Thursday, March 25, 2010

Africa - Bharti a game changer

[financial express] Bharti Airtel’s entry into the African market has caught the world’s attention as apart from making the company the country’s first truly multinational telecom operator, the move is being largely viewed as a potential game changer in one of the world’s most attractive telecom markets, Africa. The world would now watch with rapt attention how Sunil Bharti Mittal transplants his low cost-high volume mobile business across the Indian borders and once the task is successfully accomplished would emerge as the unchallenged telecom czar who rewrote the entire economy of the telecom business.

It is not that the task comes without challenges. The foremost would be to turn the African operations of Zain profitable in a market dominated by formidables like Vodafone and Bharti’s first preference to enter the African market, MTN.

The top 10 mobile operators in the continent share the bulk of 77% subscribers. Of the continent’s 334 million serviced mobile phone customers, the UK-based Vodafone, which is the world’s largest mobile firm by revenues, holds the highest market share of close to 18.7%. The South African telecom giant MTN is a close second with 18% market share and Bharti’s latest acquisition, Zain is third with a subscriber market share of 11%.

A market leader in its home market, Bharti has successfully kept Vodafone a distant second in the GSM mobile space in India and would enter the African market with the confidence and practical experience to take on the company it has not allowed to snatch its leadership slot in India. But then in India it had the first mover advantage, something which is lacking in Africa.

Secondly, the tariff wars in India have conditioned Bharti enough to understand the price sensitivity in emerging market economies, which has resulted in the company’s lean cost model. Bharti has championed the outsourcing model wherein it has retained only the core function of a telecom operator and outsourced the rest of the activities to market leaders in those activities who best know how to do it.

Finally, unlike India, no other telecom market in the world provides operators an environment to post fat Ebitda margins of close to 40% with the lowest price, which is the average revenue per user. In Africa, the Arpu is approximately $8 while in India it is around $5.

But there is a lot of difference between creating a successful greenfield venture and building a profitable company spanning...

Game changer in Africa

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