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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,
Bhartis 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
Porters Five Force Analysis of African
Market
Telecom Market
Strengths
Weaknesses
Relatively
large Lack
of
Buyers 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
Suppliers 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
Substitutes
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 entrants 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
industrys 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 Africas
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
Zains 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 Bhartis 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 Bhartis 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 Africas 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

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