Game Changer in Africa

Written by Anandita Singh Mankotia | Updated: Mar 26 2010, 06:06am hrs
Bharti Airtels entry into the African market has caught the worlds attention as apart from making the company the countrys first truly multinational telecom operator, the move is being largely viewed as a potential game changer in one of the worlds 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 Bhartis first preference to enter the African market, MTN.

The top 10 mobile operators in the continent share the bulk of 77% subscribers. Of the continents 334 million serviced mobile phone customers, the UK-based Vodafone, which is the worlds 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 Bhartis 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 companys 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 over a decade and entering 15 markets at one go. Bharti was built from scratch over the last 15 years. Sunil Bharti Mittal made humble beginning in 1995 and slowly but steadily built the company into the countrys largest telecom operator.

Bharti didnt master its skills at one go but took calculated risks and sharpened its edges over a period of time, be it pioneering the model of outsourcing or bidding for a licence. Bharti being the first mover, shaped the Indian telecom industry and adapted to new challenges over a substantial period of time which spanned close to a decade.

It coupled its first mover advantage with a lean cost model so well that it now looks increasingly difficult for start-ups to catch up. In spite of Vodafone getting a promising start in the Indian market, it too seems to have settled for the second spot. It even successfully weathered the worst challenge it encountered in its journey so far --- that from Reliance Infocomm in 2003.

However, Zain presents different business opportunities and challenges altogether. While it provides Bharti instant access into a similar emerging market which at the onset does look like an extremely profitable venture given the dynamics of the African market, it is also going to be too many different markets at one go. Now, this surely will be a daunting task for the man whose team is credited to have created the company brick by brick. In Africa, Sunil Mittal and his team will not have the luxury of time to learn from small errors in each circle and fine-tune operations. Secondly, the stakes attached to the decisions too would be much higher as it would involve opting for local solutions in each of the 15 countries simultaneously, all of which is very unlike the way Sunil built Bharti.

Further, this would be the companys first ever foray into a big market and that too, beyond the Indian Ocean. Bharti would have to learn the tricks of the African trade. Certain markets such as Kenya would be interesting and Bhartis adaptation to such local markets would be keenly observed. For instance, mobile banking is a huge draw in Kenya but Bharti has zilch experience in such aspects so far in India.

Meanwhile, critics have already reduced the companys ratings since they say $10.7 billion for Zain seems to include a lot of charity and the company should have been valued much lower.

But Sunil Mittals critics had long declared that he was small fry in a market dominated by big corporate houses and Mittal was expected to sell off his business at a premium and exit.

Fifteen years later, however Mittal has created not only the countrys first ever global telecom operator but also Indias first services sector multinational and has himself entered the big boys club of corporate houses. So it would be fascinating to see if the entrepreneur in Mittal can do it again.