Bharti Airtel Ltd : Going Global

Abstract ..• Bharti Airtel Limited had established itself as a dominant player in India with its

innovative business processes and strong brand, but was witnessing tapering growth because of increasing competition and saturation of the more lucrative urban markets.

• While more and more players were eyeing the fast-growing Indian mobile market which was experiencing high growth, Bharti Airtel put its sight on foreign shores.

• The acquisition of Zain Group's telecom business in fifteen African countries in 2010 (Seychelles added later) gave it a footprint in the African continent.

• While concerns regarding whether Bharti Airtel had overpaid for the deal remained, industry observers were keenly observing to see whether the company could replicate its successful telecom model in these developing and emerging markets

Foray into Africa• In June 2010, Bharti Airtel Ltd concluded a deal with Zain Group to

buy its businesses in fifteen African countries.• Zain, Africa's second largest mobile telecom service provider, had

operations in seventeen African countries, apart from six Middle Eastern countries.

• The deal, valued at US$10.7 billion, was considered one of the biggest acquisitions in the emerging markets.

• With this, Bharti Airtel subscriber base rose by 42 million to reach 185 million, which made it the world's fifth largest mobile telecom operator

• In the years 2008 and 2009, it was in advanced stages of negotiation to complete a deal with the MTN Group (MTN), Africa's largest telecom company, but the deal fell through both times. MTN had a presence in more than twenty African countries

Foray into Africa .. contd• Most analysts believed at the time that the deal with Zain was

nowhere as attractive as the one contemplated with MTN, especially at a price tag of US$10.7 billion.

• The reasons for this, they said, were declining profits and the low contributions of the fifteen acquired businesses to the group's revenues.

• Zain's African assets accounted for about 58% of its total subscriber base (71.8 million), but they made up only a fraction of its net profits.

• Though Airtel was able to acquire a global footprint and a much larger customer base through this deal, industry experts believed it would be difficult for it to leverage on the business model and strategies which had kept it afloat and ahead of the competition in India.

Challenges• Africa represented diverse cultures with many of

the countries having minimal infrastructural resources.

• Further, Bharti Airtel had to function in sixteen different countries, each of which came with its own different regulatory requirements and geopolitical risks.

• Bharti has replicated the low-cost model through outsourcing in India, but depending upon different geographies (in Africa) across 16 diverse African countries (including Nigeria, Kenya, Ghana and Congo), it was not easy

Strategy adopted ..• Drop tariffs, expand the market and make money through economies of scale one

that has worked well in India.

• Bharti Airtel outsourced key operations the telecom network, IT and call centers to leading vendors like IBM, Ericsson and Nokia Siemens, among others, just as Bharti Airtel had done in India.

• This involved shifting nearly a third of the 6,500 African employees of Zain whose African assets Bharti bought last year for $9 billion to these new partners.

• Employees feared they would lose their jobs. So, Bharti offered them a package they could not refuse: Everyone would be transferred on existing terms and conditions; and they had the option to come back into the Bharti fold within two years.

• This ensured Zain's operations were not flooded with expats from India. Most ex-Zain employees have been put through a rigorous retraining programme, imbibing the Bharti way.

• About 1,500-odd employees, who earlier worked for Zain, have been moved to the new partners, and more are in the process of being moved.

• Expand the market and make money through economies of scale.

Way Forward ..• It is clear that Airtel is in Africa for the long haul.

• They are not worried about short-term losses, as long as margins improve.

• Airtel is concentrating on building the Airtel brand in Africa from scratch into a household name.

• Accordingly, the company has decided to spend around five per cent of its revenues on building the brand across 16 countries.

• The next stop is to engage with government and regulators to find ways to reduce costs and, thereby, tariffs, and cater to their concerns.

Thank You