Why Airtel made its shareholders wait thirteen years

The paradox, in one line

Over these thirteen years Airtel's revenue grew several times over and its customer base exploded into the hundreds of millions. On every measure of size, it was a runaway success. Yet the stock sat still. How can a business grow that much and reward its owners so little?

The answer is that telecom is a machine that devours capital, and Airtel spent the whole decade feeding it. Growth in customers is not the same as growth in profit, and profit that has to be poured straight back into the business, or handed to a lender, or a rival, or the government, is not a return to you. The chapters below are simply the four mouths that ate Airtel's growth, one after another.

Mouth one: the African adventure

In March 2010, Airtel made the boldest bet of its life. It bought the African operations of a company called Zain for $10.7 billion, funded almost entirely by debt. Zain was a big telecom company from Kuwait, the sort of company that runs mobile phone networks the way Airtel does, and it had built networks all across the Middle East and Africa. Airtel did not buy all of Zain, only its African arm: the mobile networks Zain ran in fifteen countries across Africa, along with the millions of customers already using them. The dream was irresistible: take the magic that had conquered India, cheap mobile service for hundreds of millions of new users, and repeat it across the continent overnight. In one stroke Airtel inherited around 42 million customers and a footprint stretching from Nigeria to Kenya to Zambia. Net debt swelled toward ₹60,000 crore. To grasp what that did, think of the company's own money (what the owners actually hold, after paying off every debt) versus the money it had borrowed. Before this deal Airtel owed almost nothing. After it, Airtel owed more than the whole company was worth on its own. A business that had stood on its own feet was suddenly carrying a loan bigger than itself.

The logic looked airtight on paper. In India, Airtel had won with what people called the minute factory: charge each customer very little, but sign up so many of them, and run the network so cheaply, that the pennies added up to a fortune. Africa had over a billion people and low mobile penetration. Surely the same recipe, cheap calls for the masses, would work there too. Airtel even rebranded every operation under one name and promised free roaming across borders, a single Airtel network stretching across a continent.

Africa turned out to be very different, and the recipe did not travel. India was one country, one regulator, one currency. Africa was fifteen, each with its own government, its own licence fees, its own taxes, and its own money. And that money kept losing value: when a local currency like the Nigerian naira weakened against the dollar, the profits earned there shrank the moment they were converted, while the dollar debt taken on to buy the business stayed exactly as large. Put simply: Airtel earned in naira but owed in dollars. Every time the naira lost value, those naira profits bought fewer dollars, so the same earnings covered less of the loan, even though the loan itself never got any smaller.

On the ground it was just as hard. A mobile tower needs steady electricity to stay switched on, but in much of Africa in the 2010s the public power supply was patchy and often went dark for hours at a time. The reason was decades of under-investment: many of these countries had built few power plants relative to their fast-growing populations, so there simply was not enough electricity generated to go around, and demand regularly outran supply. On top of that, the wires and substations that carry power were old and poorly maintained and broke down often, and in many rural areas the grid had never been extended that far at all, so the electricity never reached those places in the first place. So to keep the network running, Airtel had to bolt a diesel generator onto each tower and burn fuel around the clock. Diesel is expensive, and thousands of towers each drinking fuel every day was a huge, permanent cost that Airtel's Indian towers, plugged into a reliable grid, never had to pay.

The competition made it worse. MTN and Vodacom, the two big established mobile operators in Africa, had been there for years and already had most of the good customers. What they wanted was simple: to keep those customers and stay the biggest. So when Airtel showed up trying to win people over with cheaper prices, MTN and Vodacom were willing to cut their own prices to match, rather than quietly hand customers to the newcomer. That meant Airtel could not charge much and still had all that expensive diesel to pay for.

Airtel tried to fix its costs. It sold off its towers, meaning it handed the physical steel towers to specialist companies whose only business is owning towers and renting space on them, so Airtel could pay a monthly rent instead of owning and maintaining all that equipment itself. It also closed or sold its operations in a few of the countries where it was losing the most. But none of this touched the core problem: Airtel made only a small profit on each customer, and it was sitting on top of a large pile of debt from the original purchase. The business lost money for years, and every year of those losses and interest payments was a year the Indian shareholder paid for and got nothing back.

The scoreboard came in 2019. When Airtel finally listed the African unit on the London Stock Exchange, the whole thing was valued near $3.9 billion, roughly a third of the $10.7 billion it had paid nine years earlier. Nine years of money and management attention, and the business was now worth a third of what was paid for it. The listing did do one useful thing: it raised fresh cash to start paying down the debt the deal had created. But make no mistake: for most of the lost decade this deal only drained the shareholder, it never paid them.

Mouth two: the treadmill that never stops

Forget Africa for a moment. Even at home in India, a telecom company can never stop spending, and this is the mouth people understand the least. To see why, you first have to understand the one thing a mobile network cannot work without: spectrum.

Spectrum is just a nickname for the invisible radio airwaves that carry your call and your data through the air between your phone and the tower. Here is the catch: nobody can make more airwaves, there is only a fixed amount of them, and they belong to the government. Why the government? Because airwaves are not something any one person made or can own, they are a shared natural resource that hangs over the whole country, like the air itself. And if just anyone could broadcast on any frequency, the signals would crash into each other and turn to noise, the way two people shouting on the same radio channel drown each other out. So long ago governments claimed the airwaves as public property and took charge of deciding who is allowed to use each slice, precisely to keep order and stop everyone jamming everyone else. So a telecom company cannot simply buy or build spectrum. It has to rent the right to use a slice of these airwaves from the government, and the government hands out that right through an auction, where the telecom companies bid against each other for the limited slices on offer.

Because the supply is fixed and every operator desperately needs it to stay in business, these auctions turn into brutal bidding wars, and the winning bids run into many thousands of crores. And it never happens just once. Every time a new generation of technology arrives, it needs its own airwaves. Just as Airtel was still digesting the Zain debt from Africa, it had to bid billions for 3G spectrum in India's 2010 auction, so it could offer faster mobile internet. Then a few years later came 4G, which needed yet more spectrum and yet more bidding.

Buying the airwaves is only half the bill. The other half is the physical network: the towers, the antennas, and the equipment that actually send the signal. As Indians went from making calls to streaming video, the amount of data flowing through the network exploded, and Airtel had to keep pouring money in just to add capacity and stop the network choking. This kind of heavy, repeated spending on long-lived equipment has a name: capital expenditure, or capex. In telecom the capex bill essentially never ends, because the moment you finish upgrading, the next technology and the next surge in data are already coming.

Now the punchline, and it is the single most useful idea in this whole section. A company can report a healthy profit on paper and still hand its owners almost nothing, because profit is measured before you account for all that spending on spectrum and equipment. The number that actually matters to you as an owner is the cash left over after the business has paid for everything it needs just to keep running and stay competitive. That leftover is called free cash flow. For Airtel through these years, so much cash was being swallowed by spectrum auctions and network capex that the free cash flow was chronically thin. The profit looked fine. The cash that could ever reach a shareholder did not.

Mouth three: the Jio earthquake

On 5 September 2016, a new rival arrived and changed the whole industry overnight. Reliance Jio, funded by Mukesh Ambani, one of the richest men in India, launched with free voice calls forever and months of free 4G data, then near-zero prices after that. It was the most aggressive launch in Indian corporate history, and it was built to force the existing operators like Airtel into a fight they could not win.

The first question a sensible person asks is: how can a company give its product away for free and survive? The answer is deep pockets and a long game. Reliance, Jio's parent, is one of India's biggest companies, and it was willing to spend enormous sums and lose money for years to buy market share. It had built a brand-new network designed only for 4G data, which made it cheaper to run than the older networks its rivals were still patching up. The plan was to hook hundreds of millions of Indians on cheap mobile data first, worry about profit later, and use that giant customer base to sell other Reliance services down the line. Free was not charity. It was a weapon to capture the whole market at once.

That weapon put every other operator in an impossible spot. If Airtel kept charging its normal prices while Jio was free, its customers would simply leave for Jio. So Airtel had no choice but to slash its own prices to something close to Jio's, and swallow the hit to its earnings, just to hold on to the customers it already had.

You can see the damage in one number: how much money Airtel collected from each customer per month, which the industry calls average revenue per user, or ARPU. It fell from about ₹202 in 2014 to roughly ₹104 after the price war. Same customers, close to half the money. And this was not one bad quarter, it dragged on for years, because Jio kept prices on the floor and Airtel had to keep matching to survive.

The whole industry bled at once, and this is the part that eventually mattered most. Charging almost nothing, the weaker operators could not cover their costs and started to collapse. Some shut down, others were swallowed in mergers, and a field of about a dozen mobile companies was crushed down to just three private survivors, as the diagram below lays out: Jio, Airtel, and a merged Vodafone Idea. Airtel surviving that cull was itself an achievement. But survival meant years of thin or vanishing profit while it fought a rival that seemed happy to lose money forever to win. The one silver lining, that fewer survivors would one day be able to raise prices again, would not pay off until the very end of the story.

Mouth four: the regulatory bomb

Then came the bill nobody had fully braced for, and to understand it you first need to know one more way telecom companies pay the government. On top of the money they spend buying spectrum at auctions, they also agreed, as a condition of their licence to operate, to hand the government a slice of their revenue every single year, a kind of yearly rent for the right to run a phone network. Say the rule is a few percent of what you earn: the more you earn, the more you owe.

That sounds simple until you ask the obvious question: a slice of exactly which revenue? This is where a fight brewed for years. The technical name for the revenue that gets sliced is adjusted gross revenue, or AGR. The telecom companies argued it should mean only the money they made from their actual phone business, the calls and the data. The government argued it should mean almost everything the company earned, including side income that had nothing to do with running the network, like interest earned on cash in the bank or gains from selling assets. The government's definition was far wider, so it produced a far bigger bill.

On 24 October 2019, after more than a decade of legal fighting, the Supreme Court sided completely with the government's wider definition. And here is the sting: the ruling was backdated. It did not just mean higher fees from now on, it meant the government could go back over fifteen-odd years, recalculate every year's fee on the bigger definition, and demand the shortfall, plus interest, plus penalties, all at once. For companies that had been paying on the smaller definition the whole time, the pile of back-dues that suddenly became payable was staggering.

Airtel had to set aside ₹28,450 crore in a single quarter to cover its share. The result was a loss of ₹23,045 crore for the July-to-September 2019 quarter, the largest quarterly loss in the company's history and one of the biggest in Indian corporate history. To see how much of it was the ruling, consider this: without the AGR charge, the loss would have been just ₹1,123 crore. Thirteen years of building a bigger and bigger business, and Airtel was now staring at a government bill large enough to threaten its survival.

It is worth pausing on that ₹1,123 crore figure, because it tells you the loss was not the business falling apart. Take away the one-off AGR charge and Airtel's actual operations lost only ₹1,123 crore that quarter, a small number for a company its size. The reason the reported loss was twenty times larger, ₹23,045 crore, was almost entirely the single government bill the Supreme Court had created overnight. The everyday business was bruised but standing; it was the backdated fee that did the damage.

And then, at the darkest point, the turn

The reward finally came, and it is important to see exactly where it came from, because it was not from growth. Airtel had always had growth. Three things changed at once around 2019 and 2020. The African business, after years of pain, finally reached profitability and its 2019 London listing brought in cash to cut debt. The AGR shock, though brutal, was gradually managed and paid down. And most importantly, the telecom war finally cooled.

With only three players left standing, something quietly powerful became possible. Back when a dozen companies were fighting, no single one dared raise its price, because a customer who felt overcharged could instantly jump to one of eleven cheaper rivals. But with just three left, and all three bruised and desperate to stop losing money, they had every reason to raise prices at roughly the same time. And crucially, once all three had raised prices, a customer who disliked Airtel's new rate had nowhere meaningfully cheaper to run to. This is what people mean by pricing power: the ability to charge more without your customers deserting you. Airtel finally had it.

In December 2019 came the result: the first real price increases in years, roughly 30 percent, and more followed. Now, here is why a price rise matters so enormously for a business like this. Airtel had already spent the fortune on its towers, its spectrum, and its network, and those costs stay about the same whether a customer pays ₹104 or ₹135 a month. So when the price goes up, almost every extra rupee collected is not eaten by new costs; it drops nearly straight through to profit. A modest-sounding 30 percent hike, spread across hundreds of millions of customers whose bills cost Airtel little more to serve, translated into a huge swing in earnings.

Revenue per user began climbing back up, and the enormous amount of data that India had become addicted to could finally be charged for properly instead of given away. Only then, after thirteen years of going nowhere, did the stock break out and begin the powerful multi-year run that rewarded the few who had waited. The reward came not from the business getting bigger, which it always had been, but from it finally being allowed to make money.