Bharti Airtel in Africa
- 1. Bharti Airtel in Africa Group 3 Shubham Barnwal – 2101188 Piyush Raj – 2101142 Tushar M. Bhuwad – 2206003 Sandesh Patkar – 2102231 Swati Mahendra - 2101205
- 2. Bharti Airtel in Africa “The jury is still out in Africa, the cost of operations is still higher than expected, elasticity of demand could fail to kick in, and competition could Intensify. But the business metrics are showing early signs of a turnaround. My gut feeling is that we can make it work” - Sunil Mittal, Chairman, Bharti Airtel OBJECTIVE To Overtake MTN in Africa High Volume, low cost telecom business model BECOMING MARKET LEADER IN INDIA Concentrating on the Rural Poor Outsourcing large portions of its operations Tariffs – one cent per minute NEW AVENUES TO GROW African market with a vast population of over a billion people with low per capita incomes Real Mobile penetration was 30% and growing rapidly High mobile tariffs combined with low monthly minutes of use per customer indicated that there was room to grow both in mobile penetrations and usage Employee Morale at Zain was low, work cultures differed drastically. Market Shares and EBITDA were falling every month. Infrastructure was poor, equipments was obsolete. Skilled technicians was short in supply. Cost of operations was high. The demand was not high as expected. Unclear whether lowering prices would drive mobile usage. CHALLENGES IN M&A
- 3. Africa’s Mobile Telecom Market • Between 2001 and 2011, the number of mobile connections grew an average of 30% annually, and by September 2011, the continent had 620 million mobile connections, making it the second largest mobile market in the world, after Asia • This number was forecast to reach 735 million by the end of 2012.19 Market penetration of cell phones in Africa was 37% in 2009, and was expected to grow to 60% by 2012, and the continent was expected to bypass fixed line communications in favor of mobile technology.20 In 2011, 96% of mobile subscriptions in Africa were prepaid, with voice revenues dominating, although revenues from data services were growing quickly. • Despite the developments in Africa’s cellular industry, a lack of liberalization in international gateways resulted in high termination charges for roaming and international calls along several routes. 23 Operators charged 5.5 cents for terminating calls in markets like Nigeria and 7.5 cents in Tanzania, compared with a mere 0.44 cents in India.24 The cost of accessing mobile services in Africa remained high, with call rates averaging approximately 6-12 cents per minute, compared with a cent per minute in India. Monthly minutes of use per customer were a low 60-80 in Africa, compared with 450-500 in India The Nigerian Mobile Market • Nigeria was one of Africa’s most promising mobile markets but had its share of challenges. Nigeria was Africa’s most populous country, and had the continent’s largest cellular market, with nearly 90 million subscribers in June 2011.33 Mobile penetration in Nigeria was projected to increase from 50% in 2011 to 80% by the end of 2015 • a lack of electricity and poor infrastructure in the country meant that mobile network coverage was poor, particularly in rural areas, resulting in subscriber complaints to the regulator, and hampering customer growth and usage of mobile services. • An expanding middle class in Nigeria and increasing availability of Smartphones and tablet computers meant that use of advanced mobile data services in the country was expected to increase. By 2011, the majority of GSM9 operators in the country offered 3G services
- 4. Africa’s Mobile Operators • MTN Founded in 1994, and headquartered in Johannesburg in South Africa, the MTN Group was Africa’s leading mobile operator, with $12.5 billion in Africa revenues and over 115 million Subscribers. • Vodacom Owned by UK-based Vodafone, Vodacom was the second largest player in Africa, with $8.9 billion in revenues and nearly 53 million subscribers • Orange With $4.8 billion in revenues and 64.9 million subscribers, France Telecom-owned Orange had traditionally focused on the French-speaking countries of West Africa. I • Safaricom The leading mobile operator in Kenya, Safaricom had $1.4 billion in revenues and 18.6 million subscribers Operators in Nigeria • MTN Nigeria was MTN’s strongest market. In 2010, Nigeria comprised 29% of the MTN group’s revenues and 41% of its EBITDA MTN enjoyed the widest mobile coverage in Nigeria, and was focused on expanding and improving its network.
- 5. Talent shortage Indians have so many opportunities today that we had to pay them a lot more via mobility-related packages to facilitate their movement to Africa. Share experiences of Indians employees to encouraged their colleagues to consider moving to Africa. encouraged Indian expats to transfer their knowledge to the Africans and help develop local talent, and incorporated people development as an important component of performance appraisals.
- 6. Cultural challenges people in Africa had more of a European mindset and preferred a greater balance between their professional and personal lives. The Indian work culture, they felt, was one of multitasking, while in Africa, like Europe, people preferred to focus on a single project at a time. Bharti’s Indian employees in Africa preferred to speak to each other in their native language, Hindi, in the initial days, unconsciously shutting their African colleagues out of communications. Human resource encouraged Indian executives to take their African counterparts out to make them open up. The company also created a competitive compensation and bonus strategy, benchmarking itself with global companies
- 7. Strategy Bharti gains access to at least three African countries where zain enjoys a clear hegemony. Two third of the mobile market in niger, malawi and chad (operating margins in excess of 40%) Moreover, despite its poor financial performance in Africa, zain’s average revenue per use of 8.2$ is much better than Bharti’s 5$. This means, Bharti may be able to rake in profits from these market if it controls cost effectively.
- 8. Financials Airtel paid $9.3 billion upfront and $700million after a year It took over $1.7billion of zain’s debts as a December 31,2009. Bharti raised debt from consortium of foreign banks and state bank of india. Lead arranger and lead advisers' standard chartered bank. Contributed the highest amount - $1.3billion. Barclays contributed %900million State bank of India agreed to an up to $1 billion loan in rupee terms
- 9. Financial decision In Feb 2020, Bharti paid $10.7 billion for zain Africa. Which is 10 times EV to EBITDA multiple for zain. Bharti was valued at 7.2 times EV to EBITDA Zain Africa has made a net loss of $12 million in the nine months of September 2009. The deal is highly volatile and carries huge commercial risk. Bharti structured the deal as LBO with a loan worth $8.3 billion with LIBOR plus 195 basis points. With the extremely high cost of acquisition, interest payable on loans availed and meagre revenue for next few years.
- 10. Multiple Countries India is one country with one Government, one Department of Telecommunications, one currency, one Prime Minister, a one-time zone, one Bollywood, and one cricket. Africa is much more complex and diverse than India. Each African country had its own set of rules governing telecom carriers and dealing with multiple regulators complicated Bharti’s operations on the continent. Import duties also varied across countries, and the company faced constraints in bringing telecom equipment into some countries. Most African countries in which Bharti operated had not signed double taxation avoidance treaties, which meant that the company would lose substantial money if it were to set up a centralized billing system. The company relied on bilingual senior management to bridge the language gap between its English-speaking leaders and its French-speaking employees.
- 11. Distribution Monopolies Unlike India, where thousands of small distributors serviced millions of outlets, most African countries had four or five large financiers who distributed consumer goods for multinationals like Unilever and Coke. These distributors dictated what products they would sell at what price, leaving consumers with little choice. Some African dealers, at odds with Bharti’s tariff structure and its 4% margins, as opposed to the 10%-12% norm in Africa, refused to sell the company’s SIM cards or marked them up as they pleased. Bharti soon found itself forced into legal battles in countries like Tanzania, and began to appoint its own distributors to break the monopoly, but the change was slow.
- 12. Customer Challenges Due to poor infrastructure in Africa, network outages were common across carriers, and it was not uncommon for customers to carry three to four SIM cards each. To compete with offerings like Safaricom’s M-Pesa in Kenya, Bharti launched Airtel Money in ten African markets, with a goal to facilitate a cashless system in each country. The platform would enable consumers to pay bills, board commercial vehicles, make payments in stores, and receive salaries from employers.
- 13. Strong Competition Unlike India, where Airtel had enjoyed an early mover advantage, by the time Airtel reached Africa, the competition was entrenched. In September 2010, Etisalat, Nigeria‘s fourth largest mobile operator, cut its tariffs to approximately 10.55 cents per minute across all networks, compared with an industry average of approximately 23 to 28 cents per minute. Three months later, Airtel Nigeria introduced a new product that brought rates down by 40% to 12.6 cents per minute and offered competitive tariffs for calls to the United States. Despite the competition, Airtel Nigeria’s revenues and margins had increased as a result of its tariff cuts and operational investments in the country, and customers were staying with the company and using its service more.
- 14. Allcargo Logistics Acquisitions Allcargo Logistics, the country's largest integrated logistics player in the private sector, made a large overseas acquisition snapping up a 65 per cent ownership in a USD 44 million joint venture it has just set up with the Swedish player Nordicon Group. The promoters of the Nordicon Group will own the balance of 35 per cent and will continue to lead the company as a joint venture. The new joint venture will house all the operations of the Nordicon Group, which is the market leader in the LCL (less-than-container-load) and rail freight consolidation segment in the Nordics region, will be headquartered in the Swedish city of Gothenburg, he further said, adding that it will become a part of its Belgium arm ECU Worldwide network which Allcargo had bought in 2003. In 2003, it bought ECU Worldwide -- first 33 per cent stake and then increased it to 49.9 per cent in 2006. Its second acquisition was in December 2019, when it announced a takeover of Gati, one of the express logistics leaders in the country, for Rs 416 crore.