Bharti Airtel in Africa

Case facts
 Pioneer of cost leadership telecom model with tariffs of less
Vision: To win
than 1 cent/min
customers for life
 Became pan-India operator in 2004 by running operations in all
through an exceptional
23 circles
experience
 Distribution network of 2.5 million retailers in India +
Mission: Meet the distributions in South Asia and Africa by 2011
mobile communication  By February 2012, acquired 256million subscribers in South
needs of the customer Asia and Africa producing 2.8 billion minutes/day
through error-free  In 2004, company slashed local call tariffs by 60%
service delivery,  Revenue increased from $54m in 1999 to $8.2b in 2009
innovative product and  Bharti’s market share reached a steady 33% by 2009
services, cost efficiency  Outsourced majority of their operations so that they can focus
and unified messaging on marketing strategies and Customer Relations
 Adopted “Matchbox Strategy” for distribution to reach larger
SWOT Analysis of African Telecom Porter’s Five Force Analysis of African
Market Telecom Market
Strengths Weaknesses
 Relatively large  Lack of  Buyer’s Threat: Low-Medium as the mobile
and young liberalization in users in African market were relatively in-
population international elastic to the price charged per minute for a
 Spectrum gateways call
allocation process  Cost of  Supplier’s threat: Medium-High Due to
transparent than accessing mobile limited availability of skilled workforce, the
that in India network is high cost of labour was higher than getting an
 Growing Economy  Monthly minutes equivalently skilled labour from India to Africa
and the second of use per  Rivals threat: High Well established Telecom
largest mobile customer was service providers like MTN, safaricom,
market in the low Vodacom were already leading in some of the
world African countries
Opportunities Threats  Substitute’s threat: Medium with
 Expected to  Lack of skilled increasing internet subscription the changes of
bypass fixed line workforce and using Skype/Google for making international
communications high cost of calls also increases. However, the voice quality
 96% prepaid labour issue in internet telephony is the reason for
mobile  Limited supply of moderate power of substitutes
subscription in infrastructure  New entrant’s threat: Low-Medium Due to
2011 with needed to run high capital investment requirement and non-
dominating voice the business
revenues  Competition
 Value added from stablished
mobile services players already
were major in market
drivers of
industry’s growth

M&A:
Need/motivation: The market share of Bharti Airtel in India reached a steady 33% and hence they
wanted to look for new growth regime in telecom industry to expand their operations. The African

Submitted by Group E2
 Bharti Airtel in Africa
economy and the telecommunication market structure was very similar to that of India, which
implied it was the best available market for Airtel to expand and continue its service model.

Factors supporting acquisition of Zain:

 Indian companies were making headway to Africa with $25billion worth Indian investments
expected by 2016
 Zain provided Bharti a reach to 36million revenue earing customers across 15 African
countries
 Zain had reported a revenue of $3.7billion and an EBITDA of $1.1 billion for the African
operation in Dec 2009
 Relatively low mobile phone penetration in Africa and opportunity to increase Zain Africa’s
relatively low EBITDA margin
 Bharti had a very strong balance sheet with a debt-equity ratio of 0.59 as of March 2010
(before acquisition) and had tied up enough fund (as much as $9billion) to fund the deal
 Provided Bharti with an opportunity to grow and later sustain its competitiveness against
MTN
 Zain’s employees were not empowered in decision making process which lead to low
employee morale, as a result their ability to grow was restricted over time and were already
in talk with other companies on opportunity for sale

Challenges:
 Talent shortage:
o Indian employees preferred moving to Europe or America as part of career change
rather than Africa
o Limited pool of skilled talent across the continent made it difficult to get a team in
place
 Cultural differences:
o The process to decentralize decision and increase accountability added with sheer
scale of Bharti’s business overwhelmed the employees
o Differences in leadership style and cultural differences lead to misunderstandings
between the employees
 Increasing costs
o To ensure robust network Bharti had to double it 10,000 towers in 16 African countries,
but the landlocked nature of the countries increased the time and cost involved in the
operations – 60% to 70% more costly than India
o Africa lacked strong manufacturing industry, as a result even basic raw materials had
to be imported
o With the cost structure of Europe prevailing in Africa, the cost of local skilled labour
was high leading to increase in the service-related costs
Thus the African operations cost 1.5 to 2 times that in India combined with low monthly user
minutes per customer, the cost per minute of operation was 4 times higher than that in
India.
 Changes in government regulations across countries in Africa made the task of building Airtel
brand in Africa a complex task
 Distribution Monopolies:
o African countries had 4-5 large financiers who distributed consumer goods and thus
dictated the price at which the products were sold leaving consumers will no choice
o Bharti’s tariff structure and 4% margin was not acceptable to the distributors as the
African norms allowed them a 10-12% margin

Submitted by Group E2
 Bharti Airtel in Africa
This monopoly posed huge challenge for Bharti to implement their model of operations in
Africa
 Customer Challenges:
o Even with reduction in tariffs by an average of 18% the demand increase was not as
expected. Reasons for this being – No social support, majority of Africa’s population
were below poverty line.
o Mobile handsets were priced high and people in village did not have to handsets
Opportunity to Grow:

Submitted by Group E2