It’s August 2008 and everything appears to be going swimmingly at Zain. The Kuwaiti-based group has just completed the rebranding of the 15 African mobile networks it acquired from Celtel three years earlier and has unveiled a new initiative called ‘One Network’; an attempt to create a single ‘cross-border network’ that would unite its mobile empire across the Middle East and Africa. It would launch in another African market – Ghana – later that year and go on to make an equity investment in a Moroccan operator (Wana) in early 2009. In short, Zain seemed well on its way to achieving its much hyped goal of becoming one of the world’s top ten mobile operator groups by 2011 – and a regional powerhouse in Africa.
Less than a year later and everything had begun to unravel. Zain’s African business sunk to a net loss in 1Q09 as the group struggled to turn many of its fast-growing networks in the region into profitable businesses. In the new economic climate, it was profitability – not scale – that mattered, and Zain was forced to look for an exit.
As Zain’s African adventure was turning sour, India’s Bharti was locked in merger talks with MTN, the second time in as many years that Bharti had attempted a tie-up with the Johannesburg-based pan-African mobile market leader. As they did a year earlier, these talks would fail, eventually paving the way for Bharti to make its landmark US$10.7 billion deal to buy Zain’s Africa networks, which was agreed in principal late last month.
While MTN and Zain operate in many of the same African markets, Zain Africa is a significantly less attractive proposition for investors and – it could be argued – a ‘second-best’ option for Bharti. While MTN would have provided Bharti with a pan-African mobile business in rude health, many of the Zain African networks require urgent attention. Nowhere is this gulf in fortunes more evident than in Nigeria, Africa’s most populous mobile market and the most important for both players. According to the latest Wireless Intelligence figures, market-leader MTN Nigeria added more new customers in the first quarter of 2010 than the other eight operators in the country combined. Meanwhile, Zain languishes in third place and is currently embroiled in a row with minority shareholders over the sale of the network to Bharti. In neighbouring Ghana – a market where Zain has reported declining net additions for three consecutive quarters – MTN added almost seven times as many customers as Zain in the first quarter. Indeed, it is an ominous sign that the only Zain subsidiary in Africa that can unquestionably be said to be doing well – Zain Sudan – is being retained by the Kuwaiti firm.
That’s the bad news. The good news is that if any operator has the necessary skills and experience to revive Zain’s ailing African operations then it’s Bharti – a firm that has somehow managed to maintain its leadership and profitability in its home market of India despite unprecedented levels of competition, severe price erosion and ever-tightening profit margins.
The executive charged with replicating this trick in Africa will be former CEO Manoj Kohli who took up his new position as Bharti’s head of international operations in January, a new role that underlines Bharti’s increasingly global focus. A familiar figure on the speaker circuit, Kohli makes no secret of how Bharti has managed to excel in its cut-throat home market. At the GSMA Mobile Asia Congress in Hong Kong last year he outlined the importance of outsourcing, noting that Bharti has offloaded its network management, IT systems, call centres and retail distribution networks to third parties in order to remain competitive. Anything not deemed customer-facing could be outsourced, Kohli declared. Then there is Bharti’s famous ‘minute factory’ model aimed at making its network run at optimum efficiency and able to support rapidly rising levels of voice traffic, a key factor in a market that is currently adding almost 20 million new subscribers a month.
Africa has not yet arrived at the extreme situation seen in India. ARPU and the effective price per minute are generally higher (though still low by international standards) and minutes of use are a lot less. Bharti estimates that penetration is around 32 percent across its 15 new African markets, which cover a total population of around 450 million. This presents Bharti with an opportunity to disrupt its new markets by using the low-cost network business model it has pioneered in India to build share as the markets grow. There are plenty of risks that remain, most notably the need to work within 15 very different – and often volatile – national regulatory regimes, but Bharti is much better prepared than Zain ever was to make a success of it.
The editorial views expressed in this article are solely those of the author(s) and will not necessarily reflect the views of the GSMA, its Members or Associate Members
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