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.