At last Bharti Airtel became the first Indian company to have presence in 18 countries. Bharti closed the Zain deal at $10.7 billion, which many equity analysts believe is an expensive deal, but Bharti’s African foray is a long term bet and only time will tell what future holds for Bharti in
Africa. At the moment, Bharti is busy negotiating with Indian IT vendors for outsourcing African ‘non-core’ operations, something which it successfully did in the Indian market.
On the face of it, Bharti has got what it had been looking for years- presence in Africa, which it desperately needed, as its profit margins in India have been under pressure due to the massive domestic tariff war and the stiff competition provided by as many as 14-15 operators in each circle in India. Realizing the potential that African countries have, Bharti twice tried to acquire MTN but failed. Now, it has managed to get Zain in its kitty.
In January this year when Bharti acquired a majority stake in Bangladesh’s Warid, I wrote in my blog ( http://blogs.strategyanalytics.com/gwp/?p=28 ) that Bharti would not benefit by foraying into small individual pockets like Sri Lanka and
Bangladesh. Acquiring Warid immediately after the MTN deal was called off clearly showed that Bharti became much more aggressive in its acquisition strategy. At that time, Bharti was desperate and ambitious and looking for some big catch. I think Zain came at the right time as it fulfilled Bharti’s ambitions to become one of world’s largest operators.
Bharti’s new innings started on a good note as deal went through smoothly but challenges are ahead. EMCS benchmarked Zain in its report (http://www.strategyanalytics.com/default.aspx?mod=ReportAbstractViewer&a0=4837 ) and it was very clear that Zain’s performance was below average and ARPU and EBITDA were at or below regional average. It’s a challenge as well as an opportunity for Bharti.
We did a strategic assessment of Bharti ( http://www.strategyanalytics.com/default.aspx?mod=ReportAbstractViewer&a0=5166 ) and highlighted the fact that limited data service offerings is Bharti’s weakness. Hence Bharti will have to play the ‘voice’ game in African markets also and have to improve ARPU’s.
Challenges will always be there but Bharti’s presence itself in
Africa is enough to give jitters to its competitors, especially MTN. After dealing with MTN, Bharti is very well aware of their operational strategies, which is an advantage to Bharti. Its competitors will feel the pinch with Bharti’s outsourcing and low-cost model. Don’t know how MTN will deal with it but Bharti has certainly made a right move.