Indian operators prepare for African push

Indian operator Bharti Airtel is close to becoming a part of one of the largest mobile operator groups worldwide if it manages to complete its planned merger with South African group MTN.

If the deal does go through, it will be the group’s first major push out of the south Asian region, and will bring to a temporary end, at least, the latest cycle of acquisitions of African mobile telecoms assets by Middle East-based investors.

According to figures taken from a recent Informa report, a merged MTN-Bharti Airtel entity would have had over 167.5 million proportionate subscriptions in March 2009, making the company the world’s third largest operator by subscribers after China Mobile and Vodafone.  

The existing low penetration rates in India and many of the African and Middle Eastern markets in which MTN operates would create further opportunity for growth.

According to Informa forecasts, the combined entity (if it acquired no further assets and held on to all its existing assets) would have 302 million mobile proportionate subscriptions by the end of 2014. Given that overall penetration in Africa was 39% in March 2009 and 31% in India, the merged company could still depend on considerable new subscription growth for many years.

Should the deal be completed, MTN’s African operations would benefit greatly from Bharti’s experiences of operating in high growth, low-income environments. In India, the operator manages to keep reasonable margins despite a monthly ARPU of around $5-$6.

Reducing operating costs has been a crucial maxim for all Indian operators, who operate on the back of very low ARPUs, and models such as infrastructure-sharing and the outsourcing of network management have proved to be successful.

Even after any merger with MTN, India would remain central to Bharti Airtel, but rather than comprising nearly 100% of its subscription base, any deal with MTN would mean that India would contribute just 49% of the group’s total active subscriptions. Markets such as Nigeria, Iran and South Africa would become particularly important to the group.

Not intimidated


In June 2009, the Nigerian mobile market consisted of approximately 68 million mobile subscribers accounting for 32% y-o-y growth. Now Africa’s largest single market by customer numbers, growth has been fuelled by a high level of competition and a low penetration rate (42% in 1Q09).

Bharti Airtel is one of the world’s few operators that would not be intimidated by entering such a competitive landscape. Indeed, Nigeria’s regulatory body favors site-sharing, and in 2007 set up a framework to issue infrastructure-sharing and co-location service licenses to third parties.

Such a merger would also provide its challenges to Bharti Airtel, which would be exposed to several complex regulatory and socio-political climates, unfavorable fiscal policies towards the industry and infrastructural difficulties.

As much as being a market of opportunities, mobile operators in Africa face very real challenges, as illustrated by the growing speculation that Zain is seriously considering the sale of its sub-Saharan African assets.

Zain appears to be considering the prospect of a greater focus on its growing and more mature MENA assets at the expense of many of its less profitable sub-Saharan African operations.
 


At the moment, this is just speculation, but the possibility of Bharti’s rival, Reliance Communications, acquiring these assets is intriguing. Its name is increasingly mentioned as a possible suitor, which would not be surprising given its past interest in a merger with MTN.

Reliance would bring with it all of the same experiences that Bharti Airtel would also bring, but it can also boast experience of CDMA technology, still widely used in India, and growing steadily in Africa, mainly in the fixed and internet markets. Regardless of any acquisition of Zain’s assets in sub-Saharan Africa, the Indian company is set to launch its first African mobile network in Uganda later this year.

2009 could mark the year in which two of India’s largest mobile operators export the India business model to Africa. It is entirely possible that Africa’s largest mobile market Nigeria could soon become a battleground between a combined Bharti Airtel-MTN group and Reliance - the industry is watching eagerly.

Nicholas Jotischky, principal analyst at Informa Telecoms Media

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