Monday, June 27, 2011

Bharti Airtel will merge three separate businesses and may cut massive jobs


Bharti Airtel has embarked on a restructuring exercise that will merge three separate businesses, triggering a large-scale job cull for the first time in the services sector since the 2008 economic slowdown.
Under this exercise, Bharti Airtel plans to merge its mobile, satellite TV (DTH), and fixed-line & broadband telemedia business, which jointly account for about 90% of the company's revenues and the vast majority of its workforce, into a single entity.
The merger, ostensibly aimed at cutting costs and boosting efficiency at the country's biggest telecom operator at a time of falling profits, is expected to lead to big job losses, with estimates putting the number at more than 2,000.
Bharti's move could provide the trigger for similar action at rivals, many of whom are battling identical issues-debt burden, slowing growth and high marketing spends amid cut-price tariffs. Several Bharti executives and others familiar with the company's plans told ET that managers had been told to cut positions in their teams and that the merger would create large-scale redundancies.
"The estimate is that up to 25% of the 11,500 or so positions in the three verticals will be axed. The process has already started," said one company executive who has been asked to bring down the number of his direct reports. Another executive based out of Airtel's Delhi office said "the brunt of the merger will be felt across all levels", noting that each of the three business verticals has separate teams for sales, product, strategy, human resources and finance, all led by separate CEOs.
A third employee said: "Employees were being sounded out about the restructuring, which on completion could impact 20-30% of Airtel's 16,830 employees in the country, including in its enterprise business." The enterprise arm is Bharti Airtel's fourth business division, serving corporates and small & medium businesses and also responsible for its undersea cable offerings.
Bharti, in its response to specific queries sent by ET, confirmed the restructuring, but said it would have "minimal impact on people". "As and when any change is planned, the same will be done in the interest of all stakeholders and shared in an open and transparent manner."
Co unlikely to go for mass sackings
The company said it had pioneered what it called the "strategic outsourcing model", in which key functions such as networks, technology and customer services are managed not by the company, but by specialist vendors. "Such initiatives wherever and whenever appropriate will find favour at Bharti. Scale and agility backed by synergies and business efficiencies have been the hallmark of Bharti Airtel's growth story.
All these are an intrinsic part of our DNA and have always guided our growth strategy over time," it said. While large-scale job cuts were certain, the executives who spoke to ET said the company was unlikely to resort to mass sackings, and a vast majority of affected employees would be offered opportunities to work in the group's other businesses and in its Africa operations.
"Nobody will directly be asked to leave," one executive at the company's corporate office said, but added that the sheer discomfort in taking up some of the available options could result in scores of employees leaving the firm.
Another Airtel executive, who did not want to be named, confirmed that employees affected by the merger would be offered opportunities to move to "similar functions within group companies that handle telecom infrastructure, agriculture, retail, value-added services as well as its mobile businesses in 16 African countries". Bharti is no stranger to shedding employees, having "outsourced" thousands of its employees in past years to vendors such as Ericsson, Alcatel-Lucent, Nokia Siemens and IBM.
Indeed, its outsourcing strategy, which helped it ramp up operations aggressively during its growth phase while keeping a tight grip on costs in a intensely competitive market with cut-price tariffs, has been acclaimed and adopted by telecom operators around the world.
The last such big transfer of employees happened in 2009-10 when Alcatel Lucent took on its rolls more than 4,000 employees from Bharti as part of a deal to manage its landline and fibre businesses. Analysts said the latest restructuring was necessary for Bharti. 
"It is a defensive step to cut costs and increase profitability, margins and also sustain its revenue market share," said an analyst with a Mumbai-based brokerage house, requesting anonymity. The company, which has dominated India's mobile revolution for much of the last decade, has been of late struggling to repeat its performance of yesteryears.
India's mobile market, especially in cities, is saturated, with as many as nine operators in each telecom circle fighting for customers and, in the process, pushing down tariffs. Its big bet on next-generation 3G services, which have saddled it with large amounts of debt, is yet to pay off significantly while its ambitious foray into Africa is largely seen as a drag on its performance.
Last month, Bharti posted its fifth straight drop in quarterly profits, weighed down by the African operations. It was one of only three operators to have lost revenue market share in the last fiscal year, the other two being Reliance Communications and BSNL. While these three operators posted a more than 1% decline in revenue market share, others, notably Idea Cellular, Vodafone Essar, Aircel and Tata Teleservices, managed to increase their shares by 60-80 basis points.
These operators also enjoyed significant gains in their overall revenues last year-Aircel's mobile revenues for the year to end-March surged 36%' Tata Teleservices recorded a 22.2% jump; Idea Cellular's sales were up 19.4%; and Vodafone's sales rose 15%, data released by regulator TRAI showed. Bharti Airtel recorded a 7.2% increase in mobile services revenues, underperforming its rivals and also the wider market that grew at 12%.




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