The management of Bharti Airtel Ltd, led by Manoj Kohli plans to introduce affordability and high usage in its African portfolio which is currently a high price environment (with tariffs in some markets as high as Europe/US according to Bharti). We believe the current market environment in Africa is supportive.
Some of the key points about replicating Indian Wireless business model in Africa that are in favor of Airtel are,
- Bharti’s 15-country portfolio has a population is 459m as of June 2010. Share of population living in urban areas in Africa is ~40% according to Bharti and expected to grow to 40%. This compares to 30% of India’s population living in urban areas.
- The youth population in Africa accounts for a fourth of the global youth and had a median age of 17-18 years. The working population is estimated to be higher than that in China and the middle class is 400m people, expected to growth to 500m. [Does this mean, if you are not in Africa, you are not in to Wireless Business ? ;-)]
- GDP growth in 27 economies in Africa is 5%+.
- Bharti Airtel stressed that governments had received Bharti well in Africa and that some officials stated that Bharti’s
- plans are in-line with their own.
- Current Wireless penetration adjusting for Multiple SIMs is around 24%.
- Operators have 20MHz of 2G spectrum and 10MHz of 3G (those who do) which Bharti stated implies little room for more competitors.
Mr. Manoj Kohli alluded to Bharti’s viable rural operations in India and stated that coverage in some African markets (~60%-80%) can be improved. We find this interesting as our conversations with industry experts revealed that rural markets are not being aggressively targeted currently, probably because they may not be viable.
And some of the ground realities and concerns in Africa for Bharti Airtel are,
- Nigeria accounted for ~36% of revenue and EBITDA of the 15 country portfolio in 2009.
- Long approval time for tower sites – A tower can take three months on average to set up once a site is identified (this compares to 5-6 weeks in India).
- Power supply unreliable – Even with a generator, a tower can experience about seven hours or ~29% downtime.
- Human capital availability – We believe that political pressures may manifest with Bharti largely compelled to hire locals. We are concerned that political pressures for employment generation may make outsourcing of services to other countries e.g. call centers in
- India, unlikely
- Distribution network – In Kenya, anecdotal evidence suggests a rather unorganized distribution network. Furthermore, with pre-paid accounting for over 99% of the subs base in most markets, the subscriber acquisition cost is low resulting in a high incidence of dual and multi-SIMs subs in African countries.
- Subscriber registration is being introduced which can result in a series of disconnections or slow net add growth. African markets have multiple SIM subs in several markets so we could see a one-off step down in subscriber base.
Bharti Airtel is banking on the idea of infrastructure sharing to mitigate some of the concerns addressed above. With proven execution skills, Analysts are keeping their fingers crossed. Your thoughts ?