One is the largest telecom company in India. The other is the incumbent in Singapore. One is now the fourth largest company in the world in terms of subscribers. The other is the hand that rocks its cradle. We are talking about Bharti Airtel and its co-promoter Singtel. Unlike most corporate relationships, this is one that is perhaps one of the least talked about in the markets. Singtel is the second largest shareholder of Bharti after its promoters. And therefore, the two share an important relationship. Therefore we thought it would be a good idea to see how the two stack up against each other.
In the next few articles, we will compare Bharti Airtel and Singtel on different parameters. Our intention is to provide information to the reader so that he can understand how the same business has different results because of operating in two different countries. It would also provide information on whether or not Bharti Airtel has superseded its Singapore counterpart in terms of performance. The latter is important because it will help identify the reasons as to why the better performance was possible. Was it because of something that Bharti did right or was it because of operating in another country? In either case, it would help an investor get a better understanding of the company we believe.
In this article we will compare the key points of distinction between Bharti Airtel and Singtel.
Both the companies have extensive business interests outside the shores of their home countries. Singtel has business interests in Australia, Thailand, India, Philippines, Indonesia, Bangladesh and Pakistan. Bharti too has spread its wings into Bangladesh, Sri Lanka and the African continent.
The two companies cater to very different types of markets. For comparison sake, we have taken the home markets for both the companies. Bharti's home market in India still holds a huge potential in the untapped rural markets, home to two-thirds of country's one billion-plus population. The rising rural tele-density is clearly indicative of the much-larger drama unfolding in the Indian telecom market. Though growth in subscribers has eased off in recent times, nevertheless the underpenetrated rural markets continue to present a huge opportunity for telecom companies like Bharti Airtel. On the other hand, Singtel faces a near mature market in Singapore.
Source: Company data, TRAI
As indicated in the graph above, India clearly has a huge potential to grow. But another thing that comes out from this is that Singapore is a more mature market. Therefore the potential of other telecom services like data, internet, etc would play an important role. And these are typically higher ARPU (Average revenue per user) services. This is visible in the different revenue sources for the companies.
While mobile operations are the biggest contributor to revenues, both companies have other sources of revenues too. The following set of graphs give a clear picture of the contribution that each business interest has in the top line of the two companies:
Source: Company data
Source: Company data
Note: The data is taken for the trailing 12 months for both the companies
Clearly, mobile is the largest contributor of revenues for both companies. However, Bharti is more exposed to mobile services as compared to Singtel. The reason for this is the maturity of the two markets. Singapore (and Australia as results include that of Optus), is a more mature market for telecom services. As such, contribution of data and other such services tends to be high.
The two companies also face different types of customers.
Source: Company data
As seen in the graph above, Bharti's subscriber base predominantly consists of prepaid subscribers. This leads to higher churn and thereby higher subscriber acquisition costs for the company. Naturally acquisition costs depend on other things as well like level of competition, regulatory requirements, etc.; nevertheless, Bharti has to offer incentives to acquire and retain customers.
The markets catered to by Bharti are quite different from those catered to by Singtel. As such Bharti is exposed to a higher regulatory risk. The telecom sector in India is one of the highest regulated sectors in the country. The regulator and the government have been regulating the costs through spectrum charges, spectrum fees, license fees, access charges, etc. In recent times the dillydallying on regulatory issues has just gone up.
A clear example of the exposure to regulatory risk can be seen in the proportion of regulatory costs for the two companies.
Source: Company data
Regulatory flip flops also affect Bharti on the margin front. While the government does not regulate the prices directly, it regulates the costs, thereby influencing the pricing indirectly. As a result, any increase in regulated costs can add pressure to the margins of the telecom companies.
So far, we have just talked about what these companies are, from where they earn their revenues and the differences in the markets they operate in. In the subsequent articles, we would see how these differences affect their financial performance and valuations.
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