UPDATE: Bharti Airtel Bets On India Model For Africa Success

9th Jun 2010 18:43

(Updates throughout to add comments, background, share price) By R. Jai Krishna and Kenan Machado Of DOW JONES NEWSWIRES NEW DELHI (Dow Jones)--India's Bharti Airtel Ltd. (532454.BY) Wednesday said it will look to replicate its Indian model of outsourcing everything from phone networks to back-end systems at its newly acquired Zain Africa BV operations. The Indian mobile-communications company on Tuesday completed the acquisition of Kuwait-based Mobile Telecommunications Co.'s (ZAIN.KW) Zain Africa assets in 15 African countries for $9 billion. "We will definitely pursue a partnership ecosystem. We have already released RFPs (request for proposals) to all present partners like Ericsson, Nokia, IBM etc.," Bharti veteran and chief executive for international business, Manoj Kohli told Dow Jones Newswires. India's largest mobile services operator has also asked companies like International Business Machines Corp. (IBM) and Hewlett-Packard Co. (HPQ) to bid for the outsourcing contracts of Zain Africa's technology and back-end systems, Kohli added. The operations posted a "minor loss" with earnings before interest, tax, depreciation and amortization of $1.2 billion for 2010, the company said. The deal, which makes Bharti the world's fifth-largest mobile-phone operator by subscribers, gives the company access to Africa, allowing it to tap a market with telecom penetration of about 32%, indicating high growth potential. But the acquisition comes with the challenges of having to compete with likes of South Africa's MTN Group Ltd. (MTN.JO, MTNOY) and the UK's Vodafone Group PLC (VOD, VOD.LN) for a share in some of the markets. "We have an affordability strategy but that doesn't mean that we'll get into any kind of price war," Kohli said, when asked if a rate war was in the cards--like in India--to gain additional market share. India, Bharti's home market, has 601 million subscribers and as recently as March added about 20 million wireless users--a pace which many experts believe will taper off in the coming years. Telecom penetration in India is about 54%. An Ernst & Young survey in February 2008, showed that between 2002 and 2007, the industry grew by 49.3% in Africa as opposed to Asia which recorded 27.4% growth. But Bharti needs to quickly justify to investors the price tag for the African assets, even as a cut-throat price war in its domestic market weighs on its margins, forcing it to explore emerging telecom markets like Africa. On Wednesday, ratings agency Standard & Poor's lowered Bharti Airtel's long-term corporate credit ratings to BB+ from BBB- reflecting the agency's concerns over the Indian firm's leverage. "Leverage and cash-flow protection measures will deteriorate significantly following its largely debt-funded acquisition of Zain Africa BV," S&P analyst Mehul Sukkawala said in a statement. Despite that, Bharti's shares outperformed the benchmark Bombay Stock Exchange, closing up 5.6% at INR272.15 Wednesday after underperforming in the last few weeks. Investors bet on the firm's ability to replicate the low-cost operations model it deploys in India. Capital expenditure for the fiscal year ending March 31, 2011 will be about $800 million compared to $1 billion a year earlier, Kohli said. Bharti will also look to form a cellular tower company in each of the markets of Zain Africa, Kohli added. This again brings to Africa the model in India where Bharti formed a separate joint venture company with rival phone operators like Vodafone Essar, a unit of Vodafone Group and Idea Cellular Ltd. (532822.BY) to hold their respective cellular tower assets and rent them out to other operators, mostly new, to defray steep capital costs. That firm--Indus Towers--is now India's largest telecom tower company. The Indian mobile giant, which spent $2.65 billion dollars to win licenses for third-generation spectrum in its home country, is also betting on wireless broadband in Africa, Kohli said. Six of the 15 markets in which Zain Africa operates have 3G services. -By R. Jai Krishna and Kenan Machado, Dow Jones Newswires; +91 9967586928; [email protected] (END) Dow Jones Newswires June 09, 2010 13:43 ET (17:43 GMT)