Airtel ruins the party with Africa telecoms wars

Saturday February 18 2012

Bharti Airtel plans to go big in Rwanda by investing $100 million in the country over the next three years in a looming fresh round of rivalry in regional telecoms wars that could unsettle traditional giants.

The Indian owned telecommunication company was licensed last year by the Rwandan government and it will roll out its services this year. In the Rwandan market, Bharti will take on MTN, which is not only the country’s leading mobile phone services provider by market share, but also the strongest operator in sub-Saharan Africa in terms of scale, network reach and profitability.

Rwanda is just one of the markets on the continent where MTN and Bharti square off. These two companies, the top two players in Africa’s mobile phone services industry — accounting for 28 per cent and 13 per cent of the revenues respectively according to reported figures for the 2010 financial year — will go neck and neck in an attempt to dominate the fast growing telecom market in Africa.

Bharti, according to Morgan Stanley seems to be gaining ground on MTN, and that by 2015, Bharti will have 15 per cent of the industry revenues, a two percentage point rise of the 2010 figures, while MTN will drop to 24 per cent.

Cheaper calling rates within its network, mobile transfer services and cheaper roaming prices are Bharti’s arsenal to wage war on MTN and eat into its dominance in Rwanda and the rest of Africa. “We will work to bring the affordable and best in class mobile services that add value to the lives of people of Rwanda and contribute towards bridging the digital divide in the country,” said Sunil Mittal Bharti, managing director of Bharti Airtel, adding that the investment in Rwanda will mostly go towards deploying 2G and 3G networks allowing for faster data connectivity.

MTN, which controls 67 per cent of the Rwandan market with Tigo — the other operator controlling the remaining 33 per cent — admits its work is cut out.


“We have to ensure that our services are not only affordable but also of high quality. We are used to competition, Rwandatel and Tigo came in and we are competing with Airtel in a lot of our other operations around Africa as well. Our stand is that competition is healthy,” said Yvonne Manzi Makolo, MTN’s chief marketing officer.

Last November, MTN Rwanda announced that it had reduced its calling rates, a sign that it was preparing for the entry of Bharti, which is known for giving huge discounts on calls within its network compared with the dominant player. Bharti offers large discounts in calls within its network in Ghana, Nigeria, DR Congo and Kenya, compared with market leaders in these countries, which has made it gain customers.

In the next four years, Africa will have the largest growth globally with analysts from Morgan Stanley forecasting industry revenues growing at 10 per to $43 billion in 2015 driven by improved network capacity and lower tariffs.

“In Africa, we have crossed the 50 million customer milestone and are now one of the fastest growing telecom companies in the continent,” said Mr Bharti, in a statement.

Bharti’s revenues in the three months to December 2011 in Africa rose 16 per cent to $1.06 billion as margins grew to 26.8 per cent from 19.1 per cent a year earlier. But its revenues in India, and Asia fell on increased competition and static customer numbers. However, the good news for Bharti is that it is slowly gaining on MTN.

The Indian-owned telecom gained two percentage points in terms of revenues to account for 15 per cent of the revenues on the continent in the industry by 2015.

MTN is expected to cede four percentage points, accounting for 24 per cent of the revenues in 2015, according to estimates from Morgan Stanley.

Bharti will benefit most gaining two percentage points, with its revenues accounting for 15 per cent of the continents’ entire revenue. Other players such as Tigo and Etisalat will also gain ground.

Bharti has a wider presence in Africa cutting across 21 countries whereas 43 per cent of subscribers in sub-Saharan Africa are in countries where MTN is not active according to the Morgan Stanley report.

Analysts said the established foot print gave Airtel a competitive advantage compared with MTN which is building on its own brand.
However if South Africa’s MTN was to take on Bharti strategically, the anticipated fall in revenues would turn into a success.

“If MTN bought out another strong player on the continent, it would help them grow faster, rather than banking on own investments in every country,” said Eric Musau, an analyst with Standard Investment Bank.

However, Bharti still has to deal with a negative public perception of unstable ownership going by its history. The company started off as Celtel, but has changed hands several times. First Celtel sold to Zain, which was acquired by Airtel before being bought out by the Indian-owned Bharti Airtel last year.

Analysts also warn that if Bharti maintains its strategy of low tariff rates in the African market, it might only gain in customer numbers but its revenues might be impacted on negatively in the long run, especially in markets where other competitors have a competitive advantage.

In Kenya for example, local competitors Safaricom, Essar and Orange Telecom have taken Bharti on in tariff wars forcing the company to maintain low tariffs believed to be eating into its margins.

“We think the Kenya unit is losing money on interconnection costs due to its low tariffs and struggling in raising its share of non-voice revenue,” said analysts at Standard Investment Bank.

Non-voice revenues will be a factor in the coming years as they are seen to shield telecommunications operators from falling voice revenues.

In Rwanda, MTN by the end of last year had registered 424,326 subscribers to its mobile money transfer services, representing only about 9 per cent of the total mobile subscriber base meaning there is an untapped market for the players including entrant Bharti. Bharti has mobile money services in Kenya, Uganda and Tanzania.

In East Africa alone, Bharti will by end of this year enjoy presence in four countries as MTN remained licensed in two countries — Uganda and Rwanda — and an MTN business in Kenya.

MTN will have to defend its dominance in Rwanda as its market share from June to September 2011 decreased by six per cent in favour of Tigo according to Rwanda Utilities Regulatory Agency.

Tigo enjoys a 33 per cent share having gained the six per cent from MTN.

In Uganda, MTN holds the majority subscriber market share at 44 per cent with Bharti at 11 per cent. In Tanzania, Vodacom enjoys the majority 43 per cent share of subscribers followed by Bharti at 31 per cent while Millicom and Etisalat enjoy a 22 per cent and four per cent respectively.

In a market where many operators including Airtel depend on voice, analysts said MTN would offer high quality affordable products that competitors cannot easily have a competitive advantage in.

“They might have a better chance in Kenyan market especially in high data products,” explained Mr Musau.