Rated as number 3 in the world and number 1 in Africa, what is fuelling the rumour of Bharti-Airtel exit from the continent barely six years after it berthed? In this report, Olubayo Abiodun looks at the remote and statistical attributes of the speculative exit of the giant from Africa
THE exit of Bharti Airtel from Africa: is it ‘fait accompli’? What is really fuelling such speculations about the imminent exit of the India-owned Mobile Network Operator from the continent? Why would a brand that is regarded as the third largest MNO in the world; in terms of subscriber numbers (behind China Mobile and Vodafone Group, according to data published by the World Cellular Information Service) that showed Airtel with over 303 million mobile subscribers across its operations choose to off-load its assets in Africa?
It initially started as a rumour but in Q3 of 2015 it was concretised. The preliminary discussions had commenced on the exit of Bharti Airtel from assets in Africa. The announcement was made On July 21, in a late night statement, that France’s Orange and Bharti Airtel International (Netherlands) BV have entered into an exclusive agreement for a possible acquisition by Orange of Bharti Airtel’s subsidiaries in Burkina Faso, Chad, Congo Brazzaville and Sierra Leone. At the time of the announcement, however, there was no certainty of any binding agreement as a result of the discussions.
What really made the news of the assets sale bemusing to industry watchers was the incredible details around the assets lined up for sale. Out of the 17 countries in Africa where Bharti Airtel has operations, the four assets in Burkina Faso, Chad, Congo Brazzaville and Sierra Leone contributed 15 per cent to its revenue from the continent in 2014-15. Besides, the four countries were among the better performing countries in Africa in terms of revenue. Airtel is among the top two operators in each of the four markets where it sold off subsidiaries with subscriber shares of 43 per cent in Chad, 21 per cent in Sierra Leone, 38 per cent in Burkina Faso and 46 per cent in Congo Brazzaville. These markets accounted for around 12 per cent of Bharti Airtel’s Africa subscriber base and 16 per cent of Africa revenue in FY2014. They have been relatively better performers for Bharti Airtel with revenue growth of 24 per cent and were profitable on aggregate in the year through March 2014, BNP said in a note.
Overall on the continent, Bharti Airtel enjoyed market leadership in 10 of the 17 markets in which it had a presence in. If Bharti Airtel assets were actually thriving well in the countries it put up for sale, what then is the rationale for selling some of its best assets on the continent? The rumoured exit of Bharti Airtel from Africa is even the more curious when Bharti Airtel’s global profile is laid bare. The sale was consummated barely five years after the India owner; Sunil Bharti Mittal, had desperately penetrated the African market via the purchase of the majority of (Kuwait-based) Zain’s African assets for $10.7 billion. Before this acquisition in 2010, Mittal had twice tried and failed to acquire South Africa’s MTN.
Then what went wrong barely five years after Bharti Airtel ventured into Africa? What is missing in the initial business strategy that brought Mittal to deal in the African operations making him to handover four of its operations to France’s Orange at a go? Why did a bullish Mittal suddenly turn bearish on the African market? In a curious twist, the prospect of a partial sale of the company’s African assets saw Bharti Airtel stock end 3.7 per cent higher at Rs 445.25 on the Bombay Stock Exchange Tuesday, July 21 having touched an intraday high of Rs452.45. The shares outperformed the broader market which ended in the red.
Is that what is really fuelling the exit flame of Bharti Airtel from Africa? The books of the company revealed astonishing details. Bharti had acquired Zain telecom’s African assets in 17 countries in 2010 for $10.7 billion. After consecutive years of registering losses, Bharti Airtel’s net loss in Africa for the fiscal fourth quarter of the year ended March 2015 widened to $183 million from $105 million a year back, hurt by forex losses. Its Africa revenue dropped to $1 billion in the quarter ended March 2015 from $1.14 billion in the same quarter a year earlier. Before the acquisition of the African assets in 2010, Bharti Airtel was reporting revenue of about $228 million and a subscriber base of 42 million. But the company had ambitious plan upon its entry into the continent. The company targeted revenue of $5 billion (from $3.6 billion at the time of the acquisition in 2010), EBIDTA (earnings before interest, depreciation, taxation, and amortisation) of $2 billion ($ 228 million at the end of December 2010 before the rebranding) and a subscriber base of 100 million (42 million in 2010) by 2013.
But five years into that operation, Bharti Airtel did not seem to have achieved its own set target. At the end of March 2015, Bharti Airtel had a net loss of $585 million on revenue of $4.4 billion from its African operations, and its subscriber base was 76 million instead of the projected 100 million. Yet, BhartiAirtel had incurred capital expenditure of over $5 billion to improve its African network and the investment is yet to bear fruit. Bharti Airtel had a debt of $10.7 billion fuelled by purchase of African operations and the sale of these operations point at deleveraging efforts. These are troubling statistics that do not gladden the hearts of astute investors and stakeholders such as Mittal.
Analysts’ reports also forecast the exit of Bharti Airtel from the continent. UBS in one of its report had described Bharti Airtel ’s African business as a drag operationally. “Its African adventure is not working out, and a likely sale will boost sentiment. It has had a tough time in Africa with performance lagging both on revenue as well as on EBITDA basis. The sale is likely to boost investor sentiment as it provides some clues on the management’s intent going forward.”
Also giving fillip to the desirability of Bharti Airtel exit from Africa is the report by BNP Paribas. “Given that Airtel is planning to exit from some of its relatively better-performing markets, we cannot rule out the possibility of disposing some of weaker operations too,” according to a report by BNP Paribas. Further strengthening this speculation was the decision of Bharti Airtel to divest tower assets in Africa. In Q3 2015, Bharti Airtel completed the sale of mobile towers in five countries in Africa for $1.3 billion to cut its huge debt. It is in the process of selling tower assets in six other countries in Africa. At the end of the day, Bharti Airtel planned to divest 15,000 towers in 13 countries.
But in the bid to dilute the rumour of its exit in the face of the assets sale in the four countries, Airtel issued a statement saying: “Airtel is well positioned in the remaining 13 countries and there is significant upside available. We remain fully committed to our Africa operations and will continue to invest in its growth and to build a profitable business and accordingly have no plan to exit”. The company also insisted that the four countries represent a relatively small percentage of its overall Africa business.
However, numbers do not lie and the southward journey in the revenue statistics of Bharti Airtel ’s operations in Africa lent credence to the argument of the analysts on the reason for the possible exit from the continent’s market. Even with its 76 million subscribers, though lesser to the 100 million subscriber target for 2013, experts expressed concern at the quality of the subscribers in terms of revenue drive. For example, figures show that the average revenue per user (ARPU) stood at $4.4 for March 2015, against $5.5 at the end of March 2014, a decline of 20 per cent. The voice realization per minute stood at $2.41 for March 2015, against $3.23 in March 2014, a decline of 25 per cent. Though, data usage per customer grew 34 per cent and stood at 130MBs, (Airtel has over 30 million data users.), data ARPU declined 5 per cent and stood at $1.3 for the year ended March 2015.
In its global operations, India still remains its best in the pecking order. Little surprise Airtel also followed a low tariff strategy in Africa, similar to India. This did not translate to the level of success achieved in India with the same tariff strategy. This only showed that the market dynamics and fundamentals are not exactly the same with the different continents. Some have even faulted the closing deal with Zain saying that Bharti Airtel overpaid Zain. As a result, pundits are worried that it is now finding it difficult to sustain operations. Bharti Airtel paid Zain $252 per subscriber when the average minutes of use per subscriber in a month was just 100 compared to 350-400 in India.
While Bharti Airtel has continued to deny imminent exit of the African market, it is struggling to explain certain drastic action which in the intervening periods; post sale of the four MNOs and towers, led to the lay-offs in other markets. For instance, by Q4 of 2015, several Staff of its Nigeria operation were off-loaded. Similar action was taken at Airtel Kenya where 60 jobs were cancelled as part of a restructuring effort, which will see some departments merge. But it was still vehement in its claim to defend its turf in Africa. “We remain fully committed to Africa operations and will continue to invest in its growth and building a profitable business and have no plans to exit Africa”, it said in a statement. The company said it was exploring in-country acquisitions, like the ones it recently made in Uganda, Congo Brazzaville and Kenya.
The unanswered question, however, still remains: Is Bharti Airtel re-strategizing its operations in Africa in order to compete in a 4G turf with the forthcoming launch in December 2016 by Reliance Jio on home soil. Will the Reliance Jio launch be disruptive and is this why Bharti Airtel is selling assets in other markets to be battle ready for the 4G competition in India? But Mittal insists that portfolio restructuring is common to business developments, while justifying the offload of the assets in Francophone countries. “We are leaving the two countries because we think they may not really be profitable for use in the future. The markets are small and we feel they may not yield future prospects”, he stated.
Bharti Airtel operates in 20 countries across South Asia, Africa, and the Channel Islands. Its operations are across the following platforms in the various market jurisdictions: GSM, 3G and 4G LTE mobile services, fixed line broadband and voice services as well as Airtel Money. It is the largest mobile network operator in India and the third largest in the world with 325 million subscribers.