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Bharti Takes Its Smarts to Africa

Bharti Airtel Ltd. (Mumbai: BHARTIARTL) is looking to export its Indian operating model to Africa, and replicate its domestic success, following the recent US$10.7 billion acquisition of Zain's African assets. (See Bharti Secures $10.7B African Acquisition and Bharti Shows Off New Physique.)

Bharti Airtel is India's leading mobile operator, with more than 133 million domestic customers at the end of May, giving it a market share of 21.6 percent. (See India's Mobile Market Hits 617M.)

With the new African operations added to its portfolio, it has more than 180 million customers in 18 markets, and is aiming to more than double its African subscriber base to around 100 million within three years.

Bharti will launch its brand in all of its 15 new African markets in October, and has earmarked about $800 million for investment in the first year of operations.

"Bharti sees a huge opportunity in the African market... [its] growth in Africa will be driven by low teledensity (20 per cent in most geographies), low minutes of usage, which is around 40 to 50 minutes at present, and lastly data usage as broadband penetration is very low," states a report released by Religare Enterprises Ltd. following a recent Bharti Airtel investor call.

Attempting to grow in a market with low teledensity and low minutes of usage is exactly the challenge Bharti faced in India in 2001, when urban teledensity in India was just 10.16 percent, and rural teledensity just 0.93 percent. Given the similar market conditions in Africa today, it's not surprising Bharti intends to export its Indian growth strategy to its new African operations, hopefully with similar results -- India's countrywide teledensity currently stands at 55.4 percent.

Just like it did in India, Bharti plans to rationalize the available tariffs across its African markets and make the prices more affordable in an effort to boost usage. "The significant premium in terms of ARPU [average revenue per user] and revenues per minute (RPMs) that is seen in Africa, together with the much lower usage in terms of MoUs [minutes of use], makes Africa a ripe market for Bharti to effectively replicate the 'minute factory model' and drive increased usage," states a recent report from Indian financial services firm Karvy.

In addition, Bharti plans to introduce new services, particularly non-voice applications. "It intends to replicate its 'matchbox distribution strategy' in India in the African market -- wherever a matchbox is sold, Airtel's services should also be sold, thus implying deep population coverage," states the Karvy report.

What will further work in Bharti's favor is that African regulators are not looking to attract further competitors into their mobile markets (most markets have three or four operators), as there is little in the way of spare spectrum available.

As in India, outsourcing and passive infrastructure sharing are set to play important roles in Bharti's strategy in Africa. "The company is also looking at economies of scale (in network, IT services, BPO operations) and sharing passive infrastructure to bring down costs and improve profitability. Bharti aims to improve network quality before it rolls out its brand by October this year," notes the Religare report.

A number of companies have already submitted bids to run Bharti's IT operations in Africa. Tech Mahindra Ltd. , Infosys Technologies Ltd. (Nasdaq: INFY), Wipro Ltd. (NYSE: WIT) Tata Consultancy Services Ltd. , and IBM Global Services are all believed to have pitched for the business.

But while Bharti Airtel has plenty of experience in offering mobile services in growth markets, its biggest challenge could come in trying to manage operations in so many different markets so far away from its Indian headquarters, something it hasn't done before.

— Gagandeep Kaur, India Editor, Light Reading

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