Posted - 03 May 2024
"Airtel's net profit dropped by 76.5% Y-o-Y from Rs. 1,461 crore (Q2'17) to Rs. 343 crore (Q2' 18), a sixth consecutive drop since the Jio launch."
Jio entered the telecom sector in 2016 & took the whole Industry by storm. With its disruptive pricing strategy, it sent shockwaves throughout the industry.
This led to two big companies Vodafone and Idea. forced to merge to become VI. BSNL is still struggling, and companies like Telenor and Aircel couldn't survive and vanished from the market. However, amidst these challenges, Airtel stands out as the sole contender that not only resisted but continues to fiercely compete in the telecom arena, and is still fighting back strongly!!
And, Now In 2024, after 8 years of Jio's launch,
"Airtel's stock price, hit all time high at price of Rs 1,351 in April 2024."
Source : Google Stock Price
Airtel's vs Jio's Revenue over the years
In FY23, while Jio made 1.19 trillion rupees in revenue, Airtel’s revenue soared to 1.39 trillion rupees.
Airtel’s stock price also outperformed the Nifty index over the past six quarters, showcasing its remarkable comeback.
Source : Company Financials
Airtel's Profit over the years (2013 - 2023)
In FY21, Airtel faced losses of 15,000 crores. However, within a year, they turned the tide, raking in profits of 8,346 crores.
Net Profit In Indian Billion Rupees
Source : Statista
So,
What did Airtel do differently from other Telecoms?🤔
What Strategies, it used to fight back Jio & maintain its position in the market?🤔
Let's Dive deep to know more!!
A brief past of Airtel till 2016
Bharti Airtel was founded by Sunil Bharti Mittal as a small company offering telecommunication services in India in 1985. It started with the launch of mobile services in Delhi.
In 1998, Airtel became the first private company to introduce fixed-line telephone services in India, breaking the monopoly of the state-owned telecommunications provider.
In 2004, company went public with its Initial Public Offering (IPO), listing on the Bombay Stock Exchange (BSE) and the National Stock Exchange of India (NSE).
In 2008, Airtel launched its Direct-to-Home (DTH) satellite television services, expanding its portfolio beyond telecommunications.
In 2009, Airtel acquired the African operations of Zain, a Kuwait-based telecommunications company, marking its entry into the African market and becoming one of the largest mobile operators on the continent.
In 2010, Airtel launched 3G services in India, offering high-speed mobile internet to its customers.
In 2012, Airtel became the first Indian telecom operator to launch 4G LTE services in Kolkata, paving the way for high-speed data connectivity in the country.
In 2015, Airtel launched its 4G services across India, covering major cities and urban areas.
Bharti Airtel held a significant market share in the Indian telecommunications sector, in 2015, approximately, around 23-25% during that time, making it one of the top players in the Indian telecom market.
Challenges Faced by Airtel due to Jio's Disruption in Market
Price Disruption - A Challenge to Airtel' existing Prices
Reliance Jio's disruptive entry with ultra-cheap data and voice services in market led to a significant drop in ARPU (Average Revenue Per User) across the industry.
Rapid erosion of Airtel's market share
Airtel witnessed a decline in its market share from around 25% to approximately 23% within a year of Jio's launch.
Revenue Constraints
Intensified competition from Jio, and Airtel has to forcefully reduce its prices, leading to pressure on revenue, margins and profitability.
Network Congestion
A surge in data usage due to Jio's entry led to network congestion issues for Airtel, affecting service quality and customer satisfaction.
Thus Airtel needed rapid adaptation to changing consumer preferences and market dynamics to maintain its strong foothold in the Industry.
So Here's what Airtel did👉
Business Strategies, used by Airtel to retain itself in the Industry
Airtel's Customer Centric Approach
Airtel prioritizes ARPU (Average Revenue Per User) and focuses on high-value customers. Airtel aggressively targets home broadband customers, offering the potential for high ARPU.
Source : Company Data
Jio focused on high number of subscribers, i.e highest market share. Whereas, Airtel deliberately shed over 49 million subscribers in 2018 to enhance service quality for well-paying customers.
No of Subscribers in Crores
Source : Company Data
Strategic Adaptation
Airtel revamped its pricing strategies, reducing data tariffs by up to 80% to remain competitive. Airtel managed to counter almost Jio's ultra cheap plans, except Jio's free plan.
And it has been matching since then!!
The Offers War
Jio fiercely competed for the loyalty of Indian consumers through enticing offers like Jio Dhan Dhana Dhan and Happy New Year Offer, while Airtel countered with its claim of being the "fastest network."
Although it became controversial, Airtel's strategy proved effective.
By partnering with Ookla, Airtel cultivated the perception that its service offered superior speed and quality, successfully influencing many consumers to adopt its narrative.
Beyond mere perception, Airtel has demonstrated superior and more reliable service, particularly in urban areas and metros.
While Jio's network faced congestion amid a surge in demand towards the end of last year, Airtel's network remained more resilient. This has reinforced Airtel's reputation for providing stable services.
Network Expansion
Airtel Invested in network expansion and quality enhancement to ensure superior service. The company invested over $3 billion in network expansion and quality enhancement, improving its 4G network coverage to over 95% of India's population.
Customer Satisfaction and Retention
Airtel improved its Net Promoter Score (NPS) from 22 in FY2017 to 37 in FY2022, reflecting enhanced customer satisfaction levels.
Initiatives such as 'Open Network' platform allowed customers to check network coverage and report issues, fostering transparency and trust.
Portfolio Diversification
Airtel Diversified its Portfolio beyond traditional telecom services into areas such as digital payments such as Airtel Payments Bank, content streaming, Wynk music streaming, and Airtel TV.
"Airtel's Diversification efforts resulted in a 58.5% year-on-year growth in Airtel's digital services revenue, reaching ₹1,206 crore in Q3 FY2023."
Innovation and Differentiation
Airtel partnered with leading content providers such as Netflix and Amazon Prime Video to offer bundled subscription plans, enhancing its value proposition.
Introduction of innovative solutions such as 'Airtel Thanks' program, offering benefits like free subscriptions, device protection, and priority customer support.
Airtel employs an AI-based credit scoring system to identify creditworthy prepaid customers and nudges them towards postpaid plans.
Global Expansion
Airtel, acquired telecom assets in other countries, particularly in Africa, thus mitigating risk by reducing dependency on any single market.
"Airtel's international operations in Africa witnessed a 14.2% year-on-year growth in revenue, reaching $3,393 million in FY2022."
The most Important - Breaking into Jio's Digital Ecosystem
Backstory
As soon as Jio entered the market, within a year, they started offering the Jio Ecosystem.
What this means?🤔
Purchasing a Jio SIM includes an offer for JioTV, and opting for a Jio broadband connection comes with the added benefit of acquiring a setup box at a highly affordable rate.
With Jio, Plan, Jio offered access to Jio Saavn for music.
Similarly, when purchasing a Mi TV, customers also receive a JioFi connection.
In essence, consumers aren't merely purchasing individual products but rather immersing themselves into the comprehensive Jio ecosystem.
This strategic approach enables Jio to establish the foundational layer of its ecosystem by seamlessly integrating entry-level products in a readily accessible manner.
And, Airtel realized the importance of this ecosystem, and they started pivoting to building an ecosystem faster than any other player in the market.
Airtel used the business strategy of "Product Service Ecosystem Model" - The same strategy used by Apple CEO, Steve Jobs.
How Airtel, adapted to this model faster than others?
Airtel already had strong foothold in DTH services & Airtel leveraged that to its advantage. Back in2016-17, their Airtel's service was one of the strongest contenders in the market along with Tata Sky with a market share swinging between 20-25%.
Airtel went on to a shopping spree to start acquiring smaller players like Videocon telecommunications in 2016, Telenor, and Tata Teleservices in 2017, and this gave them 2 major benefits, it brought them more spectrum and it prevented Jio from acquiring these companies and cornering Airtel.
Airtel started offering a set-top box with a broadband connection and giving access to additional services like Wynk music.
How Ecosystem Strategy worked for Airtel?
When a company begins integrating multiple products into its ecosystem, it not only aims for customer retention but also gains three powerful advantages.
Firstly, it presents various opportunities for the brand to embed itself into customers' lifestyles and introduce entry-level products.
During COVID, Airtel leveraged its primary advantage of existing B2B enterprise clients by extending an offer to all companies to equip their employees with high-speed broadband connections.
Secondly, it enables the use of the loss leader strategy, wherein low-margin products are sold at a loss to attract customers and encourage them to purchase high-margin items.
When Airtel offered the customers broadband connections, it also came with an additional offering with something called the Airtel extreme set-top box, which gave you one month of DTH HD pack free with PrimeVideo and Disney plus, Hotstar even at the base level plan
Thirdly, and perhaps most significantly, it provides the chance to disrupt rival ecosystems. This was precisely demonstrated during the pandemic when Airtel utilized all of these advantages to infiltrate the Jio ecosystem.
"In 2020, the number of broadband subscribers grew by 95 lakh. While Reliance Jio ended up capturing 17 lakh subscribers, Airtel, on the contrary, ended up capturing 70 lakh subscribers."
Conclusion
Despite the challenges posed by Jio's entry, Airtel's revenue grew from ₹83,688 crore in FY2017 to ₹1,19,413 crore in FY2022, marking a CAGR of 7.34%.
Airtel's market share stabilized around 23-24% post-Jio's entry, indicating successful retention and acquisition strategies.
The company's EBITDA margin improved from 32.1% in FY2017 to 45.5% in FY2022, reflecting operational efficiency gains.
BUSINESS LESSONS FROM AIRTEL
Adaptability - Airtel's ability to adapt to changing market conditions and consumer preferences was crucial for its business. Flexibility in pricing strategies, service offerings, and technology adoption helped Airtel stay relevant in the dynamic telecom industry.
Customer-Centric Approach - Airtel's focus on understanding and meeting customer needs is exemplary. Prioritizing customer satisfaction through personalized services, innovative solutions like Thanks App, and responsive customer support fosters loyalty and sustains competitive advantage.
Innovation is Key - Innovation is the lifeblood of Airtel's success. Constantly introducing new services, partnerships, and technological advancements ensures Airtel remains ahead of the curve and continues to deliver value to customers.
Strategic Partnerships - Airtel's strategic alliances with content providers, device manufacturers, and technology firms have been instrumental in enhancing its offerings and expanding its reach. Collaborations amplify Airtel's strengths and mitigate weaknesses, enabling sustained growth.
Network Quality - Airtel's relentless focus on expanding and enhancing its network coverage has been pivotal in retaining customers and attracting new ones.
Financial Discipline - Airtel's emphasis on profitability, cost optimization, and sustainable growth ensures long-term viability and resilience in the face of market fluctuations.
Global Expansion - Airtel's successful expansion beyond domestic boundaries demonstrates the importance of diversification and tapping into emerging markets.
Resilience - Airtel's ability to weather storms and bounce back from challenges is a testament to its resilience. Remaining steadfast in the pursuit of goals, learning from setbacks, and adapting strategies accordingly are essential attributes for long-term success.
