Now comes tough part for Bharti

April 1, 2010
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, NEW DELHI, Apr 1 – Indian telecoms tycoon Sunil Bharti Mittal has finally achieved his dream of breaking into the African market with a 10.7-billion-dollar deal to buy Kuwait-based Zain\’s Africa assets.

But now comes the tough part — making the purchase pay off.

Mittal\’s Bharti Airtel, the top mobile operator in India, announced late Tuesday it had sealed the agreement to buy most of Zain\’s African assets, vaulting into the ranks of the world\’s top five wireless players by subscribers, from 10th.

The Bharti founder and chairman called the purchase, the second-most expensive foreign acquisition in Indian corporate history, a "game changer" for the company and hailed Africa as "the continent of hope and opportunity".

Analysts, however, say the billionaire tycoon, will need all his business wits to turn around Zain\’s struggling African operations.

In the key market of Nigeria, for instance, where mobile phone ownership is growing fastest, Zain has been losing subscribers to rivals.

"Competition in sub-Saharan Africa is very tense so to gain that edge over their competitors is going to be very difficult," Chire Spiweka, communication technology analyst at Frost and Sullivan consultancy, told AFP.

"It is a different ball game altogether in Africa. Whoever is taking over must have a strong understanding of how Africa operates and get up to speed quickly," she said.

After announcing the deal Mittal named trusted top lieutenant Manoj Kohli — now head of Bharti\’s global operations who helped make the firm India\’s leading mobile network — to oversee his new African networks.

The challenge is also that Mittal, 52, is entering not just one market but 15, said Romal Shetty, telecommunications head at global consultancy KPMG\’s India unit. "You can\’t play a single strategy for all of them," he said.

Zain\’s decision to sell "underscores the difficulty in operating profitably in these markets", said Shubham Majumder, Asia head of telecoms research at Macquarie Capital Securities.

Mittal said after the deal the company was betting the strength of its brand "coupled with our unique business model will allow us to unlock the potential of these emerging markets."

The trick for Bharti, which pioneered low-cost telecoms in India, will be to bring down Zain\’s high cost base and win subscribers, say analysts — and to get subscribers to talk more using lower tariffs.

Bharti is famous for its so-called "minutes factory" business plan — the low-cost, high-volume model that has made it such a success.

But analysts say there is no certainty lowering call rates will generate increased profits in Africa as the economies of scale in the continent are not as large as in India.

The Zain purchase will increase Bharti\’s global customer base to 179 million from 125 million.

But the number of people owning phones in the countries where Zain operates stands at just 32 out of every 100, compared with India\’s 51.

Mittal, a strong Hindu who turns vegetarian before any major venture, attributed the clinching of the deal to "God\’s grace".

The acquisition caps a two-year quest by Mittal to gain a presence in Africa after two failed attempts to buy South African mobile giant MTN.

Now MTN will be one of Bharti\’s most powerful rivals in Africa.

"What is interesting is that these guys planned to partner each other and now are competing. They know a lot about each other," said Frost and Sullivan\’s Spiweka.

But before Bharti starts rolling out its low-cost model, it needs regulatory clearances in the countries where Zain operates and it could be months before Zain\’s assets are put into the Indian company\’s name, according to Zain chairman Assad al-Banwan.

Bharti\’s move on Africa — its first big foreign takeover — is part of a diversification push to maintain its growth momentum as India\’s urban markets become saturated and domestic revenues are hammered by cut-throat competition.

"They don\’t have much choice — Africa is the only market where there is this kind of growth left," said telecom analyst Harit Shah of Karvy Stock Broking.

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