Opinion has been bearish on Bharti Airtel’s intent to take over Kuwait-based Zain’s sub-Saharan mobile business for a consideration of $10.7 billion. But in the cover story of Wealth Insight (March 2010), Sanjeev Pandiya argues the opposite case, saying this mega-deal is actually work-in-progress for India’s Atlas-in-the-making. To read his opinion subscribe to Wealth Insight. Given below is a feature on Bharti Airtel which is also a part of the cover story.
A decade ago few people would have known Bharti Airtel outside Delhi. Today, it would be hard to find anyone in India who would not have felt its imprint across their lives — all of it achieved by servicing the bottom of the market.
Taking a huge bet on the crucial need and importance of mobile telephony in India and thereafter showing the willingness to follow through with some of the most discerning managerial inputs, allowed Bharti Airtel to milk profits even from the low-income categories, and it also let the company to take the battle to its biggest rivals and emerge triumphant at the top.
This operational process, described as the ‘minute-factory’ model (infrastructure sharing, forging contracts on a network utilisation-based model) included hiving off to other companies all activities bar marketing and strategy — just so it could concentrate on its core strengths. In combination with low-cost operations the strategy allowed Bharti Airtel to rule the Indian wavelengths and it has now left it standing at the cusp of making another giant leap for an Indian company, that of acquiring a big overseas focus.
The company is an acknowledged telecom pioneer having come up with innovations that have allowed it to become a major catalyst in this space and power substantial growth in a country where a majority of its citizens are still considered some of the poorest in the world. Today, it is one of the globally most-admired telecom company.
From humble beginnings Bharti Airtel has risen to become a leading integrated telecom services provider, having a presence in all the telecom circles here. It has a revenue market share of around 25 per cent and a subscriber marketshare of 23 per cent. It is considered as being among the top six best-performing tech companies in the world, besides becoming the third-largest intra-country operator as per subscriber base after China Mobile and China Unicom. But it is confined to South Asia (India, Sri Lanka and Bangladesh) and the exigencies of the situation on home soil, where competition is stiff, tariffs low and scope for major future growth limited, made the company look away from India, one of the world’s fastest growing markets, towards foreign shores — desperately.
The options abroad however, are limited. While all developed countries are already well-saturated and South America being too far and its growth prospects uncertain barring Brazil, which left just Africa. And that is what Airtel is targetting — it is nearer home and Africa is relatively underserved on telecom and it offers the perfect environment to implement Airtel’s strategy used in India to such great effect.
Airtel has made two aborted efforts to merge with South Africa’s MTN, which fell at the last hurdle — of that country’s recalcitrant government unwilling to let a prized national asset slip into foreign hands.
While this deprived Bharti Airtel of a presence in the relatively better-off part of Africa, yet it did not lose interest in the continent. The latest takeover target of the company is Kuwait’s Zain, whose sub-Saharan assets (Zain Africa BV) Bharti Airtel is looking to purchase for $10.7 billion, of which $1.7 billion is in the form of debt, thereby countering most analysts’ protests of Airtel paying too much for the deal — the payout would be restricted to $9 billion.
On offer is presence across 15 countries, including Nigeria, Kenya, Uganda and Tanzania, consisting of 42 million Zain customers. The situation in Africa is a little like that in India. Telecom penetration levels are at 40 per cent, to India’s 50 per cent, but it does carry the potential to become a fast-growing region, especially if a nifty company manages to martial and mobilise offers that are too-low-to-refuse. Surely, Bharti Airtel has proved itself to be a master at this art form where it provides communications access to more and more poor people and yet turns a profit.
Airtel has a scale advantage, having invested in creating a nation-wide network much before its rivals and its low-cost operations ensure a low capex intensity, while the balance sheet is unleveraged
The future looks promising in India too, once the 3G spectrum is rolled out, which would allow the company to tap new revenue streams and decongest the network.
Bharti Airtel’s single-minded pursuit of foreign assets indicates its global ambitions, but more than that, it signals a desire to scale itself totally out of the reach of competition, which is still trying to establish itself on a solid footing in India, while the lone MNC, Vodafone, is too pre-occupied with its other operations. Time is, therefore, of the essence to get the first-mover advantage.
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