Bharti tries again

have to give Bharti Airtel’s chairman, Sunil Bharti Mittal, credit for one
thing – he is persistent.

than four months after the Indian mobile company’s attempt to tie-up with South
Africa’s MTN Group failed, Bharti is having another run at the African wireless
telecom market.

company’s offered to pay about $10 billion to buy most of the African assets of
Kuwait’s Mobile Telecommunications Co., or Zain.

shouldn’t be surprising: Mittal’s been quite forthcoming about his ambitions to
expand into Africa. Bharti may be the biggest mobile operator in India, by
subscribers, but it still faces diminishing prospects there. Stiff competition
is pushing rates lower and Bharti’s newest Indian customers – in the
countryside – are less profitable than their urban counterparts.

in India’s telecom market will continue, but at a sharply curtailed rate.
Morgan Stanley recently estimated earnings growth for the sector to slow from a
compound annual rate of 60% over the past three years, to 6% in the coming

comparison, Zain’s African assets offer Bharti a chance to deploy its low cost
business model in some still-nascent mobile markets – several with far lower
subscriber penetration rates than India.

fact, 10 of the 14 countries into which Bharti would enter have penetration
rates well below India’s nearly 45%. Mobile penetration in four of the 10,
according to Zain, is still below 20%. There’s room for improvement in their
performance as well – with margins on earnings before interest, depreciation
and taxes recently close to 30% at Zain’s African operations, on average.
Bharti, meanwhile, generates margins of about 40%.

this potential comes without the complicated, and arguably illogical, deal
structure that Bharti and MTN had to arrange in order to appease regulators.
Regulators may want their say, but they have less reason to argue with Bharti’s
foreign ownership. Zain itself is an outsider.

not to say things will be easy — transformative deals like this never are and
few details are out. Bharti’s successes in India may not translate so smoothly
to Uganda or Sierra Leone. Plus, in taking such a big bite out of Africa,
Bharti risks diverting its attention away from its home market just as new
foreign-backed rivals gain traction there.

Zain’s African assets also offer Bharti what could be its last chance to mark a
substantial expansion outside of India. In one swoop, it would add nearly 42
million subscribers to its existing base of some 120 million.

the kind of transformation that’s been Mittal’s ambition all along. That much,
investors have always known.

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