-92 hadn’t happened.
Has liberalization had any adverse effects?
No. There are almost a billion connections in the country. Almost everybody is using a mobile phone—it’s incredible. Not much is celebrated about this industry. We focus on call drops or some 3 paise tariff hike. Without telecommunications, this country would have been significantly behind.
You have competed with some of the most powerful businesses in India and have managed to build the country’s largest telecom company.
When you are young, you are restless. The amount of energy you bring on the table is unparalleled. Why is Airtel not able to produce a WhatsApp today? It’s the same thing. Why is Flipkart doing what it is doing and not us, or Snapdeal or my own son Kavin, who has built a successful app, Hike? The raw energy that you bring in the early days when you have less resources is incredible. When you are a large company, you start to struggle. We struggle too. Large companies always lose their hunger and it’s never do or die. It’s always managing risks, it’s not taking risks.
All my peers were in telecom. I am the lone survivor. We brought so much passion and energy into this business. In some sense, we were stupid. We didn’t know how much money this business requires. People said, “Are you crazy? It’s a deep-pockets business." We never realized how deep was deep. That was our ignorance because if somebody had told us that it would require several billions of dollars to get here, we would have said, “Forget it." We got a $27 million break from somewhere, $5 million from here. With that, we managed to roll on. Sometimes, not knowing enough is also good. And it was for us, it was passion.
(Bharti Enterprises vice-chairman) Akhil (Gupta) and I sometimes ask ourselves, how did we do some of this stuff that we did? There were some near-death experiences, but we came out of it because we were absolutely crazy.
In the 1980s, you were making cycle parts, then telephones. How did that happen?
Telecom, in some sense, was an accident. I was making cycle parts, supplying to Hero and Avon, but I knew that I had to move on. My ambition was bigger. I tried other things. I was one of the biggest importers of Japanese portable generators. That was a raging success and gave me a lot of capital—a way to do international business, meet foreign partners, talk and negotiate with them. Three years training in Japan was very helpful. One day, the government decided to stop the import of generators. I had no business. So, I went to Japan, Korea and Taiwan, looking for ideas. In Taiwan, I saw a push-button phone at a trade fair. I have always wanted to be the first to do things. Then you are on par with the big boys. If you follow, then you are behind. That is when my romance with telecom started. I brought India’s first push-button phone, an answering machine, cordless phone, fax machine.
And then telecom services.
That was a natural progression. By 1991, we were the leading player (maker) of telephone sets in the country under the name of Beetel, but we were losing ground. In January 1992, the mobile services tender came out. That was clearly a bet and I said, “This is going to take us forward, probably half a century in terms of time-frame." That decision was followed by the tenacious follow-up to get licences and build the company. We had two near-death experiences—in 1995, we didn’t win anything in the second round of bids—but came out victorious because the others failed.
And then 2002, when Reliance (Infocomm) launched the Monsoon Hungama. The share price fell to a point where the only question was when will they (Airtel) shut down.
To get the licence in the 1990s, you needed a foreign partner. That must have been an alien concept?
That was the qualification criteria—you had to have experience, which meant a foreign partner. The ability to give equity was also a welcome step since we had no money anyway. Indians had to hold minimum 51%. Thank god for that or we would have given much more. There would be no Airtel without a foreign partner. We weren’t looking for support—we were looking for someone to qualify us for the licence. All those who qualified were big companies.
So, how difficult was it for an Indian company to get a foreign partner?
Very tough. We had some luck, some persuasion, some charm. But it is very tough for a company with ₹ 25 crore in sales, and ₹ 5 crore in profit, and we had three-four weeks to close it. The Tatas or Thapars—(and) the top 20-30 companies—probably had no difficulty.
January 1992 was the notice inviting bids and by March, bids had to be submitted. Extensive work was required in 60 days—find partners and bid. I took leave of absence from my small company, told my brothers, “Don’t ask me where I am or how much money I’m spending." At that time, spending a crore—20% of our profits—was huge. We actually spent more than that.
I went to Mauritius, to meet Bashir Currimjee, who was running a mobile network called Emtel. It still runs today and I actually own 26%. We signed a 51-49 (agreement) since he was the first available. But they were a small network with 2,800 customers, so we wouldn’t have qualified. But we had to start somewhere. In a car, on the way back to the airport, we signed on a piece of paper. He still has a copy of that. We still needed a qualifying partner. He was friendly with then French ambassador to India, Philippe Petit. He asked him to introduce us to a company called SFR in France.
Meanwhile, I was getting to know the business—looking into equipment, meeting Ericsson and Nokia and Motorola and all. The person from SFR, Michael Villaneu, gave me time with great difficulty—only half an hour, on a Saturday, when the office was closed. I told Bashir, there was no way I could sell myself in half hour. Villaneu and I met and that half hour became an hour, then two hours and then he said, “Will you have lunch?" We went to a small restaurant below the office and when we came back, he said, “Ok, We’ll do this, but come back on Monday. We will sign an agreement. I don’t have anybody here." I said, “Why do you need to get a lawyer? I will make something for you." He asked if I was a lawyer. I said, “No, but give me the chance to produce something for you. Just lend me your secretary and I will sit down with her."
In the half an hour, I drafted an MoU (memorandum of understanding). He changed maybe one word and we signed on Saturday afternoon.
On Monday morning, a big guy from India—I won’t name him—reached out to Villaneu, who said, “Already signed up." He said, “Signed up with who?" He said, “Signed up with Bharti." He said, “Bharti, who?" And then this guy (Villaneu) panicked. He sent his secretary and a senior executive to Delhi where I showed our pharmaceutical capsules manufacturing unit and the second telephone manufacturing factory we were building in Gurgaon.
That night, he pulled the plug on us. He said, “I have done my research. You don’t even exist in the telephone directory." I said, “In India, you don’t need to be in a telephone directory because you buy your phones in black." He said, “I am sorry. We are too large a company. We can’t be exposed to this small company. I have to pull the plug."
I called him and said that I was devastated. There was little time left to find another partner. And I said: “There was something you felt at that time when I saw you and you signed the same day. Stay with the same instinct. What is there to lose? We have to bid, you don’t spend a penny. I will do everything. If we qualify, then you pay your part, but don’t go now. One, I will not let you go. We have a signed agreement, and you will also not be able to bid. I’ll be finished anyway. Stay with your instincts."
So, he decided to stay. We put the bid together and Rajan, my brother, went to submit it at Sanchar Bhawan. We had two tempo loads of boxes for the bid, and people had to go to the 13th floor to submit it. Rajan met Tata group’s Zaid Baig. He asked Rajan what all the commotion was about. Rajan replied that it was our bid. “Where is your bid?" Rajan asked. Baig pointed to two files under this arm. Rajan came back and asked me, “Have you gone mad? What have you done?"
We had aerial photography of Delhi-Bombay. We were only concentrating on these two. I personally sat in the helicopters, did the aerial photography. We had satellite imagery, we had tonnes of documents. We sat every day with four-five secretaries and two-three people putting together the bid. We produced one of the world’s best bids, but it was probably never required. But I was too small to take a chance. And that’s how the world made bids. By 7pm, we would open a Black Label, work till 2am, sleep in the office—I slept on a table—start again in the morning and we produced our bid.
We won the Bombay licence—that was the most wanted, but our preference was Delhi. My wife wasn’t happy, but we packed and moved to Bombay. We had just moved into a new home in Vasant Vihar. There was no choice. But then it went into litigation, and finally the Supreme Court downgraded us from Bombay to Delhi.
When the file came out finally, we found out that we were granted all four licences—Bombay, Delhi, Calcutta and Madras. We were the only one. But the minister struck down saying, one company, one licence. We were happy with Delhi, because we wouldn’t have been able to do four.
This company has never been run by a foreign partner. They helped us qualify. We did it ourselves, home-grown, me, Akhil, learning the business as we went along.
Take us through some of the early days of the business.
The equipment selection is another great story. Everyone was wooing us. They knew more than us. We didn’t know how successful this could be. But they did. They were hosting us, feasting us, banquets—Nokia, Alcatel, Ericsson, etc. Alcatel was sure that being SFR’s partner, we would choose them and Ericsson. We met Ericsson, spent about a day and a half with them. They were all engineers—even the marketing people. I was very impressed.
At night, we went out for dinner. There were about 12-14 people and we were only two of us. Out of courtesy, I said, “Let me pay." And to my surprise, they said, “Okay."
In those days, you didn’t have credit cards, you didn’t have much money. Shyam Roy, who was with me, who came from Mauritius, had a credit card. He paid, and that night, we decided to choose Ericsson. The bill was a few hundred dollars. You didn’t carry that much money in those days. That’s the reason we selected them. Everybody was wooing you heavily. These guys just let us pay the bill.
When we had to finally place an order, it was worth $27 million—a big amount. I went to Ericsson president Kurt Hellstrom, and said, “Kurt, I cannot pay." This was after all the discussions and everything was decided and we had signed the contract. I said, “I can pay you only a deposit of 15%." “When will you pay?" he said. I said I will pay when my customers are happy. He said, “Define happiness." I said, “When they are talking on the phone, everything is working well, you will get your payment. You have my promise." He said okay.
And that’s how the Delhi network was put up. We didn’t put any money other than 15% and the customs duty. That made a big difference for us. This was all persuasion, to transfer your enthusiasm and making them believe.
The sector itself had a rocky start with the shift to revenue sharing.
In 1995, the auction saw insane bidding. People won licences at prices beyond their capacity to pay. In 1999, the government decided to shift to revenue share (where the telcos pay a percentage of their revenues as licence fee and spectrum usage charge rather than the earlier fixed fee that the telcos had bid).
The then Bharatiya Janata Party-led National Democratic Alliance government took the bold decision to help the industry survive. Some of us who knew the business bid sensibly and got knocked out of the auctions. But later, we were able to buy these people who were dying. Without revenue-share, we won’t have been able to acquire Spice, JT Mobile, which was in three places, and Shyam Telecom—Hexacom in Rajasthan. That gave us an opportunity to grow, because revenue-share was much easier to deal with.
What was your worst experience?
In 2002, the Reliance Group entered the sector with tariffs at ₹ 1 a minute, better known as the Monsoon Hungama. We had this famous Agra conclave, maybe 40-50 of us together, with me and Akhil on one side, and rest everybody on the other side, saying we should take everything we have and throw it back at them—fight it out. I said “Go to the ground. We will not fight. We will surrender to this wave." Everybody was shocked.
By the second day, I turned everybody around. By going to the ground, I meant get close to the customer, get close to every employee in the company, see what you can do better; cost-saving, don’t spend, no marketing, no advertisement, conserve. We will review in six-seven months.
I was on a plane every day—Patna, Bhubaneswar, Andhra Pradesh, Karnataka, Bombay. There was no place in the country I did not visit.
All-day reviews—how many customers? towers? what’s happening? how was the impact? In the evening, roll up my sleeves. We would celebrate in the evening—big pump-up speech and then next day, next place.
The share went down to ₹ 19 from ₹ 45, what we listed at—and then around ₹ 11.50. That was one of my most difficult periods. We didn’t have the resources at that time, we just had the raw horsepower. That’s all.
Your managed-services model just happened to come up on its own?
No, managed services was a compulsion. When we had 2-3 million customers. Me and Akhil aimed for 25 million. We didn’t know we would be (having) 250 million customers. We looked at the companies with 25 million customers, there were five-six—Orange, Telefonica, AT&T, Verizon. I was shocked.
There was no way we could pick up so many engineers, IT professionals. We are not their first port of call. We needed thousands of engineers.
So, we started outsourcing some key functions. We told Ericsson, “Since you are putting up the network, you manage it yourself." We transferred 1,100 of our engineers to them. We did the same with IT with IBM.
That model of outsourcing came out of compulsion. It was a revolution and it’s taught in Harvard Business School even today. It allowed us to focus on the business—the market, billing, collections, etc.
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