Balancing act

Merger talks between Bharti Airtel and MTN Group have put the spotlight back on developing markets, says Roger Field

Tags: Bharti AirtelIndiaMTN GroupMergers and acquisitionsUnited Arab Emirates
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By  Roger Field Published  August 5, 2009

The ongoing merger talks between Bharti Airtel and MTN Group, the biggest mobile operators in India and Africa respectively, have put the spotlight firmly back on developing markets.

The proposed deal, should it go ahead, would create an emerging markets behemoth, with a combined total of more than 200 million customers spanning Africa, Persia and Asia.

A tie-up would fulfill the desire of both players to gain a presence in each others’ markets, but without the risk of going it alone in unfamiliar territory.

For Bharti Airtel, Africa no doubt holds the same allure as India holds for many other foreign operators, with its extremely low mobile penetration rates and fast growing, young populations.

But the motivation behind the proposed deal extends far beyond a simple desire to create an entity that would become the world’s third largest wireless operator.

Indeed, in its home country, Bharti Airtel has made a fine art of generating huge profits from markets with chronically low ARPU, through a business model that focuses on growing voice minutes and maintaining a lean, low cost network, rather than being pre-occupied with ARPU levels.

It is a model that could pay huge dividends in Africa, if combined with MTN’s huge subscriber base and knowledge of the continent. Meanwhile, MTN, as part of a merged group, would also reap the rewards of Bharti’s continued expansion in India.

But while Bharti is eager to move beyond the Indian subcontinent, a number of Middle East operators are among a wave of foreign players planning their entry into India.

Etisalat and Batelco, two of the Middle East’s biggest incumbents, ramped up their plans to enter India last month. Batelco confirmed that its Indian mobile affiliate STel would start operations by the end of the year, while Etisalat entered a $2.2 billion network sharing agreement with India’s Reliance Communications, a move intended to accelerate the roll out of its joint venture in the country.

Both operators appear to be sticking to a relatively low-risk formula in India, by working closely with local partners that appear to have the skills and knowledge to make the operations a success.

However, both operators could still draw some important lessons from Bharti Airtel’s model, which has seen the company add about three million subscribers a month during the past couple of years, and transform notoriously low ARPU demographics into lucrative markets.

With some analysts predicting that the rampant growth experienced by India’s telecoms sector might begin to slow as more operators pile in, the ability to generate comfortable profits from large numbers of low ARPU customers will be critical.

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