The move, targeted at boosting efficiency and expertise, and cutting capital and overhead losses, by bringing all units under central governing may have more negative impact, than positive. While the obvious impact of the move puts over 2,000 staff jobs on the line (who have been promised recruitment in other African units), there may be more severe effects of such a move.
Over the last few years, Airtel moved a part of its employees to managed services companies such as Ericsson, Alcatel-Lucent and others as part of their managed service deal. This kind of reshuffling has already affected the company’s resources.
There are also speculations that Manoj Kohli will be returning to India from Africa to look after the combined Airtel.
Airtel’s pay out towards 3G-BWA licence in India was huge. The 3G business is not growing in line with the licence fee and expectations. The company is yet to finalize its BWA plans. Industry feels that Airtel will compete with Mukesh Ambani’s Reliance Industries when the latter launches LTE services using the BWA spectrum.
Mobile, DTH, fixed-line and broadband make up 90 percent of Airtel’s business together, yet have been having varying degrees of success, in terms of profit margins on their own – not to mention the various legislations and complications that are unique to each.
The operator continues to hold its number one position in the Indian market – but its profits have steadily fallen, thanks to growing competition from a saturated market with low ARPUs and lower tariffs. The African dream failed to provide the telco with expected revenues due to infrastructure and vendor ecosystem costs, and a lack of expertise in a dynamic multi-cultural new market with 16 countries. Airtel Africa reported revenues of $924 million, contributing to a total net income of $314 million for Q4 FY 11 for Bharti Airtel, a 32.6 percent decrease in net profits, since the last fiscal.
The company believes a strategic outsourcing model, in which key functions such as networks, technology and customer services will be outsourced to specialist vendors, will solve this issue. However, regulations and scheme of day-to-day operations are diversely different for the above three, and hence may suffer if clubbed together.
Airtel Digital TV has a little over 5 million customers, out of a market of 30 million in the 21 months since its full scale national operations. However, the DTH market in India has its own set of regulations, and is at constant loggerheads with cable service providers, that threaten its very existence.
With BWA rollout on the cards, Airtel’s broadband services which are doing reasonably well so far, may be caught in a clash for the choice to roll-out TD-LTE or WiMax. With 3G gaining ground, mobile broadband will definitely lead the way for the Internet revolution in India. Bharti Airtel launched 3G services across 10 cities and has crossed figure of half a million 3G customers across India, as of April 2011. 3G can no doubt boost the operator’s mobile revenues, but will cut its fixed line growth. Needless to say, Airtel’s fixed line services will need another plan of action.
Market analysts say that this major clubbing of assets is necessary for the operator to maintain its falling market share, and will help it to cut losses, while giving the company centralized stability and ease of operation.
While I agree that the businesses are diverse, I think converged players like Airtel have to use the benefits of the ability to offer multiple services as a differentiator. By offering service bundles they can look at reducing churn, especially amongst higher end customers,” said Kunal Bajaj, partner and director, Analysys Mason.
However, as was the case with Africa, where Airtel tried to repeat its India success story by trying to enforce the same moves there in vain, this move to combine such diverse businesses under one roof, may lead to further drop in revenues – and rather than unifying operations, might rather divide interests of employees, stakeholders, vendors and others with vested interests.
By Beryl M
