Bharti Airtel, has announced a new organizational structure to enhance its focus on the digital business.

Airtel’s New Corporate Structure

Airtel Digital

Airtel Digital Limited is subsumed in the listed entity, Bharti Airtel. This will include all Airtel digital platforms including Wynk Music, Airtel X stream, Airtel Thanks, Mitra Payments platform used by a million retailers, Airtel Ads, Airtel IQ, Airtel Secure, Airtel Cloud and all upcoming digital opportunity. Evidently there are 190 million active users across the digital entities with revenue in excess of Rs 100 crore and potential to scale to Rs 1,000 crore in a few years.

Essentially the disparate digital subsidiaries have been consolidated in one basket but brought under the telecom entity. The current revenue and subscriber base of the digital entities is too low and hence the idea is to achieve/demonstrate exponential growth before creating a separate digital business unit.

What will the restructuring help achieve?

Enterprise Valuation ( Impact-1): The context for this spinning the digital business unit as a separate entity to unlock valuation draws from the realisation that the core telecom business which is under financial stress on account of acute competition may remain so for a longer period of time

Value added digital products ( Impact-2): The core telecom network has created access and connectivity and customer asset. The basic access that provides airtime or data is like a commodity and in a competitive context the prices are driven downwards.
It is imperative for a telecom player to create value-added products to create experience, entertainment, enhance productivity and solving problem.
All the digital assets are designed towards creating that extra value in the consumer or enterprise space
The customer asset created by the core network access is then leveraged to sell the value added digital products.
Internal restructuring will bring focus to value added products and create synergy within the business units for ownership and accountability of targets

Internal digital transformation (Impact-3): As a company in forefront of digital transformation of business, Airtel has recognised that there is great opportunity to improve its own operation. Digital platforms and tools can bring efficiencies in their customer acquisition, customer service and customer lifecycle management. Airtel is attempting to create an omni channel experience for their subscribers and in the process reduce the customer acquisition time and cost.

Mobile application for customer self-service for recharge/payment is another instance of enhancing customer convenience while saving on channel margin payout.

The biggest impact of digital is likely to accrue through customer analytics to create opportunity for cross selling, upgrading and segmented promotion to increase revenue and pro-active retention. Deployment of Chatbots, IVRS and App based query are likely to help manage a large customer base with a lean customer services team.

The digital tools also provide an opportunity for continuous engagement with customer for adding services that are relevant to each customer. Airtel has set up a digital customer advisory program to listen into customer insights.

From search to discovery, to purchase, to on-boarding, to experience, the digital platform provides one simple, unified, and intuitive experience.

This opportunity obtains in both the enterprise and retail customer part of the business. In short Airtel digital can transfer/apply their expertise in transforming the internal telecom business.

Alliances and Partnerships (Impact-4): For a telecom service provider to get into customer solutions and value-added products, it is necessary to stitch together alliances. These partnerships typically draw on the product or technology expertise of the partner and require the telecom service provider to bundle the offering to their customers.

The organisation has to be internally structured to put together such partnerships. Some examples of partnership

• Partnership with bank for mobile wallet services
• Video and Audio Content from content producers or aggregators
• Offering data centers to large IT hubs
• Become a sales or advertising partner for other services
• Partnership with Amazon for cloud solutions

What the restructuring is unlikely to do

1) It is unlikely the restructuring has any impact on the statutory revenue share or SUC payout. With clear accounting separation, the billing by all the digital subsidiaries may be outside the scope of telecom revenue
2) The restructuring is unlikely to impact the share price of the listed telecom business in the short-term
3) The revenue of the digital value-added products is likely to remain a small ratio of the overall business in the short term and till then the spinning of the digital business as a separate unit is unlikely to happen

Airtel Digital Vs Jio Platforms

Behind both Airtel digital and Jio platforms there is an objective to uncover better valuation for the underlying products and services. The comparison pretty much starts and ends with that one common intent. In detail, operations and impact the two initiatives are completely different

Jio platforms

Jio platform includes the core telecom business unit RJIo and the digital assets such as Jio Apps, Jio Meet, Jio TV and Saavn.

Jio platform was a subsidiary of Reliance Industries Limited which was the listed entity.

Jio was a drag on RIL share price right through the period 2010 to 2017. The commercial launch and spectacular success of Jio sent the RIL share price zooming the last 4 years.

Facebook and 12 other investors have invested in the Jio platform. The total investment is for 33% of Jio platforms and the effective valuation was at Rs.5 lakh crore. This vote of confidence from mega brands and the value discovered propelled the RIL share price by 45% approx. immediately after.

Jio platform is a large business unit within the Reliance group and the valuation discovery is large. It is amenable to be carved out of other Reliance businesses and may not debilitate them in any way. It is likely Jio Platforms will be listed in the next 18 to 24 months and will list at a significantly higher price than the value discovered by the slew of investors, in part due to the growth achieved in the interim period. When the business separation happens, it is likely the sum of all the businesses will be more than what it is now as an integrated unit

Airtel Digital Platform

Airtel restructuring has two main objectives

• Develop digital products, create Internal synergy, build partnership and focus on digital opportunity
• Attracting investors to the digital platform. Airtel’s reasoning is that potential investors for some parts of the business that connects with their investment strategy may be reluctant to invest into the total business.

The first of the objective is contingent on organisation structure, team empowerment, accountability, and team play. This is internal and can be achieved

Here is why the second objective of attracting investors at fantastic valuation will be difficult to translate

• Airtel Digital excludes the core telecom business and that is very different from Jio platform which includes the core Jio telecom business
• Airtel digital platform is also part a listed entity, but it has a very small value at this point in time. This platform will acquire size and traction over the next 5 to 7 years.

The first challenge that Airtel will face is in terms of getting investors for the digital platform. It is likely investors may be keener on the core telecom business and not so much on the digital platform

And finally as the Airtel digital products and assets are integrated with the core telecom offering, the separation can prove to be challenging for reasons of valuation and loss of synergy

Article by Prof. Surya Mahadevan, TAPMI
Published in May 2021 issue of The Global ANALYST

Annexure-1

Reliance Jio Platform

Source: Wikepedia

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