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February 9, 2000

BUDGET 1999-2000

The Rediff Business Interview/Sunil Bharti Mittal

'There will be a lot of acquisitions in the next few months'

Sunil Mittal Sunil Bharti Mittal, 42, has come a long way from selling bicycle parts, hosiery and stainless steel vessels in Ludhiana, Punjab. Today, as chairman and managing director of Bharti Enterprises, he is the Telecom Titan of India, charting the growth of the biggest private telecom company in the country. Fixed-line telephony, cellular service, Internet Service Provider, portal, hardware manufacturing, VSATs -- Mittal is keen to make his corporation a one-stop shop for all telecom needs. In an interview with Mahesh Nair, Mittal speaks about Bharti's rise and immediate plans.

India's telecom industry has been a quicksand, gulping many a player. How has Sunil Bharti Mittal managed to survive?

Bharti Enterprises logo I think it's a mix of many things. Vision, a stroke luck, and lots of hard work by a team of about ten to 12 senior people at Bharti who have put us where we are today: a leading telecom player.

When we went into telecom in 1985-86 and manufactured telephone instruments, there was clearly a vision and foresight that this is an industry that should do well.

Was the intention then to be mainly a supplier to DoT and MTNL?

No, even in the first year, we were the largest supplier to the open market. We had already started our efforts on brand building, distribution, quality, etc. But even then telecom as an umbrella was important than anything else. But what was it that we could do? There were three options: jelly-filled cables, EPABX and telephone instruments. The exchanges appealed to us but we didn't have the wherewithal to do it -- our capital was very small. We could not go into jelly-filled cables for two reasons. The money required was very high, plus it was a commodity business. The telephone instruments segment was what was left.

Email this interview to a friend But manufacturing instruments is a high-volume, low-profit margin business.

Yes it is, and that is why smaller companies are much stronger than the big ones. There were 52 companies that were licensed to manufacture telephones: the Tatas, Birlas, Thapars, PSUs, everybody who was anybody jumped into it; today only three -- Bharti, Tata and BPL (which came in later) -- remain. But from year one (1986) till date, we have been No.1 in this industry and every year we have been consolidating the position.

Sunil Mittal So you always had a vision to be a telecommunication company?

No, at that time, we wanted to be in the telecom industry in whatever areas that were available. From 1986 to 1992, we manufactured telephone instruments, fax machines and cordless telephones. There has been a method to this growth. We didn't stray even then. No steel mills, no paper mills, no mini-cement plants, cinema halls or hotels -- all these opportunities did come to us. Every entrepreneur was getting into these things.

But we single-mindedly concentrated on telecom. In 1992, the government said 'we will allow telecom services'. Since 1990, we have been planning for the paging and cellular services. We had often gone to Sam Pitroda, and he said, "Forget it, wait for the services to open up." So we were always ahead of our brothers in the industry. We always looked out and were aware of what was happening in the world market.

In 1992, we were the weakest consortium bidding for cellular telephony. But the bids were the best in the country. We got Bombay, lost it, then got it again, until the court case brought us to Delhi. Not many people gave us a chance then.

Do you think everyone had completely misread the market?

In 1992, Feedback Ventures had given us a market report. It said that there would be a market for 5,000 cellular phones in Delhi. That was one more confirmation that these reports were silly and nonsensical, so we tore and threw it away. Even before the project was up, I was sure that on the first day of booking, we would have 5,000 connections, leave alone the market being that size!

Thankfully, not many people had woken up and had that foresight. There were 30 consortia; finally eight won. We got Delhi. People said, 'They (Bhartis) will not be able to put up this kind of project' -- it was a Rs 3 billion project and we had a turnover of only Rs 220 million and a net worth of about Rs 100 million. But we went ahead and put up this project; it was the most cost-effective, and we had the best of technology-equipment from Ericsson. So from day one, we were the largest phone service, and most importantly the only profitable service.

How did you make the profit? Everybody has almost bled to death.

It's hard to say what could be the reason. It was sad when we acquired Skycell in Madras for over Rs 1 billion or JT Mobile which had about Rs 6 billion as losses. Even tiny projects in metros where the investment was not very large -- all these people made huge losses. This is not to say that Airtel did not make losses -- we made Rs 400 million losses in the first year. But when you compare that with the players in Bombay or in Delhi, who made anything between Rs 1 billion- Rs 1.50 billion losses in the same period. This March, we would have wiped our net loses and would be in profit: the only company to do so.

Look at the big bidding madness in the fixed-line telephony. We lost out miserably. We only got Himachal. We had bid Himachal, Punjab and Haryana. I was sure we would win Punjab. We bid Rs 6.66 billion of which at least Rs 1.50 billion was pure emotional excessive money --we three brothers came from Ludhiana and each one decided to put in Rs 500 million each. The highest bids went for Punjab: 23. People who had no idea about Punjab were chasing Punjab. Even Maharashtra and Gujarat did not have 23 bids! I think the only reason there was this rush was because Bharti was chasing it -- openly and brazenly!

The first bid came out for Rs 12.66 billion from B K Modi. The second bid came from JT Mobile which we have now got for Rs 9.10 billion. And the third bid was Rs 6.66 billion which was ours -- everything else was below that. Ours was the right bid, if you take out the 150 emotional content, because there were so many who had bid around Rs 5 billion. We lost out. And then we lost Haryana. We got only Himachal.

People said Bharti is finished because they have got nothing in the second round. After all, we were the foremost cellular operators and then we had almost nothing in the basic. But we read the market and were sure of what we were doing. The bankers came and said we had made a terrible mistake, that we should have just grabbed the market, because you can always make money later. But we had the numbers to back us up.

We proved to them that at anytime there had to be about 400,000 customers required in Punjab for two players to break even. And we said that the 400,000 customers would come in the sixth or seven year. And then when you break even, you would have accumulated losses of Rs 8 billion to Rs 10 billion. In the balance period left of the licence of three years, you cannot recoup that money. So why have these huge losses? Who would support our company if it has hundreds of millions in losses? But the bankers saw the figures and said, 'No, no, you don't understand the game'. But we kept on building our properties.

We went into fixed line telephony. We bid for Punjab. We bid Rs 35 billion, Nahata bid Rs 90 billion. Nahata backed out, we said give Punjab to us at Rs 35 billion but the government said 'No, we'll re-bid'. In the re-bid we put Rs 39 billion, Essar put Rs 41 billion, and Essar got it.

Both times, there was a divine intervention to save us, because even those bids -- including ours -- was not correct. But if you look at it now, any bid was okay because people could walk away with murder. Anybody who had a property got a property for no price.

'We will close March 2000 financial with a profit of Rs 1 billion'



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