Group 06: Angad, Devashish, Chetna, Shiv, Shivendra, Vibhuti

Executive Summary: Airtels Entry in the Smart Homes Market

The IoT wave is touching every nook and corner of our lives - from home space to office to city
streets and even beyond. The IoT offerings today lend us enhanced control over lights and
appliances & our door locks, provide us insights into the resource consumption habits,
streamline the business processes and offer better connectivity to the people, systems and
environments that shape our daily lives. Multiple entry-level IoT products have found a
comfortable space into our daily life patterns by simplifying the routine tasks.

A true smart home is defined by products which are aware about our preferences, can anticipate
our needs and respond dynamically so that we spend less time micro-managing our house and
more time actually living in it. There is immense competition across industries to leverage these
IoT devices, platforms and tools to design sustainable business models for smart home solutions
that will fight the fire in a more connected world and satisfy the need for safe and secure
connected homes.

Bharti Airtel, a Global Telecom Services company based out of New Delhi, India which operates
across 19 countries across Africa and South Asia is planning to enter the market of Smart homes.
It is the leading mobile network operator in India and the third largest in the world with over 400
million subscribers spread uniformly across the continents. Its products include Digital
Television, Fixed Line and Broadband Internet services, IPTV, Mobile and Fixed Line
Telephony. Airtel has lately been a pioneer in Green initiatives with majority of its facilities
being equipped with Light Energy Savers (LES) leading to reduced energy consumption to the
tune of 10-20%. They have embarked upon several technologies related initiatives resulting in
reduced hardware and paper usage across their subsidiaries.

As a logical next step, Bharti Airtel plans to venture in the world of Smart Home solutions for
Indian Gen Y consumer segments, in a move to expand its consumer base and revenue base.
Since the segment is still in nascent stages and the proper implications of Smart Homes are yet to
crystallize, Airtel considers this as a great opportunity to establish a strong hold. As for the
growth potential, According to a study by Zion Market Research, the global smart home market
is expected to grow at a CAGR of 14.5% between 2017 and 2022. The market revenue of $24.10
billion in 2016 is expected to grow up to $53.45 billion by 2022.

With Airtels plan to enter the smart homes solutions market, we propose that it should aim to
satiate customers by providing offerings that cater to their biggest needs of improved security,
convenience and energy efficiency. Better security is made possible by the use of Home
monitoring systems (Video IP door, Gas leakage detectors, Fire detection systems, Intrusion
sensors) and Communication systems which mainly handle communication with front door and
main gate. Providing remote control to residents for entertainment systems and smart lighting
controls increase their ease of use for the end user. E-metering which makes available real time
 Group 06: Angad, Devashish, Chetna, Shiv, Shivendra, Vibhuti

consumption and cost of electricity and gas at homes brings convenience to users. Customers are
also desirous of green options such as eco-friendly lights and self-cut off thermostats which save
the environment as well as reduce the load on their pockets.

As per a recent repot by Gartner & Schneider Electric, the resonating sentiment across the target
customer groups is Security. Of all the customers who would want to go in for Smart Home
solutions in their homes, nearly 50% of them are driven by security and safety factors that are
provided by Smart Home solutions. The top initiating factors for Target Group (TG) migrating
to smart home solution would be: Security, Convenience, and Energy Efficiency. In the proposed
business plan, each of these value propositions is discussed in detail.

Airtel currently does not face any tangible barriers in the smart homes market in India. The
potential customers who refrain from adopting smart home solutions are either not sure of the
costs involved or are unaware of the tangible values associated with smart home solutions. As
per recent studies, our Target group the upper middle class and above Gen Y segment along with
all those customers who are positively disposed to Smart Homes are willing to spend 1% or more
of the total monthly expenditures towards Smart Home solutions. Some segments are also
willing to pay as high as 5% in metro regions. Hence, the potential in India for Smart homes is
immense.

Airtels performance financially has been pretty strong in the domestic market for the past few
years. Airtel has enough investment potential and is heavily backed by investors, to adopt the
blue ocean strategy of venturing into the market of Smart Home solutions. Annual consolidated
revenue for Airtel grew by 1.1% over last year to ~ Rs 95k crores, led by a significant growth of
3.5% in the Indian market. Net Financial income was recorded at Rs 3,799 crore, 37% less as
compared to last year (due to introduction of Reliance Jio). Revenue in the "Smart Home"
market amounts to US$67m in 2017. Revenue is expected to show an annual growth rate (CAGR
2017-2021) of 59.8 % resulting in a market volume of US$440m in 2021.Household penetration
is at a low of 0.1 % in 2017 and is expected to hit 1.3 % in 2021. With an aim to capture to 10%
market share in first year followed by 25% (US$15 Mn) and 45% (market share in the second
and third year respectively. In term of capital investments, Airtel can invest ~15-18% of net
profit margins each year in Smart Home automation sector, each for the first 3years. The capital
budgeting plan for the can be prepared using discounted cash flows statement.

On a concluding note, with the advent of Smart Home technologies across India, awareness
about Smart Homes among the consumers is on a high coupled with a positive predisposition
towards the niche category. Hence it is the most appropriate time for Airtel to venture in the
arena of Smart Home solution. Since the entry barriers into the market are low with only one
major competitor in the form of Z-Wave solution, Airtel should leverage this opportunity to
expand its revenue base and the business model.