Bharti Airtel, India's largest mobile phone service provider, is in exclusive discussions to buy the African operations of Kuwait's Mobile Telecommunications Co. (known as Zain), in a deal with an enterprise value of $10.7 billion, the Indian company said in a filing to the Bombay Stock Exchange.
Zain said it has received an offer for its mobile telecommunications operations in Africa, excluding Morocco and Sudan, without naming the bidder nor providing further details.
Bharti Airtel said the two companies have agreed to enter exclusive discussions until March 25 over the deal for Zain Africa BV.
The move to acquire the African operations of Zain follows Bharti Airtel's unsuccessful bid last year to arrive at a deal with the MTN Group of South Africa. That plan did not meet with the approval of the South African government which wanted to maintain MTN's separate identity.
Bharti Airtel announced in January a plan to acquire a 70 percent stake in Warid Telecom International, the fourth largest mobile services operator in Bangladesh, for US$300 million. The company also launched operations in Sri Lanka last year, where it claims over 1 million customers.
The expansion into Africa where less than 50 percent of the people have mobile phones presents a good growth opportunity for Bharti Airtel, said Kamlesh Bhatia, a principal research analyst at Gartner.
By expanding its business outside the country, Bharti Airtel will now have the economies of scale to get more cost-efficient, he added.
As the Indian market is very similar to those in Africa, Bangladesh, and Sri Lanka, Bharti can quickly adopt in these markets the business models it has developed in India, Bhatia said. Large multinational companies, in contrast, take time to adapt in emerging markets the business models that they have evolved in more mature, developed markets, he added.
Bharti Airtel was not immediately available for comment.
Its move to expand outside India comes at a time when the Indian market for mobile services is facing fierce competition, and tariff wars have pushed voice rates to below Indian rupees 0.01 Indian rupees ($0.0002) per second. Voice calls were earlier typically charged by the minute.
A number of large service providers, including Bharti Airtel, cut rates ahead of the entry into the Indian market of the local joint ventures of Sistema, Telenor, and Etisalat. Sistema's and Telenor's ventures in India have already started rolling out services in the country.
Bharti Airtel is also expanding into the rural market as urban markets become saturated. Rural markets are low margin, however, Bhatia said.
The company reported flat growth in revenue and profits for the quarter ended Dec. 31, even as its mobile customer base increased 40 percent from a year earlier. Bharti Airtel's average revenue per user (ARPU) dropped by 29 percent in the quarter, compared to a year earlier, while average minutes per user fell 12 percent.
The African market is likely to have the same characteristics as the Indian market, and tariffs and margins will also be under pressure over time, Bhatia said.
The challenge for Bharti is to evolve a low-cost model that it can deploy across India and the new markets it plans to address, Bhatia said
The Kuwaiti mobile service provider, known by the name Zain, operates in a number of countries in Africa, including Burkina Faso, Chad, the Republic of the Congo, the Democratic Republic of the Congo, Gabon, Ghana, Kenya, Malawi, Madagascar, Niger, Nigeria, Sierra Leone, Sudan, Tanzania, Uganda and Zambia. The company reported total mobile subscribers stood at 71.8 million at the end of September, 2009, but that figure includes its assets in the Middle East, such as Saudi Arabia, Jordan and Iraq.
Bharti Airtel ended 2009 with 125.3 million subscribers and 2008 – 2009 revenue of roughly US$7.8 billion, according to its Web site.