Subcontinent meets continent

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Africa's largest cellular phone operator, MTN, and India’s largest mobile operator, Bharti Airtel, have announced that they are currently in discussions on some form of potential partnership. Is MTN serious about making some deal with Bharti Airtel? Or is it a ploy on this South Africa-based company’s part to stimulate or re-awaken other potential investors such as China Mobile? Some months ago, China Mobile, China’s and the world’s largest mobile operator, was rumoured to be interested in taking a stake, maybe 20%, in MTN. This move followed the 20% investment by a Chinese bank in South Africa’s largest bank, Standard Bank.

Comparative figures for the two companies are summarised in the chart featured alongside, and make interesting reading, as they show that there are many similarities in their profiles. It should also be noted that the profitability of Bharti Airtel is higher than that of MTN, due to more favourable tax rates in India.

As the numbers make obvious, there is no doubt that a tie-up between MTN and Bharti Airtel would create a mammoth player in the developing world, which would have a subscriber base of over 130 million users, approximately 35% of the numbers of China Mobile, and over 50% of the numbers claimed by Vodafone worldwide. It should also not be forgotten that MTN has a major base in the Middle East, following its $5.5 billion acquisition of Investcom two years ago, a move which accounted for about 70% of the growth it achieved in its latest financial year.

The Middle East opportunity is arguably the “cherry on the top” that many operators are eyeing, and MTN is one of the few operators with a major presence in both Africa and the Middle East, with Kuwait-based Zain the other notable player in these territories except for Vodafone, which operates through its subsidiaries in Egypt and Kenya and elsewhere in Africa through its holding in South Africa’s Vodacom. In all, MTN operates in some 21 countries.

For some time, MTN has been looking for additional relationships. Last year, the South African government squashed talks that were underway between MTN and a major fixed line operator, Telkom SA, that is 38% owned by the government, but which also has a 50% stake in Vodacom, the second largest cellular operator in Africa. Vodafone owns the other half of Vodacom.

Some of the issues that would impact a tie-up between the two companies include addressing the two very different corporate cultures—the impact, if any, on Singapore Telecommunications, which has a 30.5% stake in Bharti Airtel, and the attitude of these companies towards their networks, as conveyed. MTN attempts to keep its network up-to-date technology-wise, whilst it seems that Bharti Airtel’s is often characterised by congestion and other network issues.

MTN is one of the top four companies in Africa by market capitalization, and one of the top eight in turnover terms, and its share price is running at all-time high levels. It’s a moot argument as to who should be investing in who when it comes to Bharti Airtel and MTN. Nevertheless, any investment in MTN would have to be at a hefty premium, and that poses an interesting issue of whether the necessary funding can be obtained. Even if the relevant funding was obtained, one would ask whether the deal would be approved by the various regulatory authorities. In addition, would the time taken to bring any deal to fruition allow competitors to gain ground on either of the two players involved and thus stifle their potential growth?

What is patently clear is that a tie-up between the two companies would create a true global player in the international cellular market. Unlike the other global players, this “new” entity would operate in precisely those areas of the world that have the highest growth potential. Thus, this is a very interesting development to watch on an ongoing basis.