Sunil Bharti Mittal wants the Bharti Group to be the country's first telecom conglomerate. Now, if he can only tackle the minor issues of funding and managing partners.

By Suveen K.Sinha 

If you have been in the same room as Sunil Mittal, the 43-year-old Chairman and Managing Director of the Bharti Group during a photo-op, you must have noticed it. The man is prickly about displaying his bald spot to the world at large.

There do not seem to be too many bald spots in his game-plan for the telecommunications sector, though. For, Mittal's unstated objective is to create the country's first telecom conglomerate, which will operate across the telecommunications value-chain: last mile to first mile, overlay (front-end service operations) and underlay (infrastructure), and voice and data.

In the short term, this objective takes the form of the expansion of the group's cellular activities-now covering Delhi, Himachal Pradesh, Karnataka, and Andhra Pradesh-into a pan-Indian operation. With the GOI waiving the lock-in provision on the transfer of equity of original licencees, Bharti can complete its acquisition of a 74 per cent stake in JT Mobile-now stalled at 55 per cent. And the Delhi High Court has reserved its judgement in the Bharti-Bell South spat but directed the latter not to sell its 24.5 per cent stake in Chennai-operator Skycell (of which Bharti already owns 51 per cent) without its (the court's) permission.

Bharti has earmarked between $150 million and $200 million as the cost of this expansion-either through acquisitions, or by bidding for the fourth cellular service licence the norms for which are being finalised by the Telecom Regulatory Authority of India (TRAI). ''Not too many licences are on sale at the moment. And we will refrain from making over-the-top bids (like the ones) others are making,'' says Mittal.

The group's basic services initiative-now confined to Madhya Pradesh-will be far more conservative. It isn't easy to build the infrastructure for basic telephony and the business itself is far less lucrative. The targets? Delhi, Haryana, and Karnataka. Bharti's blueprint for basic services segues into its plans in the area of domestic long-distance (DLD) telephony where it has just forged an alliance with Singapore Telecom. Madhya Pradesh forms a natural epicentre in the country's telecom topography and shares boundaries with 10 states. And critical to Bharti's dld expedition will be its broadband ambitions: an existing Optic Fibre Cable (OFC) network of 5,000 km that is to be extended to 35,000 km by March, 2002.

There are other threads of growth in Bharti's growth tapestry: Mantra (the brand under which Bharti BT Internet offers its ISP services) is to expand its reach from seven cities to 27; Telecom Seychelles Limited (one of Bharti Global's subsidiaries, which runs Seychelles' largest cellular network) may expand its reach to Mauritius; and the group has started work on a $150-170 million submarine cable project that will link Chennai and Singapore.

Indeed, one of the aims of the just-concluded reorganisation of the group (See The Agenda) was to ensure that none of its businesses lost their focus. Avers Mittal: ''The restructuring is designed to achieve a linear vision for each business and avoid duplication.'' Vision, however, doesn't qualify as Mittal's biggest challenge. Money-the Rs 5,000 crore the group needs over the next three years-does. As does the group's ability to prove that it does make economic sense to span the telecom value-chain.

It makes sense to be everywhere...

On the face of it, occupying every node of the telecom business seems the right thing to do. A few industry denizens like Dilip Modi, the 26-year-old head of ModiCorp's cellular business, may believe otherwise: ''It may not be the right strategy to get into everything. You must choose areas where you can do better than others.'' Most, however, believe Bharti's spectrum-spanning strategy is ideal. Explains Vineet Nigam, a manager at the credit-rating agency ICRA, who tracks the telecom sector: ''By owning the entire link, you avoid interconnection charges.'' Seconds Dilip Pathak, who heads the Singapore-based EM Warburg Pincus & Co (the fund owns 19.05 per cent of Bharti Televentures through Brentwood Investment Holdings): ''Given the pace of change, what if your existing business becomes obsolete tomorrow? If you have the resources, it makes sense to be in everything.'' Expectedly, Bharti's own view point isn't very different. Sums up Akhil Gupta, 44, Joint Managing Director, Bharti Telecom: ''Profits will come from a combination of overlay and underlay.''

Other wanna-be conglomerates are thinking along the same lines. The telecom strategy of the Ambanis is a replica of their oil sector one: owning the entire value-chain, back-to-front. And BPL's Rajeev Chandrasekhar-Mittal's comrade-in-arms in putting together a fitting response to the challenge of Hutchison Whampoa and MTNL in Delhi and Mumbai-has conglomerate dreams of his own too.

..but it won't be cheap

The group's revenue projections are impressive: Rs 5,000 crore in 2004-05, and, in a shorter term, Rs 1,200 crore in 2000-01 from the current (1999-2000) quantum of Rs 770 crore. Only, achieving those numbers requires an investment of around Rs 5,000 crore in the next three years. Of this, the group proposes to raise Rs 2,000 crore through the equity route: by diluting its stake in the holding companies (Bharti Telecom, Bharti Televentures, and Bharti Telespatiale). The rest (Rs 3,000 crore) will come as debt.

A part of those funds is already here, courtesy Bharti's deal with SingTel. The company is to pay $400 million for a 20 per cent stake in Bharti Telecom and a 15 per cent stake in Bharti Televentures. Of this amount, $200 million will be used by Bharti to retire its debt and fulfil other commitments, including on-going acquisitions. And Mittal, who oversaw the de-listing of Bharti Telecom from the bourses in May, 1999, is lining up a slew of IPOs (See The Gold Rush).

Raising money, then, won't pose much of a problem; returns will. Telecom investments do not bring returns in a hurry. That apart, most telecom projects sport multiple break-even points. Explains Nigam: ''It's like a manufacturing company having to increase capacity every six months.'' Which could explain Mittal's desire to raise more than the Rs 5,000 crore he needs: the IPOs he's planned will, after all, bring in more than the Rs 1,100 crore the group needs to raise through the equity route.

Still, translating its proposed investments into returns means more work for a group that has just turned the corner. Bharti Cellular Ltd, the cellular service operator in Delhi, wiped out its accumulated losses in 1999-2000 (net profit margin: 6.9 per cent); and the group's cellular operations in Himachal Pradesh as well as the basic one in Madhya Pradesh claim to have achieved a break-even in terms of cash flows. Ask Pathak about returns and he scoffs: ''Bharti will be among the top two players in the industry and our investment will command a hefty premium.''

Caveat (there is one)

Becoming a successful telecom conglomerate won't be easy. Bharti Cellular, with a subscriber base of 2,01,140 (June 30, 2000) was comfortably ahead of Sterling Cellular, with 1,54,193. But things are certain to change when the Orange brand (that has painted Mumbai, well, orange) arrives in Delhi; Hutchison, which owns the brand in India acquired a 49-per cent stake in Sterling in December, 1999. Then there's the impending entry of MTNL's cellular service in Delhi and Mumbai. MTNL's resources - net profits of Rs 1,693.67 crore on a net income of Rs 5,199.46 crore in FY 2000-and the possibility that it may not have to pay any licence fee will allow it to offer services at a price that will be difficult to match.

At another level, the group's alliance with SingTel has upstaged two of its allies: BT and Telecom Italia (TI). By virtue of its stake in the holding companies, SingTel has stakes in most initiatives of the group, including ones where BT or TI are its partners. And SingTel's CEO, Lee Hsien Yang, says his firm would like to partner Bharti in its long-distance, broadband, and submarine cable projects: ''Bharti will be our partner of choice in exploring other opportunities.''

BT-which holds minority (but significant) stakes in Bharti Cellular, Bharti BT (the VSAT service company), and Bharti BT Internet-may well be peeved. The company had expressed interest in partnering Bharti in its DLD foray, and while Mittal claims there's room for a third partner, BT isn't saying much (the company's CEO Arun Seth wasn't available for comment). Telecom Italia, in contrast, seems to have gone cold on India; Europe is its primary focus. ''Telecom Italia will eventually go,'' says Mittal in a matter-of-fact manner.

However, Bharti's partnerships with BT and SingTel aren't quite alliances of equals. And the Indian corporate sector has seen several firms selling out to their erstwhile partners. Still, as Mittal points out, the group's operations are among the few still controlled by the Indian partner. That may not mean much. His father may have, in a burst of patriotic fervour, insisted that all his sons sport the Bharti middle-name, but when the time comes to move on-and he says this could be in 10 years-one can be sure Mittal's decision to hold or sell won't have anything to do with Bharti being a home-grown telecom conglomerate.

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