Airtel's money saver plan

THE KEY PLAYERS in the 3G spectrum controversy seem unwilling to let anyone forget them; almost daily, there are fresh revelations, and the legal tangle becomes more complex. However, telecom companies are trying to act like it’s business as usual.
Airtel, the largest private telecom player in India, recently announced a new organisation structure in a bid to improve efficiency. A 20% tariff hike in six of its premium circles followed. Even chairman Sunil Bharti Mittal has forgone a pay hike this year. Speaking exclusively to Fortune India, Sanjay Kapoor, CEO of Airtel (India and South Asia), says the new structure shifts focus from technology to the customer. Under the new plan, mobile, telemedia, digital TV, and other emerging businesses, will be merged into one unit for retail customers and another for enterprises.

“In the process some jobs will become bigger, some will be redefined, and a few will find their aspirations not being aligned with the new business strategy,” says Kapoor, refusing to put a number on how many employees could lose jobs.

Telecom analysts see the changes as a last-ditch move to keep Airtel competitive. “The sector has become unviable and Airtel has been trapped at the wrong time and place,” says a telecom consultant. The cost of the Zain acquisition and 3G roll-out is weighing on Airtel’s financials.

Another analyst says the present telecom policy is not transparent enough, and the lack of clarity has almost ruined the sector. Globally, telecom players go through a process of evolution, where innovation comes first, followed by competition (and price wars). “By emphasising its inclusive growth agenda and increasing competition to drive down costs, the government has killed innovation in the sector. Companies such as Airtel have paid a high price for being competitive,” he says.

Kapoor agrees that the health of the industry is not good but adds: “For Airtel, cutting corners and retrenching jobs is not the way to introduce cost efficiency in the company. These are transformational changes and part of a well-thought-out strategy with clearly defined goals.”

Investors seem to agree; Airtel shares jumped 3% on the day restructuring was announced.

For a company whose Ebitda margins have fallen from 39.6% to 33.6% in the last seven quarters, and operating income has come down from 24% to 15%, any indication of improvement is welcome.