BHARTI AIRTEL LIMITED

Tough Competition Ahead:

Bharti Airtel Limited (Bharti) added 8.2 mn new customers by the end of Q3’09 keeping
its mobile wireless market share intact at 24.7%. Net revenue grew by 6.8% q-o-q in a
declining average revenue per user (ARPU) environment.

Marginal Decline in Market Share:

Since new telecom operators are expected to adopt an aggressive entry strategy, as
recently carried out by RCom for its National GSM rollout, Bharti’s market share is
expected to contract. However Bharti would regain its market share beyond 2010 as new
operator’s initial period offer to grab initial market share would have ended by then.

Network costs to drag down Margins:

Penetration in rural areas involves high gestation period in getting electricity connections
which will result in high energy cost. Also, investments on promotional activities are
likely to increase in response to growing competition.

Non mobile business to contribute to Revenue Growth:

Bharti’s well-diversified business model comes handy when lower ARPU is expected to
pull down the growth of mobile segment, despite addition in subscriber base. Telemedia
business is expected to grow with DTH and IPTV roll-outs witnessing a healthy response.
The enterprise business is also likely to grow on the back of increasing long distance
business and three submarine cable projects that will start functioning in 2010.

Mobile Services:
Mobile segment’s sales went up by a robust 9% qoq to Rs. 79.4 bn, consequent to the
10.5% growth in the subscriber base to 85.7 mn. The pre-paid component of the total
customers grew to 93.5% as the Company explored more of Class B and C circles.
Moreover, despite the addition of more operators in the existing circles, churn rates were
better than in Q2’09 and currently are the lowest in the industry at 1.1% and 2.9% for
post-paid and pre-paid, respectively.

Market Share and Subscribers:

The Company added 8.2 mn subscribers in Q3’09, taking the count to 85.7 mn, which is
in line with our expectations. Bharti maintained its market share at 24.7%. We expect
Bharti’s net-adds market share to reduce, given the early GSM rollout by RCom, that too
with attractive pricing in trial period offers, and the expected aggressive entry of new
operators.
Source: Company data, TRAI

ARPU and MOU:

In Q3’09, MOUs came down to 505 min from 526 min as Bharti intentionally churned
the irrationally priced minutes and free talk times. However, there was no depletion in
usage on a sequential basis excluding the intentional churn. ARPU was marginally down
by 2.1% qoq to Rs. 324. Although MOUs is expected to continue declining as the
majority of new subscribers are from rural areas or small towns. Bharti should maintain
its MOUs substantially above the all-India average on the back of its high subscriber
quality. Moreover, a gradual improvement is expected in the usage of the subscribers
added from the rural areas and small towns once they become used to the technology.

Enterprise Services:
Revenue from Enterprise segment grew 49% yoy. The primary reason was the subdued
volume growth of 50% yoy witnessed in the carrier business. The Enterprise Corporate
segment is expected to be affected by global slowdown.

Telemedia Services:
Around 110,000 subscribers were added this quarter, taking the total customer base to
2.62 mn. Despite a steady growth in volumes, revenue remained almost flat at Rs. 8.5 mn
due to a 4.3% lower ARPU of Rs. 1,098. The EBITDA margin went down by 190 bps to
41.7% as the Company launched its DTH services on a pan-India level this quarter. The
Company’s does not have immediate plans to expand its Telemedia services beyond 95
cities; therefore, there will be a conservative subscriber addition.
Risk Factors:
 Continual tariff cuts
 Higher competition in wireless business than expected
 Huge payments to obtain 3G spectrum
 Lower increase in long distance volume than expected