Bharti Airtel in Africa Case

Bharti Airtel in Africa Case facts  Pioneer of cost leadership telecom model with tariffs of less Vision: To win than 1 cent/min customers for life  Became pan-India operator in 2004 by running operations in all through an exceptional 23 circles experience  Distribution network of 2.5 million retailers in India + distributions in South Asia and Africa by 2011 Mission: Meet the  By February 2012, acquired 256million subscribers in South mobile communication Asia and Africa producing 2.8 billion minutes/day needs of the customer  In 2004, company slashed local call tariffs by 60% through error-free  Revenue increased from $54m in 1999 to $8.2b in 2009 service delivery,  Bharti’s market share reached a steady 33% by 2009 innovative product and  Outsourced majority of their operations so that they can focus services, cost efficiency on marketing strategies and Customer Relations and unified messaging  Adopted “Matchbox Strategy” for distribution to reach larger SWOT Analysis of African Telecom Porter’s Five Force Analysis of African Market Telecom Market Strengths Weaknesses  Relatively large  Lack of  Buyer’s Threat: Low-Medium as the mobile and young liberalization in users in African market were relatively inpopulation international elastic to the price charged per minute for a  Spectrum gateways call of allocation process  Cost  Supplier’s threat: Medium-High Due to transparent than accessing mobile limited availability of skilled workforce, the that in India network is high cost of labour was higher than getting an  Growing Economy  Monthly minutes equivalently skilled labour from India to Africa and the second of use per  Rivals threat: High Well established Telecom largest mobile customer was service providers like MTN, safaricom, market in the low Vodacom were already leading in some of the world African countries Opportunities Threats  Substitute’s threat: Medium with  Expected to  Lack of skilled increasing internet subscription the changes of bypass fixed line workforce and using Skype/Google for making international communications high cost of calls also increases. However, the voice quality  96% prepaid labour issue in internet telephony is the reason for  Limited supply of mobile moderate power of substitutes subscription in infrastructure  New entrant’s threat: Low-Medium Due to 2011 with needed to run high capital investment requirement and nondominating voice the business  Competition revenues  Value added from stablished mobile services players already were major in market drivers of industry’s growth M&A: Need/motivation: The market share of Bharti Airtel in India reached a steady 33% and hence they wanted to look for new growth regime in telecom industry to expand their operations. The African Submitted by Group E2

Bharti Airtel in Africa economy and the telecommunication market structure was very similar to that of India, which implied it was the best available market for Airtel to expand and continue its service model. Factors supporting acquisition of Zain:  Indian companies were making headway to Africa with $25billion worth Indian investments expected by 2016  Zain provided Bharti a reach to 36million revenue earing customers across 15 African countries  Zain had reported a revenue of $3.7billion and an EBITDA of $1.1 billion for the African operation in Dec 2009  Relatively low mobile phone penetration in Africa and opportunity to increase Zain Africa’s relatively low EBITDA margin  Bharti had a very strong balance sheet with a debt-equity ratio of 0.59 as of March 2010 (before acquisition) and had tied up enough fund (as much as $9billion) to fund the deal  Provided Bharti with an opportunity to grow and later sustain its competitiveness against MTN  Zain’s employees were not empowered in decision making process which lead to low employee morale, as a result their ability to grow was restricted over time and were already in talk with other companies on opportunity for sale Challenges:  Talent shortage: o Indian employees preferred moving to Europe or America as part of career change rather than Africa o Limited pool of skilled talent across the continent made it difficult to get a team in place  Cultural differences: o The process to decentralize decision and increase accountability added with sheer scale of Bharti’s business overwhelmed the employees o Differences in leadership style and cultural differences lead to misunderstandings between the employees  Increasing costs o To ensure robust network Bharti had to double it 10,000 towers in 16 African countries, but the landlocked nature of the countries increased the time and cost involved in the operations – 60% to 70% more costly than India o Africa lacked strong manufacturing industry, as a result even basic raw materials had to be imported o With the cost structure of Europe prevailing in Africa, the cost of local skilled labour was high leading to increase in the service-related costs Thus the African operations cost 1.5 to 2 times that in India combined with low monthly user minutes per customer, the cost per minute of operation was 4 times higher than that in India.  Changes in government regulations across countries in Africa made the task of building Airtel brand in Africa a complex task  Distribution Monopolies: o African countries had 4-5 large financiers who distributed consumer goods and thus dictated the price at which the products were sold leaving consumers will no choice o Bharti’s tariff structure and 4% margin was not acceptable to the distributors as the African norms allowed them a 10-12% margin

Submitted by Group E2

Bharti Airtel in Africa This monopoly posed huge challenge for Bharti to implement their model of operations in Africa  Customer Challenges: o Even with reduction in tariffs by an average of 18% the demand increase was not as expected. Reasons for this being – No social support, majority of Africa’s population were below poverty line. o Mobile handsets were priced high and people in village did not have to handsets Opportunity to Grow:

Submitted by Group E2