Mr Gopal Vittal, MD & CEO, Bharti Airtel Ltd., shares insights from the Airtel saga and how the company learned to disrupt and manage disruption. He was delivering The Fourth V Narayanan (Pond’s) Memorial Endowment Lecture in Chennai recently.
I joined Ponds in 1990 and worked with Mr. V Narayanan only for a couple of months, after which Mr. Balaraman became the managing director. I had the good fortune of meeting Mr Narayanan even before I joined Ponds. He was a very dear friend of my uncle who lived in Cenotaph road. I was in college, and my uncle had invited me to his house for dinner. I met Mr Narayanan there and he regaled us with stories. I want to share some of the lessons I’ve learned, distilled from what happened in the telecom industry.
Airtel is a young company, launched in 1995. We started in Delhi and by 2010 or 11, we were pretty much a national company. In 2016, we had a revenue market share of about 30%. It was a very fragmented market with 10 players. Spectrum is a resource pool on which telecom networks work. As you have limited spectrum, you need few players, in order to make sure that you use the spectrum well. But India had a strange situation when you had three players, which accounted for about 80% of the market, with just 20% of spectrum. There were another seven players with 20% of the market and 80% of the spectrum. It meant that the spectrum resource that was available was very poorly distributed amongst the players.
The Jio Storm
Then Reliance Jio came in 2016. It was an absolute onslaught that happened in the industry. This was one of the few industries globally, where services were run for free for almost nine months. Anything that you give away for free in India is obviously very valuable. We had people queuing up in shops and taking away the Jio services.
Telecom is a very capex heavy business. The product that you sell is air. You can’t smell it or touch it or feel it. To build the networks, it requires very heavy investments. This was the first time in the world that a new player had come in and put in more capex than the incumbent players. We had invested about $20 billion, up to that point in 2016. They came in with an investment of $40 billion. Overnight, they had doubled the capacity. They had more towers than us; they had more fibre which is the heart around which all networks work and which needs heavy investments. They had far more capacity than us.
Giants Collapse
We were subjected to a series of regulatory shocks. Almost $7 billion was effectively wiped out. A billion dollar was transferred from us to the other players. Another $6 billion hit us as legal fees for cases that we had won in many courts. The consolidation was dramatic. Ten players went down to three players effectively. People were bankrupted overnight.
I remember that the offices of Aircel had people queuing up and demanding money from the distributors. People threw stones at the offices. Reliance communication, which was a large company at that time, went into bankruptcy. Telenor, which is one of the largest Scandinavian operators across Scandinavian markets, effectively shut shop and handed over the keys to us. Tata Communications, again from the large Tata conglomerate went bankrupt.
This series of bankruptcy hit many of the players. The number two and number three players – Vodafone and Idea merged together to effectively become the number one player. They ended up with a 45% market share; we were at 30%. Reliance just about started pricing.
Given the low prices that were operating, the market which was about $32 billion or 240,000 crores effectively became $22 billion. 33% of the market revenue evaporated because of the low pricing. Out of every 100 rupees of revenue that we were earning, 50 rupees was the operational expense. We were effectively left with 50 rupees of cash flow and we had to put back those 50 rupees into capex. Taxes were separate. So, we were deep in the red.
In effect, what happened was three things. The penetration of smartphones went from almost nothing to 70% in a three-to-four-year period. The usage per customer of gigabytes of data went from 0.8 gigabytes to 23 gigabytes a month, which meant more capacities. Also, the rate per gigabyte went down from 250 rupees to six rupees. This was the perfect storm that really happened in that three-year period between 2016 and 2019.
Stellar Show and Four Lessons
Today, four years down the line, Airtel has 40% market share. The revenue in the last four years has doubled from about 50,000 crores to 108,000 crores. The EBITDA, which is a measure of profitability, has more or less tripled from around 18,000 crores to 55,000 crores. The market cap, which is an outcome of all of this, has gone from $20 billion to about $80 billion.
I’m also quite amazed by our non-wireless contribution because we were very mobility centric company and heavily dependent on the mobile business to the extent of about 85%. The non-mobility business, which was about 15% contribution has now become 25%. We have a stronger and more resilient portfolio. We also have a range of digital services. For example, we have our own payments Bank, which is a thin bank, where you can remit money. It is the only profitable Fintech player. We have got a very large data center business. We also build some of these businesses.
There are four lessons that I’ve learned out of this whole exercise. They are applicable, not just at moments of disruption. When I look back, I wish we had absorbed these lessons even before all of this had happened.
Tone and Mindset
The first lesson is about the tone and mindset. For me, the battle is fought in the mind first, before it is fought in the marketplace. I remember standing up in 2019 and addressing the whole company. We have leadership meetings once a year. I put up two charts. One was a chart with very stormy seas, which is exactly what we would encounter in the country. I said that this was a once in a lifetime opportunity. Ten players coming down to three was something that we knew would happen because you needed nerves of steel, and enormous capital to survive the onslaught. By the way, we had to raise $15 billion of capital to fight this battle and strengthen our balance sheet. We had a rights issue; we had to dilute promoter holdings and we had to raise a series of perpetual bonds and a whole bunch of things to actually raise capital.
The second area around tone and mindset is also the metrics that you set. When you know that your revenue is going to fall by 20% 30%, what are the targets that you can set your teams? You can’t set a target of -10 or -20% revenue. It’s a really a tough question. Also remember, if revenue is going to fall, margins are going to fall. We have 14 operating units across the country. All our operating units are measured on the basis of revenue, margin and market share. You can’t set targets that make people feel like losers every day.
We had a deep conversation at the board. I said to the board that I would be the only one who carried the target of revenue and margin. We put two targets, which were more controllable – market share and cost. Market share is a barometer of competitive performance. You can control your cost. The consequence of that is that people felt, even at a point when things were going down, that they needed to do something in contributing towards the company.
I contrast this with Vodafone Idea who was much larger than us at that point in time with 44% share. Their target was that we were going to defend the market share. If you say you’re going to defend share, you’re inevitably going to lose the share. If you say you want to win share, then chances are, that at least, you will hold the share. So through that battle, we came out in those first two years, not losing market share.
Know Your Customer Segment
The second thing I would call out as a big lesson is that we had to be very clear about which customer segment we would want to go after. We are competing with a player that has almost infinite amount of capital. It’s a bottomless pit of a big balance sheet, which is being funded by many businesses that the company is running. They have regulatory muscle and clout. If you compete on their terms, then you’re going to lose. Winning the best quality customers is what we decided that we would do.
In India, about 35% of customers account for 70 to 80% of revenue. 245 districts out of the 770 districts give the industry almost 80% of the revenue. We decided to focus on just these 245 districts and forget about the other 450 districts. We were very clear that we want the best quality customers. This was a very big call to take. A group of people who had built the company for 21 years thought exactly the opposite. Convincing them and persuading them to make the shift was a challenge. We made a very bold move to shed customers. We had 289 million customers. We put in an entry price plan, which was like a surrogate plan where we knew we were going to lose about 60 million customers. Finally, we ended up losing 50 million.
It unclogged a lot of our networks because these customers were just receiving incoming calls. But more importantly, it convinced everybody in the organization that we were serious about what we were trying to do. We put all our energies and our limited capital into these 245 districts and vowed that we are going to be better than anybody else. We also kept the price premium, to attract quality customers.
Postpaid plan became a very big area of focus. We have the leading position in postpaid – about 60% market share in postpaid segment in India. 80% of our customers are on family plans. This means if you’ve got the chief wage earner or one person in the family on a plan, they can add two or three other people on the same plan. Thanks to this, the stickiness is very high. The churn really crashes, because if you want to move or switch the network, you’ve got to switch the whole family. 80% of a postpaid business works on family plans. We were crystal clear about the customer segment we were we were going to target. That was the second big thing for me as a lesson.
Differentiation: The Airtel Way
The third big lesson was on differentiating our intangible service business. We are in a business, where we are remembered when we fail, unfortunately and not remembered when we work. One percent of the time when we fail is when, everybody would curse us saying that this is our fault. Often, it’s the fault of the device or the application, but we are the ones that actually face the music.
For us, there were two sources of differentiation – customer experience; and crafting that customer experience through technology. We decided that on experience, we’ve got to be the best in these 245 districts. We had to have the best network and the best experience. We asked ourselves: How do customers assess experience? When you open up a YouTube session, you want it to load up fast. When you’re paying a bank online, you don’t want it to fail, just as you go through the transaction. We had to do a lot of engineering to ensure this. In telecom language, it’s called latency. It’s the time it takes to boot up a page or a YouTube video. We got better at it. We tied up with the banks and told them, ‘If your application is failing, then my customer thinks it’s the network problem. Let’s work together to correct the problem.’ As a consequence, many companies rate Airtel for the best experience on several parameters- be it gaming or video application or voice calling. Not that we are the best but we are definitely great.
The 3 Stacks
The second source of differentiation is about crafting the experience, looking at all our technology. In Airtel, we think in three layers. The first layer is the data infrastructure layer- the digital infrastructure and network. Data is a real goldmine. We have spent the last five years building up the finest state of the art data infrastructure layer. We have almost 2000 attributes that we can look at, on customers, based on the device usage, its applications and various things. The response rate for a query is in milliseconds. This is one of the reasons why our average revenue per user is at least 18 to 20% higher than the number of any other player in the industry. This is the first part of our style.
The second part of our stack is the digital experience layer. We have to think from a customer’s perspective. What do customers do? They buy stuff and we have to serve them stuff. Typically, in telecoms, we have a lot of billing systems, with great, underlying complexity. We have built platforms on top of this complexity, so that we simplify the journeys for a customer. Let me give you an example. Today, we have 70,000 people, who go to the houses to install a broadband, do a fault repair, or go to a network site to repair it. All of them sit on one application, which is called Airtel Work. Everything is monitored real time at the back, through a network operating centre. The quality of the work, authentication and scheduling of the work happen real time, done through the same platform.
Digital Services
The third layer is our bank. If we can create digital services, we can get more and more share of wallet of the customer. So we have a bank. We do over 20,000 crores of throughput in the bank, a month. It’s the only profitable FinTech player in the space in India. We have a lending business. We do about 3000 crores of lending on our platform. Again, that comes from the digital infrastructure layer. We have so much of information, that we have credit scored our customers and we are able to lend using partnerships with banks. We have a large data center business.
We have another product called Airtel IQ. We help customers on things like phishing, spam and fraud. We work with HDFC Bank to create an artificial intelligence led, anti-phishing, anti-spam shield on the core network. As millions of messages are coming through the network real time, we are blocking potential spam and phishing. HDFC has seen almost a 99% reduction in their spam and phishing attacks. Thus, differentiation in a service that is quite intangible is the third big lesson.
Culture of Ownership and War on Waste
The last lesson, I would call out is culture. I cannot underscore this more. If I were to define the culture of Airtel in just one word, then it is this – ‘ownership.’ Across the company, people feel it is their company and it is their money. They are empowered to do what whatever it needs to be done to build the business. One aspect of ownership is frugality. We have a program that we’ve been running for the last 11 years. And this program is not about cost reduction. We don’t call it cost reduction. We call it a war on waste. Because when you say cost reduction, people start getting tense, because it’s almost like they’re being questioned. But if you say it’s about waste elimination, the ingenuity that you get from the teams to actually strip waste is dramatic. In the last five years, we have taken out $3 billion, almost 22,000 crores of waste from the system- reducing our network and call center costs and just stopping costs from happening in the first place.
The second part of our culture ownership. We are in a fast-paced industry and we have to move fast. One of the first decisions that we took and in hindsight, which I think was a good decision was that we stripped out one layer in the company. We have 14 circle units and each circle has a Circle CEO. They report to a Chief Operating Officer. We don’t have a layer in between, because we believe the circle CEOs are the most empowered General Managers in the company. One supervisor is more than enough to manage that, which effectively means that we’re not breathing down somebody’s neck. They have full empowerment to run it.
The Power of Rituals
We also have a concept of rituals. We do this every morning, with all our 2500 stores. Today I was in a store in Anna Nagar. The ten store staff will get together, talk about the good customer stories and the not-so-good customer stories of the previous day. These customer stories will get aggregated along with all the calling and the patterns that we see centrally. We try to structurally solve those problems and report back to the store staff about what we’re doing to solve their problems. This creates a sense of energy in the in the organization. This is again, an example of pace.
I believe my role as CEO is to be the glue between different functions and business units, so that space is achieved within the company. Wherever there are friction points and cross functional fracture points, I attempt to iron it out through more real and authentic conversations. As part of our rituals, every quarter, we get together and talk about what’s coming in the way of our leadership. That is not a general discussion. It is based on surveys that are done by our teams qualitatively and quantitatively, to assess how the leadership team is performing and where they can help to do the job better. We discuss how we’re going to change over the next 100 days. That generates a sense of pace and trust.
I am Airtel
The last part of ownership is a culture of rigour. We have an incredible amount of data within the company. Today we have 280,000 mobile towers across the country. Every single tower has profitability. We know the cost, revenue and profitability of each tower. In Airtel, you’ll hear a lot of jargons and one of them is LRLU, which means low revenue, low utilization. The low profitability towers are identified.
We’ve now taken that one step further. The 2500 stores that we have across the country are now divided into catchments. Each catchment has a grid and a grid is literally 500 meters by 500 meters. Within the grid, we know exactly what the customer experiences. We know our assets and what the sales teams or network teams need to do and make sure that they happen. So ownership comes through different aspects- frugality, pace and rigour. We have three words in Airtel, which we use and talk about it often. All our emails get signed off like that. Those words are, ‘I am Airtel,’ which is really the symbol of that ownership.
