Mobile services

Orange Lauds Attractions of Airtel Africa Deal

Orange says it would expect to realize major synergies from the takeover of Bharti Airtel's operations in Burkina Faso, Chad, Congo Brazzaville and Sierra Leone.

The French operator yesterday revealed it is in exclusive talks with Indian mobile operator Bharti Airtel Ltd. (Mumbai: BHARTIARTL) about a deal that would allow it to expand its footprint in West and Central Africa. (See Orange in Talks to Buy Africa Ops From Airtel.)

Responding to questions from Light Reading, a spokesperson for Orange (NYSE: FTE) said the Bharti Airtel assets would "naturally complement" its existing presence in the region.

"We believe there could be many synergies ranging from IT platforms and connectivity to international cables and interconnect platforms," the spokesperson told Light Reading.

The remarks are interesting in light of Orange's recently announced plan to start monitoring networks in its ten markets in West and Central Africa from facilities in Abidjan (Cote d'Ivoire) and Dakar (Senegal).

Orange is aiming to increase revenues across its African and Middle Eastern markets by 20% between now and 2018, and reckons it will be able to grow EBITDA at an even sharper rate through such efficiency measures. (See Orange Aims for 20% Sales Growth in Africa.)

Asked whether the network-monitoring scheme could be expanded to include the Bharti Airtel operations following a deal, the spokesperson said it was "too early to go into such details."

Even so, Guy Zibi, chief analyst at Xalam Analytics, Heavy Reading 's Africa and Middle East research unit, believes the synergies between those operations and Orange's current ones would be significant.

"Orange is already present in surrounding countries, so there would be non-negligible cross-border synergies," he says. "Burkina Faso, for example, is landlocked and one of the largest markets for leased international bandwidth capacity in that region -- it could be pooled with units in Côte d'Ivoire, Niger and Senegal."

As Zibi points out, bar Sierra Leone, all the countries in question are French-speaking and feature a strong French industrial presence, which would help Orange to realize an objective of boosting sales to African enterprise customers.

"The size of the units is attractive," adds Zibi. "Chad, Congo and Burkina Faso would easily slot into Orange's Africa top eight -- and potentially make it easier to divest from smaller but more problematic units like Kenya."

Following the sale of its business in Uganda last year, Orange appears to be considering its future in Kenya, where it says the regulatory environment makes it difficult for operators other than market leader Safaricom to prosper.

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Orange's existing markets in West and Central Africa comprise Botswana, Cameroon, Central African Republic, Côte d'Ivoire, Democratic Republic of Congo, Guinea-Bissau, Guinea Conakry, Mali, Niger and Senegal.

Besides being active in Kenya, Orange also owns networks in the sub-Saharan countries of Madagascar and Mauritius -- its pilot market for the use of all-IP networks -- and has a 40% stake in the Orange-branded business in Equatorial Guinea. (See Orange to Be All-IP by 2020, Says AMEA Boss.)

According to Zibi's research, each of Bharti Airtel's businesses in Burkina Faso, Chad and Congo-Brazzaville is either a market leader or a close number-two player with a market share of at least 40%.

The operations in Burkina-Faso and Congo-Brazzaville generate more than $200 million in revenues each year, while Chad brings in about $150 million annually for Bharti Airtel, according to Zibi.

"That is more than all but around five of Orange's 14 operations in sub-Saharan Africa," he says. "These are not the worst of Bharti Airtel's lot by any means."

Bharti Airtel appears to have come under pressure to sell the assets so that it can pay off debts that have weighed heavily on recent financial performance.

The Indian operator's net debt had risen to about $10.7 billion at the end of March -- or approximately 2.08 times annual EBITDA -- from about $10.1 billion in March 2014.

"They have to find ways to reduce that load," says Zibi. "If they want to raise good value, they do have to sell units one would actually want to buy."

— Iain Morris, Circle me on Google+ Follow me on TwitterVisit my LinkedIn profile, News Editor, Light Reading

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