We would like to share with readers an excerpt of Zain’s Wireless Operations now taken over by Bharti Airtel in Africa. The longer Bharti takes to complete the transaction, the higher would be the risk of uncertainty-driven attrition in Zain in addition to the risk of capex needs rising and re-branding getting delayed.
Tanzania is the only market in which completion of the acquisition faces some uncertainty, as the government owns 40% of Zain Tanzania. In the worst case, we would expect the deal to go through without Tanzania. Elasticity in Tanzania was not very high for market leader Vodacom.
Capex drop in top five markets 51%, compared to revenue drop of 13.7% because the business has reached an advanced stage is untenable, given the steep revenue drop. Bharti’s involvement should restore the balance here. Quality problems led to Zain’s license period being truncated in Niger – A Major task for Airtel to handle.
MTN’s Ghana lead an example of quality commanding a premium, in addition to early-mover advantage: In Ghana, MTN has a clear lead over Zain: We believe MTN has a market share of 54% by volume and 60% by revenue.
On the other hand, Zain is PAT-positive in all but one of the markets in which it is #1. Further, in the two markets it has in common .
with Vodacom, another powerful competitor. Bharti’s management will have to immediately ramp capex up at least to the level of 2008
Bharti has been saying for some years now that the India model (low tariffs, high usage) is ready to be exported. In practice, in Africa, there are a few other considerations that make us believe that: 1) Bharti’s implementation may be limited to some markets; 2) a few tower deals must happen before Bharti can introduce such measures; 3) all together, it would take 12-18 months before Bharti can start cutting tariffs in earnest.
Where can Bharti Airtel Make the Difference ? -IT outsourcing a possible differentiator; MTN has had trouble with this. Opex – common sense belt-tightening and scale benefits should yield ~700bps in three years. Scale benefits could yield 200bps. Network outsourcing – worth another 300bps.
Transforming African Operations faces major Hurdles on commercial & Technical Basis:
As per the analyst, who have been analyzing the take-over are mainly from Developed Economies.
The ground-reality differs, then the theory analysis.
The users/ customers are the most common man within this region.
Major Turn-around or change can only come thru its Right Human Resource (Expatriates from Bharti-Airtel).
Retaining present Human Resource (Expatriates of Zain)will only complicate the issues more for Bharti Airtel to turn-around into profitability.
Speed within African Markets, plays a major factor.