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Bharti Airtel Limited

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PUBLICATION DATE: 08 Jun 2017
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Bharti Airtel Limited
TABLE OF CONTENTS

TABLE OF CONTENTS

Company Overview ........................................................................................................3

Key Facts ......................................................................................................................... 3
SWOT Analysis ...............................................................................................................4

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Bharti Airtel Limited
Company Overview

Company Overview

COMPANY OVERVIEW
Bharti Airtel Limited (Bharti Airtel or "the company") is one of the leading global telecommunications
companies, offering second generation (2G,) third generation (3G) and fourth generation (4G) wireless
services, mobile commerce, fixed line services, high speed digital subscriber line (DSL) broadband,
internet protocol television (IPTV), direct-to-home (DTH), enterprise services including national and
international long distance services to carriers. The company operates in 20 countries across Asia and
Africa. It is headquartered in New Delhi, India.

The company reported revenues of (Rupee) INR966,192 million for the fiscal year ended March 2016
(FY2016), an increase of 4.9% over FY2015. In FY2016, the companys operating margin was 18.7%,
compared to an operating margin of 16.1% in FY2015. In FY2016, the company recorded a net margin of
5.7%, compared to a net margin of 5.6% in FY2015.

The company reported revenues of INR233,639.0 million for the third quarter ended December 2016, a
decrease of 5.3% over the previous quarter.
Key Facts

KEY FACTS

Head Office Bharti Airtel Limited

Bharti Crescent, 1
Nelson Mandela Road
Vasant Kunj Phase II
NEW DELHI
Andhra Pradesh
NEW DELHI
Andhra Pradesh
IND
Phone 91 11 46666100
Fax 91 11 46666411
Web Address www.airtel.in
Revenue / turnover (INR Mn) 955,889.0
Revenue (USD Mn) 15,087.6
Financial Year End March
Employees 23,289
National Stock Exchange of India BHARTIARTL
Ticker

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SWOT Analysis

SWOT Analysis

SWOT ANALYSIS
Bharti Airtel Limited (Bharti Airtel or "the company") is one of the leading global telecommunications
companies, offering second generation (2G,) third generation (3G) and fourth generation (4G) wireless
services, mobile commerce, fixed line services, high speed digital subscriber line (DSL) broadband,
internet protocol television (IPTV), direct-to-home (DTH), enterprise services including national and
international long distance services to carriers. The company has established a strong market position in
some of the most resilient economies in the world and is therefore equipped with strong growth
prospects. However, competitive pressures may adversely impact Bharti Airtel's margins.

Strength Weakness

Strong Market Position Lawsuits and Litigations

Integrated Services Portfolio
Presence in Emerging Markets
Robust Network Infrastructure
Opportunity Threat

Increasing Data Consumption Intense Competition

Untapped Markets of India and Africa Alternate Technologies May Impact the Company's
Positive Outlook for DTH and IPTV Markets in India Business
Strong growth in the Mobile Money Market

Strength

Strong Market Position

Bharti Airtel has a strong market position in the telecommunications industry. According to industry
estimates, the company is the third largest telecommunications service provider globally in terms of the
customer base. Further it is considered as the leader in terms of market share in 11 countries. In addition,
Bharti Airtel is the leading player in the Indian telecommunications industry and second largest in Africa.
The company has a revenue market share of 30.7% in the Indian wireless market in FY2015 and 16%
total spectrum market share of 40% in the 900 MHz spectrum. The company also has a substantial
customer base. Bharti Airtel had a total customer base of 357.4 million in FY2016. Moreover, the
company had a mobile services customer base of 251.2 million 10.2 million, and 80.6 million in India,
South Asia and Africa, respectively. Furthermore, the company had 11.7 million subscribers for its digital
TV services and 3.7 million customers for its telemedia services. Moreover, the company's total
subscribers' base has been increasing consistently since 2010. The company's significant market position
substantiated with its customer base ensures stable revenues. Further it also allows the company to
launch new products and services and the customer base provides a substantial base for the
consumption of the company's products and services.

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SWOT Analysis

Integrated Services Portfolio

Bharti Airtel offers integrated services. For retail customers, the company offers fixed line voice,
broadband, mobile services, mobile data, digital TV and several other value added services, including
mobile payments. For the enterprise customers, the Airtel Business offers wide portfolio of services that
include voice, data, network integration, data center and managed services, enterprise mobile
applications and digital media. Further, Bharti Airtel offers tower infrastructure services to the
telecommunications providers. Ability to provide integrated services is a competitive advantage.
Specifically, the average revenue per user will be incremental as the company's integrated services
continue to penetrate the customer base.

Presence in Emerging Markets

Bharti Airtel operates in the emerging markets of Asia and Africa which enables it to drive revenue growth
and leverage opportunities offered by the growing markets. According to IMF, the gross domestic product
(GDP) of India is expected to grow at 7.5% in 2016 and 2017; and the Sub-Saharan region is expected to
grow at 3% in 2016 and 4% in 2017. In addition, Bangladesh is expected to grow at 6.6% in 2016 and
6.9% in 2017; and Sri Lanka at 5% in 2016 and 2017. The growth in Africa is being driven by investments
in education, employment, healthcare and critical infrastructure. In addition, the telecommunications
sector contributes significantly for the economic growth in Africa. Further, Bangladesh has its focus on
increasing foreign investments, improve infrastructure and promote all-round socio-economic
development. The company's strong presence in the emerging markets of Asia-Pacific and Africa enabled
Bharti Airtel to drive revenue growth. It also enabled the company to focus on the emerging markets of
mobile money and e-commerce in these regions which offer enormous growth opportunities.

Robust Network Infrastructure

The company has robust network infrastructure with broad coverage capability. At the end of March 31,
2016, the company had a customer base of 357.4 million in India and Africa through its network. Bharti
Airtel has made significant investments in growth drivers, such as spectrum and licenses, 3G and 4G
networks in India, its presence in South Asia and a large network across Africa. At the end of FY2016, the
company had 154,097 network towers in India, as compared to 146,539 network towers last year. In
South Asia, Bharti Airtel had 7,083 sites on network, as compared to 6,867 sites in the last year. Out of
the total sites, 3G sites represented 58.1% (4,115) sites as compared to 3,050 sites in the corresponding
quarter last year. Furthermore, in Africa, the company had 20,196 network sites at the end of FY2016 as
compared to 18,819 network sites last year. 3G sites at 13,128 represented 65% of the total sites, as
compared to 10,011 sites at the end of last year.

Furthermore, during FY2015, Bharti Airtel acquired 111.6 MHz of prime spectrum across 900 MHz, 1800
MHz and 2100 MHz bands for a total consideration of INR291,300 million ($4,835.6 million). In April 2016,
Bharti Airtel and its subsidiary, Bharti Hexacom entered into a definitive agreements with Aircel and its
subsidiaries Dishnet Wireless and Aircel Cellular to acquire rights to use 20 MHz 2300 Band 4G TD
spectrum for eight circles, including Tamil Nadu (including Chennai); Bihar, Jammu & Kashmir, West
Bengal, Assam, North East, Andhra Pradesh and Orissa. In February 2016, Airtel entered into a definitive
agreement with Videocon Telecommunications (VTL) to acquire rights to use 2 x 5 MHz spectrum in the
1800 MHz Band allotted to VTL for six circles, including Bihar; Haryana; Madhya Pradesh; UP (East); UP

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SWOT Analysis

(West) and Gujarat. These acquisitions align with the company's strategy of building a robust network for
the future and enhancing its leadership position in the fast growing data segment. The company's robust
infrastructure coupled with continuous focus on enhancing network capabilities enables it to effectively
serve its customer base. Its spectrum acquisitions would enable it to strengthen its leadership position in
the data markets and drive strong topline growth.

Weakness

Lawsuits and Litigations

Bharti Airtel operates in the Indian telecommunications market which is highly regulated by Telecom
Regulatory Authority of India (TRAI). The company was imposed with significant fines for the violation of
regulations imposed by TRAI. For instance, in 2014, the company was levied a penalty of INR5,028
million ($83.5 million) by Department of Telecom (DoT) for non-compliance of subscriber verification rules
that are important for national security. Similarly, fines were imposed on the company for the violation of
mobile number portability (MNP) norms. Bharti Airtel was imposed with a fine of INR45.9 million ($0.8
million), the maximum penalty for contravention of MNP regulation.

The company is also subject to various other lawsuits and litigations as part of its business. The
increasing fines and penalties may increase the operating costs of the company negatively impacting the
results of operations of the company. In addition, the penalties issued by the regulatory body for the non-
compliance of the regulations may also adversely impact its business operations in the country.

Opportunity

Increasing Data Consumption

There has been an increase in the data consumption in India in the recent times with the increase in
smartphone adoption. There has been an increasing adoption of newer technologies, including the 3G
and 4G. Data is expected to drive the telecom industry growth in the near future. The growth in the
demand for data drivers is fuelled by growth in the smartphone users in India. Mobile traffic per user in
India is expected to reach 1,704 megabytes per month by 2020 growing at a compound annual growth
rate (CAGR) of over 56% during 2015-20 periods. Further, smartphones accounted for over 69% of the
total traffic in 2015. In addition, it is estimated that 4G smartphones would generate a 2,833 MB of traffic
per month by 2020. Similar growth is expected in Africa.

The company has been investing in network transformation in the recent times. It has started deploying
3G services in 14 countries and also focused on 2G network quality. Bharti Airtel is also aggressively
driving device penetration, including tablets, smartphones and dongles to ensure that its customers have
access to the company's 3G data services. In order to ensure the delivery of devices to its customers, the
company also partnered with major device manufacturers. Further, the company was the first operator to
launch 4G services in four cities in India. The company offers 4G services in 14 markets in India. In
Africa, the company offers 3G services in 17 countries and 4G services in three countries. Further in
FY2015, the company renewed its licenses in Niger, and obtained the 3G license for 15 years. In

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SWOT Analysis

addition, In April 2016, Bharti Airtel and its subsidiary, Bharti Hexacom entered into a definitive
agreements with Aircel and its subsidiaries Dishnet Wireless and Aircel Cellular to acquire rights to use
20 MHz 2300 Band 4G TD spectrum for eight circles, including Tamil Nadu (including Chennai); Bihar,
Jammu & Kashmir, West Bengal, Assam, North East, Andhra Pradesh and Orissa. The company also
expanded its 4G presence in various towns in Kerala, Andhra Pradesh, Telangana, Himachal Pradesh,
and Punjab. Furthermore, the company launched its 4G service in Ajmer and marked the rollout of
Rajasthans first 4G service.

The company's investments in the newer technologies including 3G and LTE will allow it to cater to the
increasing data consumption. Further all these newer technologies will enable the company to increase
ARPUs.

Untapped Markets of India and Africa

Indian mobile market although large has significant scope for expansion especially in rural India. During
FY2015 the country had a mobile penetration rate of just over 77%. The market can be considered to be
relatively underpenetrated compared to the developed world standards where the penetration rate is over
100%. Further, rural penetration, though increasing is quite low. Consequently, there is a large room for
subscriber growth in India. Similarly, in Africa, the mobile penetration rate was at 67% by mid-2015, which
also indicates a large scope of growth. Further, the mobile penetration in sub-Saharan Africa is expected
to reach 80% by 2020. Although growth in African countries is impacted by the low purchasing power, the
low penetration rates suggest long term growth. Large untapped markets of India and Africa provide
strong opportunities for the company.

Positive Outlook for DTH and IPTV Markets in India

DTH and internet protocol television (IPTV) markets in India are expected to offer significant
opportunities. The increased consumer spending power and the government's move to digitize cable
networks will drive the growth of subscribers. The DTH market in India has been growing at a rapid pace.
According to industry estimates, the DTH market in India is expected to reach $4 billion by 2018 and $5.5
billion by 2023 and its active subscriber base is expected to grow from 37 million in 2013 to 60 million in
2018 and 70 million by 2023. Similarly, Indian IPTV market is expected to reach $12.3 billion by 2018
growing at an annual rate of over 11%. It is further expected to reach $16.4 billion by 2023.

The company's Digital TV services segment offers digital broadcasting services under the direct-to-home
(DTH) platform. The company currently offers a total of 504 channels and services, including 42 HD
channels, four international channels and five interactive services. In addition, the company added 29
vernacular channels across languages such as Bengali, Tamil, Telugu, and Oriya, among others. Further,
in 2014, Airtel digital TV entered into a partnership with Samsung and launched Integrated Digital TV
(iDTV). As part of this, Samsung's range of SmartDirect TVs will be equipped with an in-built Airtel digital
TV Smart Card. Similarly, Airtel digital TV launched Disney Family Movies, an English subscription video
on demand (SVOD) service. The positive outlook for the DTH and IPTV markets in India would provide
the company the opportunity to increase its market share and enhance its topline in future.

Strong growth in the Mobile Money Market

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SWOT Analysis

Mobile money has been causing a significant transformation in how banked and previously unbanked
people globally are conducting their financial activities. These services play a central role in extending the
reach of formal financial services to the unbanked and financially underserved populations in several
economies. Also, the use of mobile handsets to make payments has grown in the recent years. Paying by
smartphone or tablet is the most dynamic trend in the payment arena. The trend is expected to continue
in the coming years, as adoption of mobile technologies is expected to increase in coming years.
According to industry estimates, the global mobile money market is expected to reach $1 trillion by 2017
from over $500 billion in 2015, growing at a rate of over 120%. Asia-Pacific and African regions are
expected to follow the similar growth trend. Similarly, the African mobile money market is expected to
reach $14 billion in 2020, growing at a CAGR of over 39% during 2015-20 periods.

The company through its Airtel Money service is catering to the growing adoption of the mobile money
services. The Airtel Money service is offered in India and in 17 countries in Africa. Further, at the end of
FY2016, the company had 9.6 million active mobile money customers in Africa. Further, Airtel Money
Malawi, Africa, was the leading financial services provider in Malawi with a market share of 62.2%. In
India, Airtel Money tied up with the Indian Railways Catering and Tourism Corporation to offer railway
bookings. The company also partnered with National Payments Corporation of India to offer mobile-based
availability of money transfer to customers. Bharti Airtel's strong focus on enhancing its presence in
mobile money market and the increasing adoption among the users offer ample opportunities for the
company to generate additional revenues in the coming years.

Threat

Intense Competition

The company operates in an intensely competitive Indian telecoms market with seven national players.
This is too high compared to global standards. Additionally, the Indian customers are highly price
sensitive and consequently the telecom service providers have limited pricing power. The
telecommunications market is highly competitive and includes several players including Idea Cellular,
Bharat Sanchar Nigam, Vodafone, Tata Teleservices and Reliance Communications. Also, the presence
of several competitors intensifies the competition for the spectrum auction. This may increase the costs to
buy the spectrum which may further pressurize margins. The company's African operations also
witnessed severe competition. The competitive pressures in Indian and African markets may affect the
market share and pressurize the company's margins.

Alternate Technologies May Impact the Company's Business

The emerging alternative messaging and voice calling technologies may negatively impact the company's
voice business. For instance, over the top (OTT), Voice over Internet Protocol (VoIP) services, such as
WhatsApp and Viber, have been witnessing a strong growth due to the emergence of low cost smart
phones and the emergence of cheap data plans. According to industry estimates, these messaging
services may result in a loss of nearly $3.1 million in text messaging revenue by 2016. In addition, these
messaging services also offer calling features which would negatively impact the voice revenues of
telecom operators. Skype, which has 280 million active users, may result in a loss of $36.5 billion in
revenue every year for the telecom operators.

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SWOT Analysis

Furthermore, it is estimated that WhatsApp, which has a dominant share of the OTT market with 52% of
mobile users, may result in a decline in the subscriber trunk dialing (STD) caller's subscriber base for
telecom operators. In addition, the increasing proliferation of smartphones may lead to an increase in the
demand for the alternative technologies. Though these alternative technologies generate data revenues
for telecom operators, it would not fairly compensate the decline in voice revenues. The growing usage of
alternate technologies may lead to a decline in the company's voice customer base and negatively impact
its market share and results of operations.

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