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Bharti in the jungle

INDIA'S Bharti Airtel will soon launch its brand in Africa, thanks to the acquisition of Zain Telecoms.

On a conference call last week, Bharti CEO Manoj Kohli said that his company was "firmly in the driver's seat" and would launch operations under the Bharti Airtel brand in October. India is placing serious investment in Africa, and Kohli believes the region will richly reward companies like his.

Bharti's initial attempt at breaking into Africa involved a suggested merger with South Africa's MTN Group [JSE:MTN] that would have formed the largest emerging markets telecoms company ever. But the deal was doomed before it began thanks to Indian legislation, disinterest from investors and other factors.

Outgoing MTN CEO Phutuma Nhleko was questioned about the failed talks and Zain acquisition at his company's most recent results presentation. He said: "They have chosen to venture into the jungle alone. We think they would have been better off if they did so holding our hand."

The potential partner has turned competitor for MTN - and is blazing a trail into the jungle as we speak.

Kohli is bullish about Africa. He believes the continent will grow to be a bigger market than China or India in terms of consumption. He listed a combined gross domestic product (GDP) of $1.4 trillion for the continent, and pointed to a level of urbanisation at 40% - a very meaningful statistic for telecommunications providers.

More importantly, he cited the large and growing African middle class that today consists of 400 million people, but which will soon grow to beyond 500 million.

If Kohli is to be believed, Africa also has a larger working class than China.

Of course, these are continent-wide statistics and when one breaks it down by country the realities are very different. Just ask Vodacom Group [JSE:VOD] about the difference between doing business in South Africa and the DRC - a country it may soon be forced to pull out of thanks to poor economics, high taxes and squabbles with partners - and you soon realise that chalk and cheese litter the continent.

That aside, Kohli says 27 out of 30 economies in Africa are growing well, with a 5% GDP increase per year. He also sees positive signs in democratic transformation in the last five years. "Democracy" may mean different things to different Africans - but I get what Kohli means.

The more important facts he cited, as far as I'm concerned, were that more than 20% of African GDP is being spent on telecommunications and infrastructure, and trade with other developing markets is growing well. This will be good for the continent even if it doesn't amount to much for any single company dealing on it.

For telecommunications companies, the gold in Africa lies in growth potential given a 20% tele-density - seriously low by world standards. The economies are changing realities for networks and Kohli believes that an inflection point is coming when it comes to network-hopping and the common African practice of carrying more than one SIM card.

"People will soon have to choose just one brand. We will try to make that brand Bharti in the future," he said.

Kohli described the competition he faces in Africa as "reasonable" - I wonder what MTN thinks of that?

With regional headquarters established in Nairobi that started operating in July, Bharti is ready to tackle 15 countries to begin with, applying a three-phase strategy.

"Firstly, network quality must be improved, second is service quality with call centres and other such operations being bolstered, and finally we must have good quality products ready before launching the brand. This will all happen by October," said Kohli.

It will be interesting to watch this new player enter the market and take on MTN, Vodacom, Safaricom and other existing providers. In the future it may even indirectly come up against fellow Indian company Tata, for example in the guise of Neotel in South Africa, which is majority owned by Tata.

In general it's going to be one hell of a fight, centred on economies like Nigeria that hold huge promise for future revenues.

Can Bharti Airtel use existing Zain penetration as a launching pad to come in and take over, or will it hit a brick wall in the form of MTN? Time will tell and hopes will be pegged according to shareholding.

 - Fin24.com
 
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