SULTAN OF TELECOM: Mittal wants a share in every telecom pie across the country

"We do in two years what others do in 10 years." Sunil Mittal, Chairman & Managing Director, Bharti Group

The summer of 1982 was cruel for Sunil Bharti Mittal. A rather obscure government decision to ban import of generator sets had reduced him from the world's biggest importer of Suzuki gensets to nothing. Crestfallen and dejected, Mittal flew down to Thailand to unwind. Only his entrepreneurial mind-Mittal had run businesses as diverse as cycle parts, steel sheets and yarn by then-wasn't ready to wind down. In the shopping malls of Bangkok he spotted something that would one day change his life-and the face of Indian telecom. It was a push-button phone, an alien gadget in the economic fortress that India was.

Soon after his return, Mittal set up his first telecom company called Mittbrau, a tongue twister short form for Mittal brothers. The company, renamed Bharti Teletech, is today India's largest manufacturer of telephone handsets, sold under the Beetel brandname. Yet, if not many people know Mittal, 46, as India's largest telephone maker it's because from a small industrialist till the early 1990s, he has grown into India's first private telecom emperor whose kingdom will soon extend from Gujarat in the west to Kolkata in the east and from Punjab in the north to Tamil Nadu in the south.

Business BHARTI'S CELLULAR EMPIRE: PRESENT AND FUTURE ... DELHI Total subscribers: 9.19 lakh Bharti's share: 56.1% CHENNAI Total subscribers: 2.38 lakh Bharti's share: 53.6% KOLKATA Total subscribers: 2.40 lakh Bharti's share: 41.1% ANDHRA PRADESH Total subscribers: 4.54 lakh Bharti's share: 47.9% KARNATAKA Total subscribers: 3.57 lakh Bharti's share: 59.2% PUNJAB Total subscribers: 2.48 lakh Bharti started service on Feb 8 HIMACHAL PRADESH Total subscribers: 20,061 Bharti's share: 65.65% HARYANA Launch: March 2002 Rivals: Escotel, Aircel Digilink GUJARAT Launch: April or May 2002 Rivals: Fascel, Birla Tata AT&T MAHARASHTRA Launch: April or May 2002 Rivals:BPL, Birla Tata AT&T MUMBAI Launch: May 2002 Rivals: BPL, Hutchison, MTNL KERALA Launch: April 2002 Rivals: Escotel, BPL TAMIL NADU Launch: April 2002 Rivals: BPL, Aircel MADHYA PRADESH Launch: March 2002 Rivals: BTA Cellcom, Reliance UTTAR PRADESH-West Launch: March 2002 Rivals: Escotel, Koshika >New Circles >Existing Circles Barti has the largest share of 21% in the cellular subscriber base of 57.25 lakh. ... AND HIS FIXED LINE FOOTPRINT CIRCLE LAUNCH COMPETITOR MADHYA PRADESH June 1998 BSNL HARYANA December 2001 BSNL DELHI February 2002 MTNL KARNATAKA March 2002 BSNL TAMIL NADU March 2002 BSNL In Madhya Pradesh, Bharti has 1.4 lakh subscribers in 28 cities.

In the thick of this action is Mittal's flagship company Bharti Tele-Ventures-worth Rs 8,340 crore, of which at least 36 per cent is owned by the Mittal family. It is investing Rs 5,000 crore in a span of seven months, unleashing a speed and scale of launches never seen before. Between February and May this year, Bharti will launch its cellular phone service, Airtel, in eight new circles and basic telephony, Touchtel, in three states (see graph). That's in addition to its entry into the domestic long distance (STD) and international calls (ISD) services and expansion or launch of broadband, Internet and VSAT operations.

"This is a period of extraordinary growth," admits Mittal, who recently raised Rs 834 crore by diluting 10 per cent of Bharti Tele-Ventures through a public issue. Here's how that extraordinary growth is transforming the company. By May 2002, Bharti's network would have expanded to 15 cellular circles and five fixed-phone circles, up from two and one circles in 1999. From targeting just 2 per cent of the Indian population in 1999, the company's footprint will now cover 58 per cent Indians. The turnover, of course, zoomed from Rs 189 crore in 1998-99 to Rs 723 crore in 2000-1.

Bharti's breakneck expansion has drawn awe, envy and some genuine suspicion. Is it going too far too soon? Is Mittal shooting for the moon? After all, the Indian telecom sector has tested the patience and prowess of some of the biggest foreign and Indian investors-Swisscom, BT and the Birlas to name a few. The question is, will Bharti continue to thrive in a market where companies with big brands and deep pockets have struggled to survive?

So far, Bharti has sailed smooth and high on the twin wings of quick access to cash and great partnerships. Be it the acquisition of businesses, bidding for licences or expansion, Mittal had funds available at any time and in any amounts. In 2001, he sealed the $90 million (about Rs 400 crore) acquisition of Spice's Kolkata cellular circle within 48 hours. The company's long list of present and past partners include some of world's biggest names in telecom: SingTel (Singapore's largest company), Siemens, Ericsson, Intel, BT and Sprint. The total foreign investment in all Bharti companies is over $1 billion (about Rs 4,800 crore), making it the largest single recipient of foreign investment. Mittal is convinced that his tap of funds will not run dry and his partners will not hang up on him.

Here's his logic. After the public issue, Bharti's Tele-Venture's equity capital has risen to about Rs 5,000 crore, one of the largest among Indian companies. The company's debt is a little over Rs 1,100 crore. That amounts to a debt-equity ratio of only 0.22:1. This means that for every rupee contributed by Bharti's shareholders only 22 paise has been borrowed. That's a pointer to Bharti's huge potential to borrow. Even if the company borrows another Rs 3,500 crore, its debt-equity ratio will still be a healthy 0.75:1. And that's precisely what Bharti plans to do now.

One of the reasons for Bharti's enormous equity is that the Mittals haven't hesitated in diluting their stake in the company. "We were never ashamed or embarrassed of diluting the stake in the company," admits Akhil Gupta, joint managing director of the company. The foreign ownership of Bharti Tele-Ventures-predominantly SingTel ($650 million) and US-based investment firm Warburg Pincus ($293 million)-is now over 46 per cent. "Very early we decided to fly on the wings of large foreign companies," quips Mittal.

That ensured three benefits: state of the art technology, steady stream of funds and modern management practices. Mittal claims he stopped signing cheques 15 years ago and his employees can question him on any matter. Transparency is another lesson Mittals learnt from their partners. Every executive decision in the company is shared equally and at the same time with all partners. The biggest proof of Bharti's transparency was its 344-page IPO offer document.

COMPETITION CALLING: With VSNL in its fold, Tatas along with Hutchison, BPL and Reliance will be formidable rivals for Bharti

Mittal's rivals respect him. Tata Industries MD Kishor Chaukar calls him "the smartest telecom operator in the country". His two biggest competitors, Hutchison and BPL Mobile, have held negotiations with him in the past to join hands. The deals did not go through-Hutchison decided to buy new circles through the bidding process and BPL Innovision's Rajiv Chandrasekhar decided to opt for the Birla-Tata-AT&T combine-but the respect remains. In fact, Bharti's successful public issue-the first by an Indian cellular company-has been hailed by its rivals. "The Bharti IPO is good for the entire cellular industry," says Asim Ghosh, managing director, Hutchison Max. Hutchison plans to go public towards the end of the year. "For too long, the Indian cellular industry has been dependent on foreign capital. With Bharti's IPO this could change," says Chandrasekhar. He should know. Once the leading cellular player in the country, BPL was forced to consolidate its business with other players to survive in this money guzzling industry.

Business BHARTI'S OTHER PLANS Start STD services once interconnectivity with BSNL is resolved. Enter ISD after the policy is announced in April this year. Integrated broadband, VSAT and Internet businesses to provide customised data communication services to companies. Could offer WLL-based limited mobility, already has 40,000 WLL subscribers in Madhya Pradesh.   AND ITS MAJOR RIVALS Hutchison, BPL-Tata-AT&T, MTNL and BSNL in cell services. Reliance, Tatas, BSNL and MTNL in fixed-phone services. Reliance, the Tatas and public-sector companies in long distance telephony. Reliance in broadband.

It is this wave of consolidation that could be the most formidable challenge for Bharti in the future. If the AT&T-Tata-Birla merger with BPL happens, the combined entity will have a 24 per cent share of the Indian cellular market, higher than Bharti's 21 per cent. Tata's acquisition of VSNL has suddenly catapulted the group to the big league with licences and subscribers for STD, ISD and Internet services. Hutchison too is building its cellular empire. Then, of course, there is Reliance Infocom, which has earmarked $5 billion (Rs 24,000 crore) to build a fibre-optic network, as well as provide cellular, STD and isd services. Public-sector giants mtnl and bsnl have shaken off their slumber and launching new services and price wars. Tack on the mercurial regulator, trai, and the imminent introduction of limited mobility-called wireless in local loop (WLL)-and Bharti's competition looks as towering as its recent achievements.

Then, Bharti Tele-Ventures, which has incurred net losses since inception, is unlikely to turn profitable in the foreseeable future because of the heavy capital expenditure it is currently making. By the end of 2000-1, it had accumulated net losses of Rs 233 crore. The company also hasn't ever paid dividend to its shareholders and won't be able to for years. Its current and future borrowings will restrict its ability to pay dividend because debt servicing will be a priority over dividend payments.

But Mittal isn't worried. "Bharti is a product of competition and liberalisation. We thrive on it," he declares. He prefers to compete with fewer but formidable rivals over a number of small competitors. His competitive strengths right now are a larger equity base and strong and committed partners. The old operations are also turning profitable. The Delhi cellular service has been making profits since 1998 and even the combined operations of Bharti Tele-Ventures showed an operational profit of Rs 18 crore for the first six months of 2001-2. The spate of launches will keep the company into the red, but shouldn't affect the flow of funds to the company.

More than anything else, Bharti's biggest strength in future could be Mittal's willingness to free the company from dynastic control and let it be run by professionals. "The family interest in the company was put on self-destruct mode some years ago," he claims. He himself hopes to withdraw from day-to-day management in four years and do something "completely different". Perhaps build another empire from scratch.

-with Vivek Law and Malini Goyal