The acquisition by Bharti Airtel of the Bangladesh-based Warid Telecom by committing around $1 billion, including a $300 million in improving the network, is generating a lukewarm response from analysts. The reasoning is that current buy values Waird’s enterprise value per subscriber at $295 ?higher than the valuations of Indian telecom firms. And that too when the average revenue per user (ARPU) is $3 in Bangladesh, much lower than the Indian companies that command an ARPU of around $4-5 and also lower than African markets covered by MTN, say analysts at IDFC SSKI.
There are others who reckon that the lower penetration of 32% makes Bangladesh an attractive market. As per the agreement, Bharti will invest $300m in the Bangladesh. Analysts at HSBC Global Research estimate Bharti could add 5,000 sites with this investment; if it does, it will come close to the market leader Grameenphone. As the company steps up its investments, other companies are also likely to join in the race. The analysis is that Warid will have to reach at least 9 million subscribers before it can have positive operating profits. The Bangladesh market is estimated to be worth 70 million subscribers over the next 12-18 months. This means Warid would need to acquire 50% of the incremental subscribers to reach the critical number. It currently has 2.9 million subscribers. Moreover, the 32% penetration level can be misleading, say analysts. The upside for penetration to grow high is limited as 45% of the population lives below the poverty line. The effective penetration, according to HSBC analyst, is 58%. Hence, Bharti will have to slug it out in the market to gain penetration.
