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Bharti’s purchase of Zain Africa a done deal

Sprint shareholders have voted to approve a takeover bid from Softbank

With a deal between two emerging markets giants thought to be in the closing stages, the acquisition of Zain’s sub Saharan African assets represents a landmark deal for both Bharti Airtel and Zain, and for the African region itself.

Indian operator Bharti, which closed financing for the deal to the tune of $8.3bn earlier this week, will be transformed into a major global operating group becoming the world’s fifth largest operator by customer footprint.

But while Africa provides tremendous growth opportunity, entering 13 countries with very different market dynamics in one go will create a number of challenges, warns Nick Jotischky, principal analyst at Informa Telecoms & Media.

“Whilst it will, no doubt, be confident of controlling its costs, Airtel will aim to build up its brand equity characterised by reliability very quickly,” said Jotischky. “But reliability alone will not be enough – the newcomer will have to show itself to be innovative as well. In an already competitive marketplace, Bharti will not just be competing with other mobile operators for a share of wallet but with other brands in adjacent consumer goods sectors. This means that Bharti will be under pressure to offer services that are directly relevant to end-users and this will differ from market to market.”

For Zain, the deal represents a retrenchment of the company’s strategy as well as good value. The company may have succeeded in transforming its brand and building up an impressive customer base across sub-Saharan Africa, but it has struggled to operate profitability. “Perhaps it turned to the managed services model too late in the day and failed to leverage its supplier relationships so as to build in sufficient economies of scale – this is where Airtel will focus its efforts,” said Jotischky, adding that Zain may still look to enter new markets, but within North Africa and Middle East, which it sees as more lucrative in the longer term.

The move also has repercussions for the African region, with the likes of MTN, Orange, Vodafone and Millicom joined by a new and rather different pan-regional operator. Bharti has a heritage in making network sharing and outsourcing deals work and will not be afraid of being aggressive on per minute pricing. The company is also well versed in addressing the difficulties of serving a largely rural, high-churn, low-revenue market.

“It is quite likely that Bharti will take advantage of market consolidation by divesting some of its legacy assets and potentially looking to add new markets to its African portfolio,” said Jotischky. “One thing is sure – we can expect to see a transformation in Africa’s competitive and operational landscape as a result of this deal.”

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4 comments

  1. ikem charles apache 25/03/2010 @ 11:18 am

    Bharti is welcomed to Africa, its timely and will beef up competition, innovation and expansion on the operational areas.For zain,it is well articulated. thanks

  2. Underground Hypnosis 26/03/2010 @ 10:39 am

    Bharti will be under pressure to offer services that are directly relevant to end-users and this will differ from market to market!!

  3. Hitesh 27/03/2010 @ 8:20 am

    I do not think bharti will be under pressure to offer services directly relevant to end user.

    Note : Bharati Airtel can frame pod catching plan were by they can use MPLS network to give not only mobile but also internet to rural were African Government has huge reserves wiating to cater the UNREACHED REGIONS BOTH Mobile & Internet

  4. ikem charles apache 30/03/2010 @ 5:18 pm

    Don’t think Bharti will be under pressure to offer services relevant to end-user on standby.This is company so versed and armed with innovation and high-tech as we know it from India.
    They will prove their mettle in Africa and believe they’ll win.

    Ikem charles apache
    CEO,HOUSE OF LOGIC

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