Backhaul: Bharti into Africa
15 September 2010 |
It’s been an active few months for India’s Bharti Airtel: in early June the company confirmed that its $10.7 billion bid for Zain’s Africa assets had been successful.
The deal, which makes Bharti the world’s fifth-largest mobile-phone operator by subscribers, has given the company access to Africa, a market with high growth potential.
Bharti acquired Zain’s operations in 15 African countries including: Burkina Faso, Chad, Democratic Republic of Congo, Gabon, Ghana, Kenya, Madagascar, Malawi, Nigeria, Tanzania, Uganda, and Zambia. Zain was the market leader in 10 of the 15 countries and second in four countries.
The company followed the acquisition with announcements in July of its intention to invest further in several of these African markets, and the businesses in Gabon, Malawi, Zambia and Uganda have all been earmarked for a cash boost. Bharti further committed to invest $600 million in the Nigerian mobile market over the next three years: Nigeria has overtaken South Africa to become the continent’s largest mobile market, according to Buddecomm, and now has over 75 million subscribers, with market penetration still only about 50% in early 2010.
Zain had been losing market share and subscribers across many of the African subsidiaries, so Bharti has its work cut out to turn this situation around. It secured debt of up to $8.5 billion from a number of lenders to fund the Zain deal – and this means it owes interest payments of $200 million a year – so there is much more than just reputation riding on its ability to effect a transformation of these businesses.
Bharti’s investment in Africa has continued with the more recent purchase of Telecom Seychelles for approximately $62 million, relatively small change, perhaps, in light of the recent spending spree. According to the Financial Times, Bharti’s short-term goals are to increase its African subscriber base to 100 million within two years from 42 million today and annual revenue to $5 billion from $3.6 billion now.
This is a tall order at a time when so many carriers are looking to make it big in Africa, but Bharti’s management is demonstrably ambitious and knows that it’s vital that the African venture is a success. Although the company reported increased revenue last quarter it also reported a 32% year-on-year drop in net profits, a reflection of its “hyper-competitive” home market. But Indian analysts see many positive signs in its recent financial statements and think the company has what it takes. Bharti’s home market position is more comfortable than others in light of its scale, it has a sound track record of technology investment and is ready to roll out 3G services in some parts of India in the coming quarter.
MANAGING EDITOR, CAPACITY
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