Posted by: John Elliott | May 7, 2008

Indian telecom giant returns to his roots

Sunil Bharti Mittal, founding chairman of Bharti Airtel, India’s largest mobile phone operator, needs a new personal challenge. And he has found it with the $19 billion informal bid that he is reported to have made, or at least is considering, for MTN, the South African-based telecoms group.

 Last week Mittal finished a year as president of the Confederation of Indian Industry (CII), a leading business federation. That was a time-consuming post that tied him up in tedious committee work, which he disliked. His group is also partnering with Wal-Mart (WMT) in a slow-developing retail and cash-and-carry business, but that is primarily being looked after by one of his brothers.

 So Mittal, one of India’s richest men, needs a new challenge. He also needs to catch up with Tata, Birla and other Indian companies that have been tying up big foreign takeovers while he has been presiding over the CII.

 Having started in 1976 as a 19-year old engineering graduate making bicycle parts in his north-Indian home town of Ludhiana (with $1,500 borrowed from his father), Mittal is now India’s most successful first-generation businessman to emerge outside the field of information technology since the country’s economic opening up began in 1991. (His internationally-known Indian-born namesake, Lakshmi Mittal, who is not a relation, built his LNH Holdings steel empire outside of India.)

 India’s media is convinced that one day he will enter politics – reporters were pushing him on that last week when, a couple of days after finishing his CII post, he announced a Bharti telecom link-up with IFFCCO, an agricultural co-operative, to target India’s 750 -million rural population and bring Internet links to farmers.

 He says that “transformational activities” motivate him. “Public life still excites me,” he told me early last year. “But will I cross the line and become a full time politician? I think it is unlikely, having seen the transformation that I can achieve here,” he added, referring to the Bharti Foundation, a $50 million charity that sets up village schools and other initiatives.

 He tried transforming Indian fruit and vegetable production a couple of years ago by growing produce for export; but could not sustain sufficiently high standards for western markets, so he turned that business into a food processing joint venture with Del Monte (DLM).

 His link-up with Wal-Mart – aimed at playing a leading role in the current transformation of India’s retail industry – is moving far slower than he hoped when the joint venture was agreed at the end of 2006. And he bid unsuccessfully three years ago to privatize and rebuild Delhi’s international and domestic airport.

 So he has returned to the industry he knows best for his next challenge: telecom. Bharti and MTN are roughly the same size – they both have 60 to 70 million customers and market capitalizations of around $30-$40 billion – and they are both experienced at providing telecom services across vast countries. Bharti is growing the faster – adding 2 million new customers a month – and is cash-rich. But it has only two small telecom operations outside India – in the Seychelles and the Channel Islands (Jersey and Guernsey) – plus one about to start in Sri Lanka.  Now Mittal is attempting to become a significant international player, but looks like he’s facing strong opposition from nationalist fervour in South Africa and competition from other telecoms.

 He has succeeded in India by beating competition with strong marketing and consumer service and by outsourcing Airtel’s information technology activities and network management four years ago to IBM (IBM), Ericsson (ERIC) and Nokia (NOK). Critics said he was giving away his technology “lifeline” to suppliers, but, he says: “Our lifeline is how to get and retain the customers – technology for a telecom company is just an enabler which we buy to sell to our customers.”

 


Responses

  1. thanks john – i follow your commentary with much interest. always insightful and, more importantly, you are even-handed and go far beyond the nationalistic leanings found in the majority of india’s media. as an investor, it is absolutely essential to understand the individuals behind the businesses, and you do a fantastic job of bringing that out. thank you again.

  2. One more example of unshackled India exceeding expectations. If only this process had started earlier. Not that all is well even now. The creators of the license permit raj, who almost overnight turned this nation born in idealism into a corrupt state, are still out there, extracting their pound of flesh and putting brakes on faster growth.

    Let us hope that this liberating movement started by India’s business leaders like Tata, Mittal, Ambani etc, will blow away the parasites who have hollowed not just India’s economy but even its foundational soul.

    http://www.vinodksharma.blogspot.com

  3. Can the “American People” find India on the map at least now?

    First we were seen as a country of Snake Charmers.

    now we eat too much, thus causing the global food shortage.

    Come-on guys! The world has moved-on and the US of A is no longer at the centre of it. Start recognising us as a developed country and respect us for our achievements.

  4. John,

    Interesting to see you mention about Sunil Mittal’s (now on – now off) Political ambitions.

    Even that may be coming home of sorts for the First generation entrepreneur becoz his father was a politician.

    Personally I think he’d be able to make a difference in the lives of more people if stuck to being a business man with a strong focus on CSR.

  5. Being an Indian Native living in the US. It makes me happy to see global players gaining more and more recognition. Even the partnership between Indian and US companies, which has been happening so quickly definitely brings a smile to Indian faces knowing that their country is moving ahead.

  6. Its interesting to see how things pan out for Bharti Mittal during and after the deal.

    Goldman Sachs is supposedly the institution dealing with this.

    But as for now, Airtel stocks have taken quite a beating following dilution concerns.

    From a strategic point of view, this is a good move by Airtel, as I believe the next spurt of telecom growth will arrive from South America and Africa. Will MTN-Airtel merger be able to take up the competition from South America and get some share?
    Will Africa be the gem on the business crown, well we have to see it.

    But as of now, Airtel’s worry is financing the deal. USD 29b, well its not exactly a pocket change. Some of the equity may be diluted, so will it be the ideal investment window to go long?
    I guess, yes it is. With or without MTN.

    Soham Das
    http://jumpup.wordpress.com

  7. John,

    Nice post. You are in India for too long and because of that you are able to understand the complexities of the system there. Indian’s potential which is for everyone to see outside India has got hold back by Congress govt policies after Indian independance.

    But as a young Indian I have also see this transformation of mentality and can do spirit which you can feel in common indians now. There is a lot of positive change in India today.. and I am happy that we are breaking the mold and showing it to the world what we are really capable of..

    Thanks
    Hemant
    http://www.himalayan-swastika.blogspot.com


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