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Home Discussion Papers Asia Dimension Bharti Airtel’s approach to Africa: Can India’s telecommunications industry be replicated in Africa?
Bharti Airtel’s approach to Africa: Can India’s telecommunications industry be replicated in Africa?
Written by Harvir Mattu (1) Thursday, 02 September 2010 08:28

In June 2010, Indian telecommunications giant Bharti Airtel announced its takeover of the telecommunications company Zain’s operations in fifteen African countries. With the US$ 10.7 billion purchase, Bharti became the world's fifth largest mobile service provider by number of subscribers. It gained 42 million customers in the fifteen African countries, which include Kenya, Uganda, Tanzania and Gabon amongst others.(2) Upon acquisition, Bharti announced its intentions of delivering affordable services and deeper coverage across its acquired markets.(3) For a continent that has low mobile penetration combined with the highest calling charges in the world, these promises could have a profound effect on the African telecommunications industry and its consumers.

Mobiles in the developing world

Mobile telephony is recognised as the most important mode of telecommunications in developing countries.(4) The mobile revolution in some developing countries epitomises the concept of ‘leapfrogging’. This is where developing countries might be able to 'leapfrog' earlier technological paradigms and catch up to more advanced economies in technological terms. For instance, rural parts of Papua New Guinea saw their telecommunications infrastructure move from nothing to a satellite-based system in a single leap.(5)

There is a broad consensus that the introduction and the growth of mobile telephony have important economic and social effects for developing countries. Some studies have suggested that mobile telecommunications services create very large gains in consumer welfare. Other studies have highlighted the relationship between growth in the telecommunication sector and economic development.(6) A United Nations Conference on Trade and Development (UNCTAD) publication highlights how in developing countries, mobiles have become an essential entry point into the information society. Mobile telephony is viewed as a ‘critical tool’ that creates business opportunities, enables efficient sharing of information and intelligence, and empowers households and communities to stay connected.(7) Airtel’s promise of the extension of mobile services, such as to those living in the most remote and rural areas, will enhance the quality of life of many Africans.

Bharti Airtel in Kenya

Bharti Airtel is India’s largest mobile service operator based on number of customers. Its strategy has largely been mass market domination by offering low call rates, whilst banking on high volumes. India’s mobile phone users enjoy the lowest call rates in the world, due largely to Bharti Airtel’s price wars with competitors. Post-acquisition of Zain, there was speculation in the industry that Airtel would take its mass market approach to its newly attained African locations, thus starting pricing wars. Since African countries do suffer from the highest calling rates in the world, and with penetration rates low (but growing), a price war would be beneficial to consumers and possibly to operators if they are able to increase their customer base. A look at Airtel’s recent activities in Kenya could indicate the direction of future movements of Airtel in other African locations.

Bharti Airtel has exported to the Kenyan market its business model of low margins and high volumes, announcing drastic price cuts for subscribers on the Zain network.(8) This is part of Airtel’s wider ‘commitment to Africa’, targeting the mass market and making mobile services more accessible to ‘the common man’. In terms of telecommunications development, Kenya is largely a success story. It boasts almost 100% network coverage, and ranks amongst the highest in Africa in terms of mobile subscribers with 17.11 million in 2008.(9) However, with a penetration rate of 44 percent in 2008, there is still scope for expansion.

The largest operator in Kenya in terms of subscribers is Safaricom, with 78% of the market. This is an innovative and popular network that has revolutionised telecommunications and mobile phone use in Kenya. The introduction of a service called M-Pesa has allowed microenterprises, as well as individuals, to transfer money and make payments via SMS through their mobile phones. As of May 2009 M-Pesa had 6.5 million subscribers and handled around US$ 10 million in daily transactions.(10) In 2010, M-Pesa extended its services so that subscribers from abroad could transfer money by mobile directly to Kenyan subscribers. However, one gripe many users of Safaricom and competitors maintain is that call costs are high, and high interconnection rates have made it costly to call across networks.

Airtel has been able to declare lower call rates of Kenyan Sh3 per minute because of new interconnection rates set by the Communications Commission of Kenya. From September 2010, interconnection rates will be reduced from Kenyan Sh4.42 to Kenyan Sh2.21. Bharti plans to invest US$ 150 million to grow its network and distribution system, including new 3G services.(11) This level of investment is the typical amount being promised by Airtel in most of its acquired locations. In response to Airtel’s announcement Safaricom’s Chief Executive Officer Michael Joseph has suggested that Safaricom would be reviewing its own call structure in due course. Should Airtel, Safaricom and other operators commence a price war, this will work heavily in favour of Kenyan mobile users.

Bharti appoints African professionals to drive business 

As with any cross border acquisition, there can be major concerns due to cultural complexities. One of the biggest challenges in a cross-border transaction such as this is overcoming cultural and business differences. From a business perspective, cultural differences and the lack of local knowledge to operate in foreign markets and retain local talent decreases the likelihood of success.(12) Fortunately for Zain and the respective African countries, Airtel, has announced the appointment of African professionals to its top management as it moves to entrench its operations on the continent. The company said it would continue tapping into the diversity of Africa’s world-class talent pool.(13) Airtel emphasised that the appointments were in line with the company’s business strategy of developing human capital and empowering local operations. Such a commitment to developing human capital and empowerment is in contrast to the approach often exercised by Chinese corporations where top and middle managerial positions are reserved solely for the Chinese.

An expert on Africa, Harry Broadman, observes that the Indians are integrating economically, socially and politically. Further to this, he believes it is Indian companies that will have a more durable impact on the African economy than the Chinese. Overall, India's projects are more thoroughly integrated with the local economy, while Chinese firms operate in enclaves, import Chinese workers and source inputs from companies back in China. Their Indian counterparts on the other hand, more often build local supply chains and merge more thoroughly with the community.(14) Therefore, Airtel’s appointments of Africans to top managerial positions could hint at a genuine ‘commitment to Africa’.

Conclusion

Although Bharti Airtel has been slowly revealing its intentions for several of its new locations, it has yet to unveil a comprehensive strategy towards Africa. However from what it has revealed, there appears to be a consistent level of investment and commitment to lowering calling costs. With low penetration rates and high call costs, there is much scope in all fifteen countries to develop consumer markets. Thus far, Airtel’s approach has been one that appears to be beneficial to the masses, and will hopefully bring millions more people into the ‘information society.' Airtel is attempting to replicate its success in India, abroad. As Airtel attempts to replicate its Indian success in Africa, the coming years will reveal whether African consumers are as conducive to low costs combined with high volumes.

NOTES:

(1) Contact Harvir Mattu through Consultancy Africa Intelligence's Asia Dimension Unit ( This e-mail address is being protected from spambots. You need JavaScript enabled to view it ).
(2) Overdorf, J., ‘With one eye on China, India moves into Africa’, The Global Post, 21 June 2010, http://www.globalpost.com.
(3) Bharti Airtel, ‘Airtel Connects with Africa – to become the first Indian brand to go truly global’, Bharti Airtel News, 8 June 2010, http://www.airtel.in.
(4) United Nations Conference on Trade and Development, ‘Science and Technology for Development: The New Paradigm of ICT’, Information Economy Report 2007/2008, 2007, http://www.unctad.org.
(5) Davison, R., et. al., ‘Technology Leapfrogging in Developing Countries - An Inevitable Luxury?’, The Electronic Journal of Information Systems in Developing Countries, 2000, http://www.ejisdc.org.
(6) United Nations Conference on Trade and Development, ‘Science and Technology for Development: The New Paradigm of ICT’, Information Economy Report 2007/2008, 2007, http://www.unctad.org.
(7) Ibid.
(8) ‘Zain Kenya lowers call rates’, Capital FM, 18 August 2010, http://www.capitalfm.co.ke
(9) United Nations Conference on Trade and Development, ‘Trends and Outlooks in Turbulent Times’, Information Economy Report 2009, 2009, http://www.unctad.org.
(10) Ibid.
(11) ‘Bharti Airtel to invest $150 mln in Kenya- Executive’, International Business Times, 9 July 2010, http://www.ibtimes.com
(12) Zabinski, E., ‘Navigating the Challenges of Cross-Border M&A’, The Deal Magazine, 29 May 2009, http://www.thedeal.com.
(13) ‘Bharti appoints African professionals to drive business’, Next, 12 August 2010, http://234next.com.
(14) Overdorf, J., ‘With one eye on China, India moves into Africa’, The Global Post, 21 June 2010, http://www.globalpost.com.


Written on Thursday, 02 September 2010 08:28 by Consultancy Africa Intelligence

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