In March, Sanjay Kapoor, 47, was appointed deputy chief executive officer at Bharti Airtel Ltd, India’s largest phone firm by revenues and customers after 11 years at the company. Several among the company’s some 25,000 employees believe Kapoor’s appointment to the position came not a day early. Described as a manager who never shies away from rolling up his sleeves and getting down to work, Kapoor has his task cut out: together with CEO and boss Manoj Kohli, double Bharti Airtel’s 100 million customers and tweak the company’s business model to make profits even while increasingly serving price-sensitive customers in India’s villages.
In an interview, he talks to Mint on how the company’s business model is changing, how it aims to capture a bigger share of customer spending, Bharti Airtel’s plan for third generation, or 3G, services, and how the firm will face up to competition. Edited excerpts:
Experimenting: Bharti Airtel’s deputy chief executive officer Sanjay Kapoor says the bulk of the technology and content that the company has been deploying over the past two or three years is 3G compliant. Ramesh Pathania / Mint
You have crossed a customer base of 100 million. Most urban markets are fairly saturated and most of your new customers are from rural India. How does that fundamentally change what you do and the competitive landscape you are in, especially in light of the entry of new providers?
Whatever has made us successful in the past—a bit of it will continue and a bit of it will change. I clearly see that one sea change that will happen is around the profile of the customers that will be there. Rural India and a dependence on rural India will make us change a lot of things internally and externally.
What it changes for us is our distribution strategy, it changes our marketing strategy, it changes how brand connects with rural India. It actually makes us revisit our business model in many ways. You change your strategy from using IVRs (interactive voice response systems) and contact centres to how to service them through a local face in the local language.
Partnerships change as well. For urban India you have different types of partners. For rural India, you partner with Iffco (Indian Farmers Fertiliser Cooperative Ltd) which is a fertilizer company; that’s what can take your distribution down to rural India—fertilizer using communities, etc. Then, you partner with Nokia—not to brand bigger stores and locations—but to invest in mobile vans so that you can travel from one rural haat (market) to another and then actually have a rub off on each other’s brands and capabilities and also manage costs.
Similarly, to service customers—rather than having calls come down to the contact centres and IVRs, we went and invested into rural service centres and there are already 20,000 of these operational. In another few months’ time, this number will go up to 50,000.
Rural service centres...?
These are shops where the entrepreneur has been converted to be a service provider in addition to serving customers. What he does is he takes care of the day-to-day problems of the customer like SIM (subscriber identification module) replacement, education on handsets, value added services and any other issue related to these things that he cannot sort out. (The entrepreneur running the rural centre) gets a hotline link with our back end so that he is able to sort it out.
The advantage is that he is a local face. So the customer relates to him. He speaks the local language so he can convince the person much more. Moreover it’s the confidence to the customer that the services are there in my neighbourhood. The customer doesn’t have to go to a main town to get his service issue addressed – he is not going to speak to machines and alien people.
What’s in it for the entrepreneur? Do you pay him?
For him, his (customer) footfalls increase... wherever this has happened, (customer visits) have quadrupled. Also from a stature perspective – his stature in that village goes up as he is the service provider of that village.
So the whole sales service marketing distribution strategy undergoes a change considering this new set of customers.
The other big change is that very clearly India’s youth is turning out to be a major driver for future of telecommunications. There are 560 million youth in India which is more than the population of US and Indonesia put together. If you look at them and where they come from as opposed to the era that I belonged to, these guys are more the netizens as some people call them. Their whole stuff is around instant gratification, about always being connected, working in communities, indoors versus outdoors. Their libraries are not national libraries that we went to but Wikipedia. Everything is online. How they shape the usage is the future of how telecom companies (will) work in India as well. Telecom service providers will alter their services and strategies to cater to this large segment (of potential customers).
The next thing which fundamentally will change for us and the industry is that the era of some 400 million subscribers until today was essentially an era of share of what we call the mobile wallet. Everybody was concentrating on how much of the customer spending on mobile services am I getting.
In future, that will move from mobile wallet to overall wallet – how much of the overall wallet am I getting? Because telecom service providers, especially companies like Bharti Airtel, will be on the leading edge of lifestyle services. And that’s a fundamental change.
Music was the first endeavour – everybody knows we are the largest music company in India. We sell more music than HMV, Saregama, T series – all of them put together.
It is music now. It will move into financial services, into gaming, into entertainment, retailing. There are many new revenue streams.... Mobile will be at the helm of affairs.
Similarly, like the first experience for most Indians of voice telephony happened on a mobile device, we also believe that the experience for most Indians on the Internet will happen on a mobile device as that’s the only way to carry the Internet to every nook and corner of this country. That’s a very natural progression that will happen.
We also believe that television and entertainment for example, if it has to be carried to every nook and corner of this country then satellite television or DTH is the answer because a wire technology will never allow you to get down so deep into…
And most of these technologies will interplay at that stage. You might want to watch a football match on a television but you might end up watching a replay on a mobile handset. Because that is where it makes more sense.
By and large, our belief is that massification in this country whether of the big screen or the small screen will happen through wireless technology.
You talked about increasing share of the overall wallet rather than just spending on telecom. When do you expect something like that to pan out?
That journey has already started off. Investments into technologies, business cases, trial runs, commercialization of some of these services is already under implementation as I speak to you. The whole mobile commerce, or m-commerce, world I would divide it into a few brackets. One bracket is about financial inclusion or converting the unbanked into the banked. That’s an area where work has already started. We believe that the model that will be successful in a country like India will be for a telecom company not to become a financial institution but to work along with financial institutions and that is the model that we are pursuing. We believe that if there is any hope to convert the 80% of the country, then the only ATM that can make that happen is the mobile ATM. There are pilots going on. You will see commercialization of that happening within this fiscal year.
The issue really there is not technology, it’s more of regulation, isn’t it?
There is no regulation. The issue in any one of these is scalability and sustainability. Its not like such things have not been tried in the past. Smart cards were tried in the past by banks etc but could not be scaled up. The cost prohibitions and the pervasiveness of the smart cards etc could not be. What we want to make sure is that the technological plartforms that we put in, the distribution platforms that we put in, the customer interfaces, must be scalable in nature. That is absolutely paramount to make this successful. If you end up adding just a few thousand customers then you have not done justice to the potential of what is there.
Then, there are remittances – both international and domestic. Domestic remittances there is no stoppage – you can do it today – the laws and regulations permit. There is such huge amount of money that gets moved from one part of the country to another part of the country. There are so many people who work outside their domicile in this country. Even today I believe that more than Rs50,000 crore gets moved through post offices which is both labour intensive, time consuming and expensive. There is also that aspect that most of the people in big cities don’t have shelter – they actually carry all their savings on their selves. And its subject to a lot of security as well.
The second thing is the International money transfer. With such a large Indian diaspora, it is really a big opportunity. I believe that more than $42 billion move into this country. And even if you are talking of a fraction of that pie you are actually talking very serious numbers. International (transfer) is at present very expensive.
When are we seeing this happening?
Right now the domestic money transfers are allowed. International money transfer is not allowed. The industry is in dialogue with the financial regulators. I do believe that the government is very progressive in its thought process and understands what we are talking about. It’s a matter of time when this will get opened up. Its not too far away.
And, finally, it’s all about transactions. Today you can pay your Airtel bills, you can recharge your Airtel prepaid account. You can pay the toll at the toll road. You can but movie tickets, air tickets railway tickets. The same thing can be extended for pizzas and burgers and whatever you want. It’s a question of opening it up seamlessly. And then mobile wallet will suddenly encompass whatever you want. You want a retailer, wholesaler, utilities – you can just carry whatever you want. Utility payments should be around the corner. The opportunities are endless.
Similarly as the bandwidth increases, entertainment will increase. Today it is voice essentially, later video will get into it, the moment you move to more 3G oriented technologies. That’s a new opening that will really come up. Mobile television will become a reality. It’s not that these services will become all pervasive but sill a lot of people will have it. It will start opening up newer and newer niches.
In effect, what you’re saying is that despite the saturation that you see in some urban markets for voice, there is a lot more value to extracted from delivery of banking, financial services, entertainment...
There are two things I would say here – the moment you look at what happens to those markets where penetration has crossed 120%, and there are enough and more of those markets – in Europe, and some other developed markets are like that. And even when you look at the growth rate there they are still growing. By 7%, 8%, 10% every year. How are they growing? Its not that they are increasing their prices every year – its that newer and newer services and newer ideas are coming on the table.
India has a very unique disposition compared to those countries. The problem of banking is not there in Europe; it is there in India. India’s 560 million youth is very unique to the country as is the fact that it is (among) the fastest growing countries even in times of an economic downturn.
It gives us a very unique position compared to anybody else. And i guess that if anybody thought that growth in urban towns would come to a standstill – I still believe that if you go by many if these countries – there is still a lot of road to be covered.
How ready are you folks for 3G?
First of all in terms of knowing the technology, and testing the technology – we tested multiple operators in multiple locations around two years back. Tests were done on the indoor trial spectrum that the DoT (department of telecommunications) had given us and we experimented with.
In terms of our own deployment, there is a two fold benefit that we have. We operate the same technology in Seychelles and Chanel islands and now in Sri Lanka. So we ourselves have done it and now rolled it out.
Another thing is that Singtel (Singapore Telecommunications Ltd) is a deep rooted partner with Bharti and most of their networks are 3G compliant and ready.
Another thing is that we believe that India is now very clearly ready for 3G. If India has to have access to Internet, then only real answer is through wireless means.
In terms of our affordability and investment capability we have one of the better balance sheets which permits us to invest in this technology. All the technology and the content that we have been deploying over the past two or three years, the bulk of them are 3G compliant. Other than the radio part the networks that we have been deploying are 3G ready, the switching sites are 3G ready. The backbone infrastructure that we have deployed is 3G ready. The tower companies that we have created can take on 3G in very little time. So barring radio equipment etc , by and large we are 3G ready. So investment is incremental.
But in terms of the availability of handsets and other things, yes there is a large part that is not ready.
I don’t know a single market in the world where the 3G ecosystem was ready and created before 3G was deployed. Ecosystem always gets created when there are operators who start playing in that market. But the capability of 3G system quickly aligning itself to what is ready is very high.
On handsets, you are absolutely right. The real explosion will happen when 3G handsets are available at below $50. But we have always seen – there is a routing that happens based on how many operators are there. If you give a licence to one operator you cannot create an ecosystem. An ecosystem gets created when there are four or five players in the market who are trying to jointly create a traction. And, therefore the ecosystem can quickly develop. All the ingredients to create an ecosystem already exist (here in India).
In urban parts of the country it will be a mix of fixed line and mobile. Heavy data and files etc – people will still end up using the broadband. But mobile broadband will complement that activity exceedingly well.
But in rural India where there is no fixed line the dependence for data and Internet will be very heavy wireless technologies. So this whole culture of what you end up using will evolve over time. It will be a mix of voice and data – not even a pure data play.
Do you think that bidding for 3G spectrum is going to be very expensive?
That I wouldn’t want to comment on.
Even as you plan for 3G, one criticism of Indian telcos has been that while you have been successful in scaling up customer numbers, you have not been so great in customer service standards.
I don’t want to sound defensive but I must tell you that given the spectrum size, and given the number of customers in India – i don’t rate the quality of Indian networks second to any other. I think we have to consider the number of customers that we accommodate in 1 Mhz of spectrum.
Given that constraint, Indian networks are very good. There are some other parts of the world – those networks are so bad – some of the places don’t even have them. I think India does fairly well given that they had a head start over us. In terms of service the technologies that we deploy for service or the manpower that we deploy for service are comparable to anyone.
India is still one of the rare countries where 365 days, 24/7 service is available and access is available. In most parts of the world, you can forget about service on a Saturday or a Sunday; no one will pick up your phone.
One thing that does not compare too well in India as compared to the rest of the world is the number of customer calls that are there, that you get are higher by at least three or four times compared to developed markets. There the customers have started taking care of a lot of things on their own. And we realise that. But we also appreciate that that is a cultural dimension as well, a habitual dimension.
And this has led to a strategic shift in at least Airtel’s stance over the last year and a half approximately – we believe that if you really have to scale up these businesses then for you to be catering to 200 million customers will need a very large machinery. Which given the price points in India and given the cost in many of these areas may become untenable. Therefore, from a win-win perspective customer should get a quick resolution and you have to be cost competitive. So you have to allow enablement of self service on your network –where the customer must be able to provision himself. And de-provision himself.
With churn rates being that high and very low penetration in India, do you see the new operators really making a dent in Bharti Airtel’s market share given that they are expected to be very aggressive in rolling out?
When there were five or six operators in the market, the top two players combined did not have a 50% market share (by revenues). It was a very fragmented market. Since the time that this country started having 8-10 operators, now the top two players have a 50% revenue market share. We have 33% and I think Vodafone has around 25% and between the two of us we have more than 50% market share. This clearly shows you that in a crowded market also, the recognition for sustained services and bigger brands clearly stands out. So i think somewhere that begins to pay off. These are facts that are stating this and this is not my opinion.
The other one that is important for us to realise is the world over, at present, there are no markets, where there are ten competitors. I think there are nine in Indonesia. Otherwise they all came and went. On a sustainable business model, Airtel today produces close to 1.5 billion minutes a day on its network. And therefore we can afford the rates that are there. All the new operators are not working on those economies and, therefore, obviously their costs are not sustainable. I think in the past lives, many industries over many periods of time have already proven that free business models and discounted business models do not work. I don’t believe that what you see in the market in terms of aggression is supported by viability. It might be due to other compulsions. I believe that at least in the medium to long term it is viability that comes to surface. And like every other part of the world, India will see a consolidation as well.
What are the risks to your business model today as different from what they were maybe five years back? What keeps you awake at night?
There are two or three things that are important for us to discuss. Other than China there is no other country in the world where a single country operator has 100 million customers. Bulk of the processes and technologies other than the network technologies that we have developed are incrementally grown in the system. There are no benchmarks. The Chinese will not tell me what they are using either.
So while we scale from 100 million to 200 million, a lot of the technologies will either be tested by you or be home grown or may not be carrier grade because its evolving. That’s one of the risks that you always run.
You are moving on this journey virtually as a pioneer or a maiden operator. If you are a small operator you can copy it from twenty others – its plug and play. You cannot do that in an operator of our size. The journey from 100 million to 200 million is pretty much a lonely journey as there are no other operators who have that size. You got to create your own benchmarks as you move from 100 million to 200 million.
The second biggest challenge in a spectrum hungry industry is spectrum itself. You need spectrum to provide the right competitive advantage. Like any other part of the world we think that Indians deserve to be serviced on a much larger spectrum than today. Every time there is lesser spectrum you are looking at alternate ways of serving your customer. Whether you put in more sites or you put in alternate technologies. That always keeps you under pressure.
The third challenge would be as we transform from a share of mobile wallet to overall wallet, the competencies required to make the business successful will undergo a change. Do telecom companies have those competencies, do they need to cull them out internally, do they need to attract people from other industries to make it happen, do they get it within the country or do they get it imported from other parts of the world – those are the unanswered questions that will always keep us awake.