Nikkei Electronics Asia -- October 2009
India Focus
Indian Mobile Operators Eye African Markets

Oct 2, 2009 00:00 Nikkei Electronics Asia

Indian mobile operator Bharti Airtel is close to becoming part of one of the largest mobile operator groups worldwide, if it manages to complete its planned merger with South African group MTN, according to a report from Informa Telecoms & Media. The deal is believed to be Bharti Airtel's first major push out of the south Asian region, if it does go through. It could also bring the latest cycle of acquisitions of African mobile telecoms assets by Middle East-based investors to a temporary end.

According to figures taken from Informa, World Cellular Investors report, a merged MTN-Bharti Airtel entity would have had over 167.5 million proportionate subscriptions in March 2009. This would have meant that the company was the third largest mobile operating group in the world, behind China Mobile and Vodafone.

Furthermore, the existing low penetration rates in India and many of the African and Middle Eastern markets in which MTN operates would create further opportunities for growth. According to Informa's forecasts, the combined entity (if it acquired no further assets and held on to all its existing assets) would have 302 million mobile proportionate subscriptions by the end of 2014. Given that overall penetration in Africa was 39% in March 2009 and 31% in India, the merged company could still depend on considerable new subscription growth for many years.

High Growth Markets, Low Cost Models

Nicholas Jotischky, principal analyst at Informa Telecoms & Media, commented that, "Should the deal be completed, MTN's African operations would benefit greatly from Bharti's experience of operating in high growth, low-income environments." In India, the operator manages to keep reasonable margins despite a monthly ARPU of around US$5-US$6. Reducing operating costs has been crucial for all Indian operators, which operate on the back of very low ARPUs, and models such as infrastructure-sharing and the outsourcing of network management have proved to be successful. Even after any merger with MTN, India would remain central to Bharti Airtel, but rather than comprising nearly 100% of its subscription base, any deal with MTN would mean that India would contribute just 49% of the group's, total active subscriptions. Markets such as Nigeria, Iran and South Africa would become particularly important to Bharti Airtel.

Challenges Ahead

Jotischky added that, such a merger would also present challenges to Bharti Airtel, which would be exposed to several complex regulatory and socio-political climates, unfavourable fiscal policies towards the industry and infrastructural difficulties.

As much as being a market of opportunities, mobile operators in Africa face very real challenges, as illustrated by the growing speculation that Zain (a major mobile operator on the African continent) is seriously considering the sale of its sub-Saharan African assets. Zain appears to be considering the prospect of a greater focus on its growing and more mature Middle East and North Africa (MENA) assets at the expense of many of its less profitable sub-Saharan African operations.

At the moment, this is just speculation, but the possibility of another Indian operator, Reliance Communications, acquiring these assets is intriguing. Reliance would bring with it all of the same experiences that Bharti Airtel would also bring, but it can also boast experience of CDMA technology, still widely used in India, and growing steadily in Africa, mainly in the fixed and Internet markets. Regardless of any acquisition of Zain, assets in sub-Saharan Africa, the Indian company is set to launch its first African mobile network in Uganda later this year.

2009 could mark the year in which two of India's largest mobile operators export the India business model to Africa. It is entirely possible that Africa's largest mobile market Nigeria could soon become a battleground between a combined Bharti Airtel-MTN group and Reliance - the industry is watching eagerly.

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