Airtel Africa

Oct 12, 2013 No Comments by

 

 

Airtel Africa

In March 2010, Airtel acquired the African operations of Zain telecom which gave it access to 17 African countries – Burkina Faso, Chad, Democratic Republic of Congo, Gabon, Ghana, Kenya, Madagascar, Malawi, Niger, Nigeria, Republic of the Congo, Rwanda, Seychelles,  Sierra Leone, Tanzania, Uganda and Zambia.

We all are aware of the high debt cost which airtel has to pay to finance the acquisition of Zain. It took a total debt of $10.7 billion to acquire Zain. Let us examine the potential of telecom industry in these countries.

Gabon has per capita income almost four times of most nations in Sub-Saharan African region. The centre of the industry is petroleum, manganese and timber. Nigeria on the other hand is the 2nd largest country in Africa in terms of GDP, just after South Africa. According to reports it is on track to becoming one of the 20 largest economies by 2020. Foreign investments, especially European, are increasing after Belgian consultancy like Genco started exploring the Nigerian market. Burkina Faso is relatively economically weak with high population and low resources. Kenya is the biggest and advanced economy in east and central Africa. East and Central Africa’s biggest economy has posted tremendous growth in the service sector, boosted by rapid expansion in telecommunication and financial activity over the last decade, and now contributes 62 percent of GDP.

The major problem with all the African economies is that the wealth is concentrated among a few people while the majority of population is below the poverty line. Also most of the countries face political unrest which acts as a hindrance for foreign investments in the countries.

Gabon recently held a conference, New York Forum Africa, which was attended by about 600 business leaders and political leaders. The aim of this was to promote business opportunities in the country. Airtel is planning to invest $125 million in Gabon. The Gabon government is also supporting foreign investments through Gabon Emergent Program. It is taking a pro growth stand aiming to have digital infrastructure by 2016. For this it has established a Frequencies & Digital Economy Development Fund. If this digital infrastructure is achieved the telecom sector would see a boom.

Airtel is the largest telecom company in terms of geographical reach in Africa. It has presence in 17 African countries. This provides an advantage to its customers due to inter country roaming services.

Airtel has made a tie up with Samsung to sell its S4 model at its outlets. The users will get an aurtel connection with 3 months free data plans. In just 2 weeks of launching the plan Samsung got 10 million pre orders for the phone set. Now according to statistics a Samsung S4 generates 10 times more data usage as compared to normal smart phones. So, the huge sale of the set would lead to more internet penetration. Also if other companies like Sony, Nokia etc try to leverage on the outlets of Airtel it would be a huge add on for the company.

Airtel has a total of 18,370 towers all over Africa. Out of these it owns 12,800 towers while the rest of them are leased. If Airtel decides to separate the towers from the parent company and sell it to its subsidiary Bharti Infratel it would result in a huge reduction in its debt burden. As of now there is no indication for any such activity but might come in near future. Airtel also reduced its debt by $1.1 billion by selling a 5% stake in Qatar investment to Qatar foundation

 

Now lets focus on some statistics of Africa.

  • Africa is the fastest growing mobile market for past 5 years
  • It has a total of 82 million users as of 2012
  • Nigeria has seen a growth of over 100% for past few years
  • Nigeria has an internet penetration of 15.6%
  • Nigeria has about 110 million subscribers
  • Gabon has a mobile penetration rate of 136%
  • Internet penetration in Gabon is 8.8%
  • Smartphone penetration is 17%
  • Micro entrepreneurship provides 90% of the employment base in African nations and 65% of continental GDP
  • Google plans to sell 200 million smart phones in Africa by 2016
  • According to Gates foundation and World Bank data, in Kenya, Sudan and Gabon half or more than half of adults had used mobile money
  • Across sub-Saharan African region only 1 out of 5 adults have bank accounts
  • Nigerian mobile music industry is expected to be multimillion industry in few years

 

Airtel operations in Africa have run into losses in the past 2 quarters the major reason being the price war going between different telecom giants, huge interest cost and government tightening price caps. Losses from the African operations grew 42.5% QoQ to Rs 486 crores in the March quarter. Now one has to be patient. The data above suggests that Africa has huge potential for the telecom sector. In India also Airtel had to navigate through price wars and same is the case in Africa. If we see the current situation in India, Airtel is the market leader and is now increasing the tariffs. So, it has to go through the same gestation period in Africa too. It is planning to invest $600 million in this fiscal year in Africa to strengthen its position.

Technology is advancing each day at great speed. 10 years ago one could not dream about laptops and cell phones being so cheap and easily available. In next ten years there will definitely be a new technology. Now Africa is lagging behind in technology but if other developed nations jump to some new technology, Africa will also follow the footsteps and upgrade itself to using mobile phones. Africa has huge potential for telecom sector. Airtel is eyeing on capturing this market. We can’t keep Africa aloof from the technological developments in the world. It will also be a part of the technological wave and at that time we will see a turnaround in Airtel Africa.

 

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