Airtel in Africa Key Factors & SWOT Analysis 2012

2012 Airtel in Africa: Key factors & SWOT analysis

Blycroft Ltd – Airtel in Africa: Key factors & SWOT analysis 2012

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Blycroft Limited Published 11th. April 2012. Copyright 2012 www.africantelecomsnews.com Disclaimer and Legal Notices. Disclaimer. Every care has been taken in the preparation of this report to ensure that the information contained herein is accurate, factual and correct to the best of our knowledge, at the time of publishing. All opinions, suppositions, estimates and recommendations included in this report are solely the opinions of the authors unless otherwise stated. Blycroft Limited accepts no liability for any loss or damage or unforeseen consequential loss or damage arising from the use of the information contained within this document. The opinions, suppositions, estimates and recommendations within this report cannot be guaranteed, and readers use this information at their own risk. The information published in this document is subject to change without notice at any time, and Blycroft Limited accepts no liability or obligation to inform the reader of such changes. Blycroft Limited do not promote or endorse any specific companies or products, the views and opinions we express in this report are wholly our own assessments, and independent from any external interest or influence. Many terms and phrases and trade names used in this document are proprietary and Blycroft Limited recognises and acknowledges that all trademarks are copyright, belonging to their respective owners. Where possible, this document accords such terms and phrases and trade names to their respective owners. All Rights Reserved. No part of this document can be copied, shared, redistributed, transmitted, displayed in the public domain, stored or displayed on any internal or external company or private network or electronic retrieval system, nor reprinted, republished, reconstituted in any way without the express written permission of the publisher. If you have any questions about the legal licence conditions under which this report has been distributed, please contact Blycroft Limited at [email protected].

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Blycroft Ltd – Airtel in Africa: Key factors & SWOT analysis 2012

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Table of Contents 1. 2: 3. 4. 5. 6.

Mobile wars in Africa: is Airtel winning? Airtel Confidence Survey Airtel SWOT Analysis Survey demographics About this research service: The MNO Directory

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About the Author: This briefing was authored by Roy Johnson, a writer specialising in IT and business topics, who has regularly contributed to PC Magazine, as well as editing TechNet Magazine for Microsoft. Roy was formerly editor of CommsAfrica and contributing editor for Intelligence magazine. The individual articles appeared originally in the weekly issues of ‘Africa & Middle East Telecom-Week’ - see www.africantelecomsnews.com for more details.

©2012, Blycroft Ltd.

Blycroft Ltd – Airtel in Africa: Key factors & SWOT analysis 2012

Mobile wars in Africa: is Airtel winning? Competition in African markets is fierce. It really is a war zone. And, as with any conflict, the outcome hinges on decisions regarding strategy – and the available weaponry. Bharti Airtel has a history of making first moves and emerging as the winner just because of that. This is what built the company’s success in India, where it remains the top MNO and second-largest fixed-line operator. In fact, thanks to the massive market it serves at home, at the time it acquired the Zain portfolio in March 2010 Airtel was reckoned to be the fifth largest mobile operator in the world on a proportional subscriber basis, putting it behind the likes of China Mobile, Vodafone Group, American Movil and Telefonica, but ahead of China Unicom. As has been widely covered for over a year now, Airtel has been looking at Africa as a new growth market. While it has a deal with Vodafone for the Channel Islands, Africa is the only other territory outside the Indian subcontinent (including Bangladesh and Sri Lanka) that the company has entered. The commonalities are compelling: similar markets, needs and infrastructure. The realities on the ground are somewhat more challenging: logistics, legislative compliance and serious local competition being foremost. The logistics of infrastructure in Africa are an equal challenge for all MNOs. That is a given. Where Airtel might have been overly optimistic is in hoping its Africa model would run similarly to its success in India, based on a first-tomarket approach and having some leverage to overcome legislative obstacles. Unfortunately, while Airtel has a 30-year history of being first in India (with pushbutton phones, cordless phones and then mobile), they were not first in Africa. There were major EU, Middle East and South African players there ahead of them. In fact, Airtel’s African expansion is largely thanks to its take-over of Kuwait’s Zain mobile operations in 15 countries. This was a beachhead, not a conquest. Zain only held dominant market share in a few countries. Going up against market leaders such as MTN of South Africa, Airtel applied a strategy of extensive cost cutting. This followed on what it achieved in India, cutting a deal with Ericsson for per-minute fees (rather than upfront payment) that enabled very low-cost call rates from the outset. Airtel has an all-Africa, five-year deal in place with Ericsson for network management that offers similar advantages. Elsewhere, Airtel is engaged with Nokia Siemens Networks and Huawei, not keeping all its eggs in one basket, of course.

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Blycroft Ltd – Airtel in Africa: Key factors & SWOT analysis 2012

As a Plan B, possibly following on the indecisive outcome of Airtel’s low-cost invasion, the company has previously been negotiating a take-over of or (maybe) a joint venture with MTN itself. How this putative deal is described depends on which company is talking. This has been going on for some four years without a definitive ending. Even if it never happens, it is a signpost of just what Airtel would consider to get its Africa operations truly established. But let’s look at realities. Taking Nigeria as a bellwether example, Airtel’s charges are low, around 20 kobo (about GBP 0.08) per minute, but three times that for the first minute. That is up against MTN charges of 50 kobo, although MTN offers a cheaper peak rate (15 kobo) and more expensive off-peak rate. As always, comparisons are tricky, given the different pricing regimes on offer. Also difficult is working out which company is really winning. Airtel claims either number-one or number-two positions in many of its Africa operations (11 out of 17 countries). Tellingly, no claims are made for Nigeria. Airtel is not just being coy. There is an ongoing dispute over branding in that country and the latest development is that Airtel has been court ordered to rebrand as Econet (EWN). Airtel will appeal that ruling, while complying in the interim. This dispute goes back as far as 2003 and is not yet over. It is, however, a good example of the challenges Airtel faces in African settings and, while it continues, the real winner is MTN, holding on to its own leading position in Nigeria as well as its brand. To come back to what we said at the start of this article, winning wars is not just a matter of having the best weaponry, although that helps. Without a strategy, chaotic retreat is the order of the day. Airtel’s strategy bears comparison with the different approaches of two European operators who have been busy in Africa, Vodafone and Orange. Vodafone’s approach has been targeted, achieving a small number of highvalue operations. Orange went large, seizing opportunities wherever they appeared. The final result is that Vodafone has good revenue and lower costs, whereas Orange has higher costs and less revenue. What Airtel needs to prove is that its broad approach with low fee rates can win against competitors who have a head start and better targeting. Current usage, market share and consumer approval figures – where independently available – do not support a claim that Airtel is winning, despite the impressive growth that was claimed after the launch in 2010. This is, to a large extent, an inevitable result of the original acquisition by Airtel of Zain’s operations. Among the 15 countries involved, not every one was clearly a winning proposition.

©2012, Blycroft Ltd.

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Blycroft Ltd – Airtel in Africa: Key factors & SWOT analysis 2012

Nevertheless, do not underestimate Bharti Airtel. The company has deep resources, including enough to offer anything between USD 13 and USD 45 billion (as reported) to buy out its main competitor, MTN. It is also licensed to roll out 3G in 12 countries, clearly focused on the expected maturity of African markets finally proceeding to data services instead of the fundamental voice and text services that fuelled the original mobile boom on the continent. On a side issue that might well have bottom-line impact in the medium term, Airtel is pushing ahead with its Green Towers programme to upgrade 22,000 of its sites in India to solar power over three years. The company won the MWC Green Mobile Award for that in 2011. Apart from the marketing boost, there are practical and financial advantages to such technology, especially in Africa. Other MNOs are also exploring this option but Airtel is not just experimenting. It has about 6,000 towers already running solar. While Nigeria is obviously the jewel in the crown, Airtel will continue to be an influence in other countries, driving down rates and forcing technology upgrades. This has advantages for consumers but is a problem for operators as growth in Africa’s markets has currently reached a plateau. Big as Africa is, there might not be enough room for all the players who are there at present. This article has been contributed by Roy Johnson, a writer specialising in IT and business topics, who has regularly contributed to PC Magazine, as well as editing TechNet Magazine for Microsoft. Roy was formerly editor of CommsAfrica and contributing editor for Intelligence magazine.

©2012, Blycroft Ltd.

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Blycroft Ltd – Airtel in Africa: Key factors & SWOT analysis 2012

Airtel Confidence Survey 100 visitors to the www.AfricanTelecomsNews.com Website were surveyed in the second week of April 2012 about their perceptions of Bharti Airtel in Africa. Airtel is going for broke, and needs to establish itself as a dominant brand in Africa in a relative short time frame. Respondents were asked how realistic Airtel’s aspirations are, and whether it might yet fail to achieve dominance. By far the biggest group – 45 percent – thought that Airtel was capable of achieving a dominant position in a five year timeframe; 21 percent thought it might take a little longer and not be achieved before 2022; whilst 10 percent thought it would take till 2022. Crucially 76

Only 17 percent thought it would fail to achieve a dominant position and would be relegated to second division status, whilst 4 percent thought it would find the going too tough and actual withdraw from Africa. Airtel’s early strategy focused on its highly successful ‘minute factory’ model is had so successfully developed in India. It arrived in India in the first quarter 2010 and immediately started cutting rates in a number of major markets. Whilst this certain shook-up the competition, it did not necessarily deliver greater market share for Airtel. Indeed, at the GSM World Conference in Barcelona in 2012 Airtel had to admit that its initial understanding of what the African mobile consumer wanted might have been misplaced. It claimed that the African market had not responded as expected to the slashing of call rates. The Airtel model, developed in India, assumed that as rates were cut, usage would increase, so that subscribers would spend the same but make longer, or more, calls. However Airtel discovered that the volume of calls remained at previous levels after the rate cuts were made; consumers preferring to spend the savings on essentials, such as food. Bharti termed the outcome as an ‘unexpected and surprising’ response. An elastic market - where demand for services rises as prices fall - was critical to supporting Bharti's low-cost model.

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Blycroft Ltd – Airtel in Africa: Key factors & SWOT analysis 2012

Chairman and Managing Director Sunil Mittal, was quoted as saying: "Unlike India, we were surprised that in Africa, lower tariffs could not increase volumes. In Africa, subscribers use the money saved on lower-calling rates to buy food and not to talk more. This means that we have to think of a new models that work here”.

When asked what Airtel should now focus on to raise its game in Africa, 27 percent said that rural coverage should be its priority. This is in line with its original proposition when it entered the market, promising roll-out into previously uncovered areas. And despite this obvious set-back with its rate cutting strategy, 25 percent of respondents thought that Airtel should continue with its program as an integral part of its strategic market plan. However 15 percent thought it should focus on Mobile Money, and 13 percent on rolling out mobile Internet in the form of enhanced 3G and LTE. It is clearly critical that Airtel establishes itself in the market, as there remains the threat of further market consolidation and acquisition, and crucially the possibility that an outside party will still seek to sweep into the market. The classic stalking horse – which given the dominance of vendors Huawei and ZTE in the market is hardly surprising - is seen as China.

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Blycroft Ltd – Airtel in Africa: Key factors & SWOT analysis 2012

Africa is a major market, and Airtel needs a result to off-set slowing revenues in its domestic market. Respondents thought that India would still be Airtel’s prime market, with 36 percent saying it will remain its most important market. The African Anglophone markets were seen as the most significant African market for Airtel, and the importance of Nigeria must not be under-estimated.

Indeed Nigeria posses some interesting problems for Airtel. It – along with MTN and Glo – is receiving a fair bit of stick from the local regulator over Quality of Service, whereas UAE-backed Etisalat is not only showing strong growth but has also been publicly lauded by the regulator for its focus on customer service. But also Airtel has a more intractable problem in that Econet has recently won a legal battle over the way it was lost its share holding, with the court finding that all subsequent transactions are null and void. Airtel is currently mounting an appeal. For Airtel to achieve dominance it needs to foster strong brand values – something Africans generally like. The survey found 14 percent of respondents rating the Airtel brand ‘very strong’, whilst 28 percent rated it as ‘strong’. Reassuringly for Airtel, only 13 percent rated it as weak or very weak. But a note of concern is that 45 percent were ‘neutral’. Not surprisingly, the rating of the brand was much stronger amongst active users of the Airtel network.

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Blycroft Ltd – Airtel in Africa: Key factors & SWOT analysis 2012

MTN is the dominant mobile operator in Africa, and this was reflected in the survey results, with MTN being the most noted MNO amongst those respondents with a an active African mobile account (35 percent). Airtel was second with 27 percent of respondents, and Vodacom/fone third with 14 percent.

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Blycroft Ltd – Airtel in Africa: Key factors & SWOT analysis 2012

Airtel SWOT Analysis Respondents were asked to assess the strengths and weaknesses of Airtel in Africa. Strengths in Africa… ¾ ¾ ¾ ¾ ¾ ¾ ¾ ¾

Dominant market player Has established its capabilities and presence in Africa Rapid expansion Access to raw talent from India Reputation as an Innovator Has become a household name in a short time Vast experience, having successfully managed emerging markets Have an existing, established network infrastructure.

Weaknesses in Africa... ¾ Introducing a non-native culture into a multifaceted market ¾ Problem of comparing Africa to India (Africa is 54 countries but India is 1 country) ¾ Problems of maintaining the Indian business model in Africa ¾ Rate cutting strategy is eroding revenue through cheap tariff and weak (inherited) network ¾ Airtel is likely to transformational in the markets it operates, shaking up sleepy markets with high prices. It can build on current market shares but is likely to struggle to challenge dominant operators in each individual market. ¾ Airtel has to fend off other players who have low rate policies and quickly provide coverage in rural area where there is potential growth such as DRC and south Sudan. ¾ Will need to rethink price-cut/rate war policy ¾ Inherited network infrastructure needs to be developed and maintained, with allowance for relevant growth to accommodate traffic if it is to become a much larger force on the continent. ¾ Many changes in branding – Celtel, Zain and now Airtel. Successful operators benefit from brand consistency. Perception of ‘fancy’ marketing campaigns rather than substantive network improvements.. Opportunities in Africa… ¾ Need to develop a unique strategy for Africa and move away from implementing lessons from India. ¾ Provided content, low-cost apps and mobile services tailored to the market ¾ Needs to focus on continued brand promotion and development ¾ Enhance network to provide improved coverage ¾ Mobile Money and Payments, and develop Banking partnerships, potentially with a re-launch. ¾ 3G/LTE

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Blycroft Ltd – Airtel in Africa: Key factors & SWOT analysis 2012

¾ Establish better QoS - especially in 3G - as well as strengthen its position in m-money ¾ Find ways to localise Airtel products services and content offerings. What a customer in Nigeria wants is not always what's important to a customer in Kenya. Airtel have made reasonable strides to establish itself on the continent but they need to develop and implement a coherent payments strategy to step up from low cost utility provider to real player. Threats in Africa… ¾ The Nigerian problem… Airtel’s largest market with QoS issues; legal challenge from Econet; and state of inherited infrastructure. ¾ Brand reputation is important in Africa. Telephone numbers are passed on from father to son and long term loyalty is important - has to be earned over time.

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Blycroft Ltd – Airtel in Africa: Key factors & SWOT analysis 2012

Survey demographics: The demographics of the respondents can be summarised as follows:

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Blycroft Ltd – Airtel in Africa: Key factors & SWOT analysis 2012

4. About this research service: africa & middle east telecom week (AMETW) is a paid-for subscription service, with 48 weekly research updates per annum. The title covers all aspects of regional wireless and wireline news, and is sent via e-mail each Thursday as a PDF attachment. What you get: An annual subscription to Africa & Middle East Telecom Week gives you: 48-weekly issues (news and commentary)...each issue contains mobile operator data and statistics drawn down from Blycroft's Database of Mobile Operator Statistics, together with 28 or more news articles focusing on mobile and fixed M&A; infrastructure developments; licensing and regulatory issues, and much more...

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Blycroft Ltd – Airtel in Africa: Key factors & SWOT analysis 2012

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Blycroft Ltd – Airtel in Africa: Key factors & SWOT analysis 2012

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Blycroft Ltd – Airtel in Africa: Key factors & SWOT analysis 2012

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