India firm Bharti Airtel goes big into African cellphone market

Bharti Airtel, an Indian company, paid $9 billion for access to an African cellphone market serving 45 million. The world's last unsaturated market holds a potentially huge payoff.

By , Staff writer

  • close
    Bharti Airtel, an Indian company, is buyiong access to the African cellphone market in order to serve some 45 million customers, including young professionals like those at this coffee shop in Kigali, Rwanda.
    View Caption

How much would you pay for a cellphone company in 15 countries, serving 45 million Africans? The answer, for Indian cellphone entrepreneur Sunil Mittal, is $9 billion.

Mr. Mittal's company, Bharti Airtel, recently announced a deal to buy up the African assets of Kuwaiti telecom firm Zain. The deal, which is expected to be finalized in March, would be the second-largest takeover in Indian history. Bharti would also assume $1.7 billion in debt.

More important, it showcases the enormous telecommunications investment opportunities in Africa, which won't remain the world's last unsaturated cellphone market for long. The deal also highlights investment differences between India and China as companies from both emerging giants scurry to tap markets and resources on the vast, underdeveloped continent.

Recommended: Recession in America? 10 questions assessing the threat.

"The very full price that Bharti is paying for Zain has taken me aback, but it signals how keen Bharti is to come into Africa," says Aly-Khan Satchu, a Nairobi-based stock market analyst and owner of Rich Management. "Bharti thinks it can make more money because of its experience in India, with the idea that they'll work it much harder than Zain did."

Can you hear me now?

Cellphone subscriptions in Africa rose from 54 million in 2003 to almost 350 million in 2008, the quickest growth in the world, according to United Nations figures. Millions of Africans are now doing everything from checking crop prices to banking to paying their electricity bills via cellphone.

Still, most of the African countries Bharti would be moving into have cellphone penetration rates well below India's nearly 45 percent.

Bharti has 119 million customers in India, making up 23 percent of the Indian market – but stiff competition and a punishing price war among several providers has brought down profit margins. This makes the Zain deal a chance to boost profits in a less competitive and high-growth market.

The payoff could be huge.

Regional cellphone operator MTN – soon to be Bharti's main competitor in Africa, if the deal goes through – forecasts an average cellphone penetration of 80 percent by 2012 in its 15 African markets.

The Bharti-Zain deal is just one of many recent large acquisitions and investments in Africa in the past few months, a sign that the economies of some African nations – and the appetites of industrial powers like India and China – are well on their way to recovery.

The tiger and the dragon

"The traditional partners, such as the Americans, Britain, Canada, and Australia, Italy and France, they are still leading when it comes to controlling most of the resources," says Claude Kabemba, director of the Southern African Resources Watch, a project of the Open Society Initiative of Southern Africa in Johannesburg. "But China captures everything that hasn't been captured."

"The Chinese are very strategic; they don't go everywhere. They go where traditional partners have retreated, and where they can dominate the market," says Mr. Kabemba.

Unlike China – which tends to invest mainly in Africa's resources in order to solidify its role as the world's factory – India's investments tend to be in communications, like the Bharti deal, or in infrastructure or commercial farming.

Also, Indian companies operating in Africa are usually private firms that take a purely mercantile approach, unlike China's massive state-owned or state-run companies, which often come in with political goals deeply entwined.

"There is a political strategy and idealism behind Chinese investment," says Kabemba. "They want their model of development to sensitize the Africans about a system that is totally different from the West, and they tell Africans, 'We succeeded because we remained outside the Western economic models.' "

Beyond boom and bust

In past booms, Africa's fortunes were largely dependent on whether foreign markets were going boom or bust. If China was growing, it was buying more copper. If China or the West went into recession, then African copper mines would be shuttered. But today, Africa's growing population and its growing concentration in urban centers are making Africa more attractive for investors, regardless of what happens in the outside world.

"The problem before is that Africa was very fragmented, with small towns spread out, and getting goods from Point A to B was very hard," says Mr. Satchu. But "now, young Africans are moving into urban centers in droves and companies are starting to look at the 1 billion Africans as potential customers. The switch has gone off."

Follow us on Facebook and Twitter.

The move shows how international companies will now pay top dollar to get a piece of the world's last untapped telecommunications market. It also highlights how developing giants India and China pursue different investment strategies on the continent.

Share this story:

We want to hear, did we miss an angle we should have covered? Should we come back to this topic? Or just give us a rating for this story. We want to hear from you.

Loading...

Loading...

Loading...