In Business There Are No Foes, Only Friends

Sunil Mittal doesn’t show it. But there’s a very good chance that deep inside, he is feeling heady and excited again, after a long time.

Of course, when Airtel hit 100 million customers in May, he hosted a gala dinner for his business partners, where A.R. Rahman performed live. When his daughter got married in June, the guest list couldn’t have been more impressive: Sonia Gandhi, Manmohan Singh, L.K. Advani and some of the biggest names from the world of business. He had been seen swapping phone numbers with Cherie Blair. He won a nomination to the prestigious Carnegie endowment board. Clearly, his social life is buzzing.

But there’s nothing like the anticipation of snagging a deal that he almost lost. Imagine talking marriage to someone who ditched you at the last minute, at your terms and at a better bargain. Sweet, huh?

For the 52-year-old chairman and group CEO of Bharti Enterprises, this is that moment. One year after being spurned by the African telcom giant MTN, he is now busy sewing up the deal. The two companies are in exclusive talks till July 31. The likely merger will create a $23-billion emerging market giant that will straddle India, the Gulf and Africa — populous geographies with close to 2.5 billion people and 200 million plus customers. It will also make the combo the third largest mobile operator in the world with over 200 million customers in 25 plus countries.

When MTN left Bharti high and dry last year, Mittal admitted that it had really hurt. It’s a “question of my ego,” he confided in a rival telecom CEO.

In his 30-year journey from an imported-scrap dealer to India’s largest telecom player, he has built and rebuilt businesses many times over — at times pushed by fatal policies and sometimes nudged by his surging dreams. But he always came back with a bigger dream and a bigger plan. He did it when he was small and a virtual nobody. But amid all the success and all-round glory — both personal and entrepreneurial — that came later, last year’s rebuff must have been unsettling. So be sure that Mittal will do everything possible to get this deal through — navigate the regulatory hurdles, sell the plan to the board and shareholders and also devise a synergy plan that finally delivers value.

By all accounts, this will be a transformational deal. This will easily be the biggest overseas M&A deal by an Indian company. It will also give Sunil Mittal, the entrepreneur, the next fix that he desperately needs. By now, the domestic telecom business is on auto pilot. For the past five years, Mittal tried his hand at retail, insurance and agriculture. He picked the best companies in the world — Wal-Mart, AXA and Rothschild — to partner him. (Rothschild was later replaced by Del Monte). But the results haven’t come through as yet. Replicating the same Airtel success has proven elusive. So now, Mittal is focussing on telecom all over again. Except that this time, he has an entirely new agenda.

Pulling off a cross-border merger of equals is a challenge that Bharti has never faced before. And India Inc. — and the world — will be watching his every move. With the global downturn, India Inc.’s globalisation drive has already hit a massive speed breaker. Many of Mittal’s peers, including Ratan Tata and K.M. Birla, are struggling to prevent their M&A deals from turning sour.

Despite the talk of a recovery, for the most part, banks are still running scared, credit rating agencies are watching like hawks and markets remain cautious. In this environment, a multi-billion dollar deal could almost single-handedly lift business spirits — and help fight off the despondency.

Yet there’s something that might well be bothering Mittal — something that goes beyond business and beyond Bharti. Once upon a time, he wanted to retire at the age of 50. He was passionate about nation-building and began talking about it long before it became fashionable. Today, that’s the new Holy Grail for successful entrepreneurs. Amassing personal wealth and incredible business success isn’t enough. There’s a yearning to contribute meaningfully through public life. That holds a special meaning for Mittal. “He would have watched Nandan [Nilekani] from the sidelines,” says Tarun Das, chief mentor of Confederation of Indian Industry (CII).

Somewhere in his mind, Mittal has begun the countdown. “Nandan prepared himself extremely well... I haven’t cleared my desk yet,” he says. But can he really prepare his organisation for a life beyond him, after him?

NEXT PAGE: Q&A with Sunil Bharti Mittal

Q & A

What does MTN mean to you and Bharti?
It is a well thought out deal and has been in the works in some sense for a long time. Bharti typically tries to prepare itself a couple of years in advance. If you remember, we were the first to get into long distance telephony and we had India’s first submarine cable. When we built our fibre network, people asked why are you putting tens of thousands of crore into it? Apparently, mobile companies didn’t need to do that. But we persisted and at times at great risk to the enterprise.

Without taking any names, let me say this: Some companies thought it was a foolish strategy and did not do it. They get it now. But we have a 35 percent stake in a market where there are many players. But now, India is done. Of course, there is still some growth left. I am not saying it’s all over. All I’m saying is our job in the corporate office is done. Our networks cover 82 percent of the population. We’ll get to 90 percent.

So, where does this company go to from here? What is this team going to do in the next three-four years? They’re getting restless. We need to expand our horizons and go out of India. That is what we have been trying over the last couple of years. On a large scale, it is tough to go and pick up new licences in markets like the CIS and Europe. The US makes no sense now. Taking over existing operators involves billions of dollars. Then there is our business model. With one of the lowest tariffs in the world, we have an EBIDTA of 40 percent. In our view, this model can work only in developing markets — not developed ones. The focus has to be on Africa, the Middle East, and some other developing markets. Given that, there are very few pieces to partner with. I can only think of Zain, MTN, Fast Telecom and Vivendi.

Within these, MTN is a fine example. Its revenues are bigger than ours; they’re present in 21 countries and have over 100 million customers. We have been toying with the idea for quite some time to get into an alliance. Now, the term sheet has been signed. If we put these two companies together, we have the third largest telecom company in the world. In this business, I have learnt scale is everything. That’s what we are looking for. But I must add it’s not done until it’s done. There are many moving parts.

What went wrong the last time?
Anil [Ambani] came in with a higher bid. While such talks are on, it is quite natural for somebody to come in with a higher bid.

But backing out mid-way through a deal like that…
World over, interlopers in any process are the norm. If you have an Alcoa, somebody will jump into it. If you’re close to getting Arcelor, somebody will jump in. You need to deal with it. We decided to walk away from it.

There is a school of thought which believes MTN has now come to the table in a weaker position.
No. The whole world has weakened. We are weaker, they are weaker. And at the management level over the last one year, we have had very warm relationships. Bharti’s philosophy is that in business there are no foes, only friends. We have lived in partnerships. We got Vodafone into the country. When they wanted to go out and buy Hutch, we could have blocked it. One call from Arun Sarin [then the CEO at Vodafone] and that was it. We said go ahead. We are made very differently.

What similarities do you see between MTN and Bharti?
We operate in two different markets. I don’t understand Africa or the Middle East as well as they do. But I understand telecom. So I can add value to the business. The outsourcing model we developed at Bharti, it can be deployed into MTN’s markets where they’re already doing well. So, we bring a strong performance orientation to the table. MTN understands the Street very well and are super with governance, processes and systems. That will compel us to change our game as well.

Eventually, this will not be one team sitting out of India managing Africa or the other way around. Each will manage their respective geographies. MTN has a strong leadership team in every country they operate in like we have leaders managing each state in the country. I don’t think there should be any concern about clashes. Whatever will be done will be at the board level.

Bharti is not a typical promoter-led company. The whole idea of dominance or empire-building happens typically in promoter-led companies. In our minds, we are very clear this is a professional outfit. It just happens that we founded it and hold a large number of shares.

Doesn’t MTN have a more empowered management team? Airtel has a promoter at the helm...
But that doesn’t make our team any less empowered. We have revenues of Rs. 100 crore or so a day and spend Rs. 102 crore or so. Not a paisa comes to us for approval.

After the deal goes through, what will the organisation look like?
In the proposed structure, both companies will remain separate, but with cross-holdings. MTN will have people on our board and vice versa. Eventually, if we go in for a merger, then the structure will change.

When you looked around the world, what models of merger did you consider?
Typically, I like to create a model with huge cross holdings and harness the synergies of both organisations. But we are looking at a merged entity over a period of time. I think it will be easy for us because we have worked with partners in the past–British Telecom, Telecom Italia, AT&T, Singtel.

What about MTN? What kind of experience does it have with partners?
They have done Investcom, a huge entity controlled by the Mikati family [based out of Lebanon, they own 10 percent in MTN and is the company’s second largest shareholder after the South African state pension fund]. And they have integrated very well. Mikati Azmi sits on the board, has a say and is deeply involved with the company.

Coming to India, you seem to have upped the ante. You’re working on building a strong bench. Why?
Five years from now, the telecom business in this country will be a very different one. For instance, we have different networks for mobile, long distance, fixed line. Eventually, it will have to be one network. Jai Menon [CTO at Airtel] is driving that change. We also have to make the transition from playing the customer acquisition game to the value game. We are this huge acquisition machine that gets customers, bills them, things like that. The industry has to now move towards managing customers, enable commerce for them and provide entertainment.

You have brought new leaders from the outside. Does the culture at your organisation accept outsiders?
Don’t think of this as management jargon. When we started out, we were an entrepreneur-led, entrepreneur-promoted company. We did a great job. In some companies, this phase lasts forever. Nothing wrong. But in my view, if you do that, you remain small. You can’t manage a large company using this model. So we moved to the next stage — entrepreneur-led and professional-supported. Over the last four years, we’ve moved to professional-managed and entrepreneur-supported. And that’s where we want to keep it.

There is one more stage — professional-led and professional-supported. Vodafone is in this mould. To a certain extent, so is MTN. No single shareholder is dominant. Ownership was created among managers unlike Vodafone. I personally believe, the finest way to drive value for all stakeholders is from the position we are currently in.

Parts of our organisation were moving to the professional-led and professional-supported model. I had to pull it back because I figured they were becoming too bureaucratic. Things didn’t move; too many approvals were needed; too many emails. That is something we want to avoid.

In which case, how do you retain professionals?
We have retained them. People who come in from the outside love what they see here. We ask them to tell us what’s good, what’s bad and what’s ugly about us. They tell it like it is. In turn we tell them, here’s the canvas, go fix it.

You have a point there. The real issue is always with the war veterans. How do you handle that?
Four years ago at a conclave, I let go. I told the veterans you’ve done a fantastic job of building the company. But unfortunately, some of you haven’t kept pace. And I don’t want you to come in the way. You’ve got the titles, you’ve got the money, but no major responsibilities. So, I said, walk out now, with your medals and feathers intact. Else, you will start dying. People were shocked. That evening people came to me and said they had never heard me talk as sharply. And I had to explain to them where I am taking the company from here. I think most of them are now gone.

You said you are a professional-managed entrepreneur-supported company. But implicit to that is your being around, somewhere in the background. Do you think it possible that someday Airtel could become a professional-managed professional-led company?
“Me” implies some shareholder. You must remember that Singtel owns 30 percent in this company. Airtel should never become a professional-managed professional-led company. This company’s foundations are different. If you strap a different edifice to this foundation, it will not work.

You also said things didn’t go well when some parts of the company went the professional-managed professional-led way. What specifically were the issues?
Speed was compromised.

What was holding the organisation down when you wanted it to move?
Bureaucracy and a lack of urgency.

Why was it missing?
You must feel like the deer in a forest, which is always afraid of being attacked. Else you’re dead.

How do you institutionalise that?
Entrepreneurs do it intuitively. For professionals, it is part process and part intuition. When we wanted to outsource our network, it was considered blasphemy. Akhil [Gupta] and I spoke about it many times. I know how many obstacles he had to face to take it through. Everybody was dismissive of the idea. Sometimes, seniors will not only say this isn’t good, they will work hard to ensure it isn’t good. I had to protect him. That’s where the professional-managed entrepreneur-supported model comes into play. I said let’s go.

When we took our plan to the board, they almost killed it. One of them told us, ‘we speak English. But you guys speak a kind of English we don’t understand.’ We had another board meeting at the end of which they were still uncomfortable. Finally, I told them it’s my neck on the line. If it fails, I fail. They agreed — not because I was the owner or the largest shareholder and could vote them out, but because they could see a certain passion. And I had a track record to back myself up. If I were a professional CEO and even if I had the guts to take on the board, I don’t think I would have got the approval. The board would have batted on the safe side.

When it was time to present the MTN plan, did you have to go through something like this?
You must understand I have been at this for the last 30 years or so and this is the only thing I do. Once I understand my limitations, the only way I can learn anything is to work with people like them. I am sharp, incisive and understand the industry. But they manage the industry better. They can’t take decisions that are risky. I can say, guys, it’s my neck, go for it. The combination is a powerful one.

What next? There will be a time when you want to do something else.
I tell you, we entrepreneurs are like junkies looking for the next big fix. There is no question about that. The question is, where will it come from. Business-wise, we will create some successes. But during my life time I don’t think we will be able to claim there will be anything as successful as Airtel. What are the opportunities we have?

We understand telecom — that’s in our blood now. So, one opportunity is to take telecom to other markets. We are making a very serious attempt to do that. Our balance sheet is strong.The other thing we are capable of doing is India. We understand this country very well. But we don’t want to be in manufacturing. Although we did that earlier with Beetel, we are services-oriented now. We are into financial services with AXA, retail with Wal-Mart, and agri food services with Del Monte. We chose these verticals very carefully. They are India-led, pioneering, connect directly with our consumers, require brand building, need massive investments and are heavily regulated. We are comfortable with all of these.

The common thread that binds all of these for us is that our partners are experts. We don’t have the time or luxury to learn how these businesses operate. I don’t feel any shame in saying we want to fly on the wings of these people. When we were young and small, we did it with British Telecom, Telecom Italia.

What have you learnt in the non-telecom businesses, like financial services for instance, where you are playing catch-up?
The only place where we are slightly late is financial services. In some sense, we are in the middle there. AXA is a trillion dollar asset management company and one of the most respected worldwide. They are bringing in best practices and knowhow and we are not uncomfortable with the pace at which it is moving. We need to be on a sure footing in these businesses. But I can assure you it will be a billion dollar business. It will not be a $10-billion business like telecom, but it will be a billion dollar business in the not so different future.

As for retail, we are in the first flush. It’s the first lot of people who have come into business. Here again, we’ve had a slow, calibrated, moderate start. We will get to a billion dollars here as well in two-three years time. From there, let’s see how it goes.

But they would want to control operations…
Control has no meaning, influence has meaning. I have influence in areas where I can add value — look and feel, brand building, customer segmentation. But in terms of domain knowledge, how the insurance piece works, this must come from AXA.

Wal-Mart would have a point of view as well on how to grow the India opportunity.
I went to Amritsar and they showed me some stores. I thought there was too much breakfast cereal stacked there. I told them it’s the wrong thing in the wrong place. These are things you learn when you’re in a country. It isn’t a fight. They laugh over it, we laugh over it.

Equally, to their credit, they were moving slowly. We wanted them to be faster and open more stores. They refused and said we first need to understand what works here. It got us frustrated. But in hindsight, they were right. We would have lost a lot of money if we had gone at that pace.

In all joint ventures, you have a difference of opinion. At the end of the day, only one thing is sacrosanct — what is good for business counts. Not what is good for shareholders! From our point of view, if anything is good for business, but not good for Mittal as a shareholder, we will fight in favour of business. Similarly, if Wal-Mart says it is not good for Wal-Mart, we don’t care. But if they say it’s not good for India or the joint venture, we care.

What happens beyond MTN?
In telecom, I am constantly scanning my horizons. I meet so many people and, spend time with them. I just spent a day with Arun Sarin [former CEO of Vodafone]. But nothing specific on my mind really!

Did the thought ever cross your mind of getting a professional CEO like Arun Sarin into Bharti?
He is a great professional. But he has the same problem I have. He has led one of the largest companies in the world. Where does he go from here? He has to find his next fix.

What about Asim Ghosh (former CEO of Vodafone India)?
You must remember, despite his best efforts Asim, could not upstage our team. But if there is one professional outside the Bharti stable in India I have huge respect for, it is Asim. He straddled three roles — mine, Akhil’s and Manoj’s. But I always used to tell him you are not going to get past us.

And beyond business, what’s on your mind?
Business is the only canvas available to me. I am not a trained scientist or a lawyer.

What about politics?
Politics is one way of nation building. Sitting in this room five years ago, I would have said yes, I’ll consider that seriously. But by and by, that has gone away. It’s not on the table anymore.

Participation is another form of nation building. That’s why we have the Bharti Foundation. One lakh children will be studying in these schools. To my mind, this is the biggest intervention programme by any corporate in independent India. We are building a school for public policy in Mohali, on the lines of the Kennedy School. I don’t see myself as a businessman alone.

Look at the Wal-Mart family. They have a 40 percent stake in the company. But only one Walton is the chairman. There’s nobody else in business. Somebody is a teacher, somebody else is a scientist, an investment banker. These models work. I am trying to break that standard mould that family businesses must be run in a certain way. We are privileged to be successful. But are we a family business? I have always said no. We are a family in business. And that distinction makes a huge difference.

Nandan Nilekani crossed over. Does that catalyse something in your mind?
Nandan freed himself from his executive responsibilities over time. I haven’t cleared my table as yet to take any responsibilities like those. But who knows. That’s not politics.

Doing a Nandan sometime?
I don’t know in what form and shape. Maybe at the Bharti Foundation, maybe a trustee at the Carnegie Endowment. They’re doing phenomenal work on climate change, disarmament, non-proliferation. That interests me.

When do you expect to clear your desk?
Hopefully the job will keep changing. I am not doing what I was doing five years ago. I’m not even doing what I was doing three years ago. Manoj is now the MD of the company and he is on the board. I think in a few years time I will be just the chairman of the group. All these new people who are coming in the system will allow me to do that.

How do you transfer the intuition you have developed?
It’s like my kids coming to me with questions on math. I could give them the answers. And they’d ask me how did you do it? I’d say I can’t tell you that, but I know the answers. They’d laugh and go away. Now, they’ve learnt their formulas and my kids know how to get there.

So from my point of view, processes take care of a large part of intuition. I hope eventually, they will develop it for themselves. They will combine it – more process, less intuition. I had more intuition and less process. In large part it’s already happened. Last year, I was president of CII and travelled too often. But Airtel gained market share. They did a good job.

It was Worth the Wait

Last year, when Bharti was negotiating its merger with MTN, a global newspaper cheekily added that India’s largest telecom company could well be marrying up. It wasn’t far from the truth. MTN actually has more subscribers, higher revenues, bigger profits and a broader reach than Bharti. That’s not all. MTN is the sponsor for the 2010 FIFA World Cup — something that will at least ensure that millions of Indians notice the brand for the first time.

MTN also has a cadre of global managers who have worked in markets as diverse as South Africa, Iran, Sudan, Cyprus and Nigeria. And their leader, Phuthuma Nhelko, MTN’s global CEO, is seen as a particularly good role model in African business circles. The US-educated civil engineer turned corporate financier is soft-spoken, media shy, and has a taste for jazz. He has been the key driver behind MTN’s
impressive growth.

Nhelko, who along with four others owns 13 percent of MTN, is widely expected to lead MTN even after the deal. Most of the members in his team have plenty of international experience, having been already rotated through different geographies and cultures.

MTN is driven by the CEO and CFO and supported by the board, unlike Airtel where Mittal is at the helm. MTN has more than 20 significant minority shareholders, the biggest being Lebanon’s Mikati group (10 percent) and South Africa’s PIC (13.5 percent).

MTN functions like a Western MNC with well-laid out processes, strong governance structures and good talent management systems. It has already graduated to dynamic pricing and mobile commerce

Change, the Only Constant
Manoj Kohli, CEO of Bharti Airtel is candid. “Our capabilities today are a lot about yesterday. We need to be a telco of tomorrow,” he says. In its first 10 years, Airtel grew at a rapid rate through quick network roll-outs and grabbing customers.

The telecom industry will not be the same in the next five years. Growth is tapering — Airtel is likely to post its slowest revenue growth ever in the current quarter. Growth is shifting from urban to rural markets. Three years back, rural markets contributed about 20 percent of new customers. Two years from now it will contribute about 75 percent. And the new customers (and even competition, number portability) will bring down per-user revenues. “We have to move from hunting to farming,” says Sanjay Kapoor, deputy CEO, Bharti Airtel.

The biggest shift the “speed machine” will need to make is in its minds. At Airtel, speed always came before quality or customer satisfaction. Two years ago, Sunil Mittal had seen the writing on the wall. “You focus on customers. I will be answerable to the board for revenue,” he had then told his team. Jai Menon, the Airtel CTO, is leading the charge with “Project Next initiative”, which will focus on customer retention and service improvement.

Vendors will be paid not on basis of volume of calls, but on customer satisfaction. Airtel’s three-screen strategy — telephony, Internet and TV — is expected to add new revenue streams and gain wallet share. It is investing and expanding in new areas like DTH, Internet TV etc. But making money won’t be easy. Kohli, nevertheless, says, “We have to have the patience…We are confident in the long term.”

To grow, Airtel has two clear audiences in sharp focus: the country’s youth and rural customers. And it has laid out an elaborate bouquet of innovative offerings for both segments. Sample: A special SIM card that allows even an illiterate farmer to receive a one-minute voice SMS that answers some of the common farming issues in his region.

Generals for the Next Battle
Inder Walia is just the kind of war veteran Sunil Mittal wants. In the eight years that he spent inside ArcelorMittal, the world’s biggest steel company, Walia helped manage 15 global acquisitions. And during his stint, ArcelorMittal went from a $5 billion to a $90 billion firm. Two years ago, Walia signed up as group human resources director at Bharti. He also sits on its group management board. Today, Bharti wants to enlarge its footprint across emerging markets. And Walia is gradually cobbling together the team that Mittal needs to make that transition.

Helped by reputed executive search firm Egon Zehnder, Walia has already most of the new A-team on board: T-Mobile’s Joachim Horn as CTO, Coca-Cola’s Manik Jhangiani as CFO, Bell-Canada’s Shaun Parmar as head of M&A team and Pepsico’s Shireesh Joshi as the CMO. Today, about 40 percent of the apex team at Bharti has had global stints. All mandates for any senior level search now have a common attribute: significant global experience. “We want to be the most admired company in emerging markets,” says Walia.

The transition is now well under way. Starting with a renewed focus on leadership development, talent management and developing domain knowledge. IBM, one of Bharti’s partners, recently conducted a one-day learning session on financial control and management and is planning another on talent management. Knowledge sharing platforms — at various levels of hierarchy — have been set up.

Soon, exchange of talent between businesses and geographies will get more organised. “We will begin with short-term project assignments overseas to expose our people,” says Walia. Spotting of talent internally is becoming structured: There is a systematic process of talent review with a committee formed at every layer of the hierarchy. Clear career paths are being drawn up. Guidelines have been published on career progression making things relatively more transparent. There was a time when Airtel was notorious for constant organisational reshuffle. “Today, there is lot more deliberation and thinking before we do that,” says Airtel’s HR director Krish Shankar.

NEXT PAGE: Mittal vs Ambani

MITTAL VS AMBANI
Indian business is dominated by two categories of players: Established families and upstarts. ON one side there are the Tatas and the Birlas who have been around for generations. The Ambanis in their second generation are on the family side of the spectrum since they manage their businesses in a traditional way. Then you have the Sunil Mittals and the Tulsi Tantis who represent the new crop with a distinctly different style of functioning. We spoke to a few ex-Bharti and ex-Reliance executives and here are some of the most marked differences.

Scale vs Brick by Brick
Mukesh Ambani is about scale, grand vision and world class. Sunil Mittal is about speed, first off the block and then builds brick-by-brick. So while Reliance Communications waited to have its networks in 600 plus towns before rolling out the services, Sunil preferred rolling out one by one, Delhi being the first.

Autocracy vs Empowerment
In a very relative sense, at Reliance Industries, every major decision is take by Mukesh Ambani. Bharti is lot more consensus-driven. While for most major strategic decisions Sunil has the last say, executives feel lot more empowered. Executives say there are a lot more opportunities for them to make themselves heard at Bharti.

Family vs Outsiders
Coteries are everywhere, especially so in promoter-led companies. But the difference is that Reliance has two distinct kinds of coteries – extended family and the professionals. At Bharti, MIttal has completely kept away the family. It isn’t unusual for trusted senior executives at Reliance to be invited for dinner at Sea Wind (the Ambani residence). At Bharti, it is rare if ever.

Going Solo vs Joint Ventures
Ambani doesn’t believe in partnerships or joint ventures. Reliance will aim for a global scale on its own. Of course it makes mistake but the blame stops with them. Reliance Retail is a great example. Mittal believes in partnering and fostering partnerships at every level. In retail Bharti brought in Wal-Mart. Even in Airtel, he has IBM, Alcatel and Nokia.

Media
At Reliance, there is a separate group that handles media. Its executives talk – but almost always off –the-record. There are very few people authorized to speak to the media on record beyond Ambani. Relatively, Sunil is lot more sophisticated and liberal in handling media. Professional executives are also accessible.