airtel in africa key factors & swot analysis 2012

2012Airtel in Africa:Key factors & SWOT analysis

Blycroft Ltd – Airtel in Africa: Key factors & SWOT analysis 2012 2

©2012, Blycroft Ltd.

Blycroft Limited

Published 11th. April 2012. Copyright 2012

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Table of Contents

1. Mobile wars in Africa: is Airtel winning? 42: Airtel Confidence Survey 73. Airtel SWOT Analysis 114. Survey demographics 135. About this research service: 146. The MNO Directory 17

About the Author:

This briefing was authored by Roy Johnson, a writer specialising in IT andbusiness topics, who has regularly contributed to PC Magazine, as well asediting TechNet Magazine for Microsoft. Roy was formerly editor ofCommsAfrica and contributing editor for Intelligence magazine. The individualarticles appeared originally in the weekly issues of ‘Africa & Middle EastTelecom-Week’ - see www.africantelecomsnews.com for more details.



Mobile wars in Africa: is Airtel winning?

Competition in African markets is fierce. It really is a war zone. And, as withany conflict, the outcome hinges on decisions regarding strategy – and theavailable weaponry.

Bharti Airtel has a history of making first moves and emerging as the winnerjust because of that. This is what built the company’s success in India, whereit remains the top MNO and second-largest fixed-line operator.

In fact, thanks to the massive market it serves at home, at the time it acquiredthe Zain portfolio in March 2010 Airtel was reckoned to be the fifth largestmobile operator in the world on a proportional subscriber basis, putting itbehind the likes of China Mobile, Vodafone Group, American Movil andTelefonica, but ahead of China Unicom.

As has been widely covered for over a year now, Airtel has been looking atAfrica as a new growth market. While it has a deal with Vodafone for theChannel Islands, Africa is the only other territory outside the Indiansubcontinent (including Bangladesh and Sri Lanka) that the company hasentered.

The commonalities are compelling: similar markets, needs and infrastructure.The realities on the ground are somewhat more challenging: logistics,legislative compliance and serious local competition being foremost.

The logistics of infrastructure in Africa are an equal challenge for all MNOs.That is a given. Where Airtel might have been overly optimistic is in hoping itsAfrica model would run similarly to its success in India, based on a first-to-market approach and having some leverage to overcome legislativeobstacles.

Unfortunately, while Airtel has a 30-year history of being first in India (withpushbutton phones, cordless phones and then mobile), they were not first inAfrica. There were major EU, Middle East and South African players thereahead of them.

In fact, Airtel’s African expansion is largely thanks to its take-over of Kuwait’sZain mobile operations in 15 countries. This was a beachhead, not aconquest. Zain only held dominant market share in a few countries.

Going up against market leaders such as MTN of South Africa, Airtel applieda strategy of extensive cost cutting. This followed on what it achieved in India,cutting a deal with Ericsson for per-minute fees (rather than upfront payment)that enabled very low-cost call rates from the outset.

Airtel has an all-Africa, five-year deal in place with Ericsson for networkmanagement that offers similar advantages. Elsewhere, Airtel is engaged withNokia Siemens Networks and Huawei, not keeping all its eggs in one basket,of course.

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As a Plan B, possibly following on the indecisive outcome of Airtel’s low-costinvasion, the company has previously been negotiating a take-over of or(maybe) a joint venture with MTN itself. How this putative deal is describeddepends on which company is talking. This has been going on for some fouryears without a definitive ending. Even if it never happens, it is a signpost ofjust what Airtel would consider to get its Africa operations truly established.

But let’s look at realities.

Taking Nigeria as a bellwether example, Airtel’s charges are low, around 20kobo (about GBP 0.08) per minute, but three times that for the first minute.That is up against MTN charges of 50 kobo, although MTN offers a cheaperpeak rate (15 kobo) and more expensive off-peak rate.

As always, comparisons are tricky, given the different pricing regimes on offer.

Also difficult is working out which company is really winning. Airtel claimseither number-one or number-two positions in many of its Africa operations(11 out of 17 countries). Tellingly, no claims are made for Nigeria. Airtel is notjust being coy.

There is an ongoing dispute over branding in that country and the latestdevelopment is that Airtel has been court ordered to rebrand as Econet(EWN). Airtel will appeal that ruling, while complying in the interim. Thisdispute goes back as far as 2003 and is not yet over. It is, however, a goodexample of the challenges Airtel faces in African settings and, while itcontinues, the real winner is MTN, holding on to its own leading position inNigeria as well as its brand.

To come back to what we said at the start of this article, winning wars is notjust a matter of having the best weaponry, although that helps. Without astrategy, chaotic retreat is the order of the day.

Airtel’s strategy bears comparison with the different approaches of twoEuropean operators who have been busy in Africa, Vodafone and Orange.Vodafone’s approach has been targeted, achieving a small number of high-value operations. Orange went large, seizing opportunities wherever theyappeared. The final result is that Vodafone has good revenue and lowercosts, whereas Orange has higher costs and less revenue.

What Airtel needs to prove is that its broad approach with low fee rates canwin against competitors who have a head start and better targeting. Currentusage, market share and consumer approval figures – where independentlyavailable – do not support a claim that Airtel is winning, despite the impressivegrowth that was claimed after the launch in 2010.

This is, to a large extent, an inevitable result of the original acquisition byAirtel of Zain’s operations. Among the 15 countries involved, not every onewas clearly a winning proposition.



Nevertheless, do not underestimate Bharti Airtel. The company has deepresources, including enough to offer anything between USD 13 and USD 45billion (as reported) to buy out its main competitor, MTN. It is also licensed toroll out 3G in 12 countries, clearly focused on the expected maturity of Africanmarkets finally proceeding to data services instead of the fundamental voiceand text services that fuelled the original mobile boom on the continent.

On a side issue that might well have bottom-line impact in the medium term,Airtel is pushing ahead with its Green Towers programme to upgrade 22,000of its sites in India to solar power over three years. The company won theMWC Green Mobile Award for that in 2011. Apart from the marketing boost,there are practical and financial advantages to such technology, especially inAfrica. Other MNOs are also exploring this option but Airtel is not justexperimenting. It has about 6,000 towers already running solar.

While Nigeria is obviously the jewel in the crown, Airtel will continue to be aninfluence in other countries, driving down rates and forcing technologyupgrades.

This has advantages for consumers but is a problem for operators as growthin Africa’s markets has currently reached a plateau. Big as Africa is, theremight not be enough room for all the players who are there at present.

This article has been contributed by Roy Johnson, a writer specialising in ITand business topics, who has regularly contributed to PC Magazine, as wellas editing TechNet Magazine for Microsoft. Roy was formerly editor ofCommsAfrica and contributing editor for Intelligence magazine.



Airtel Confidence Survey

100 visitors to the www.AfricanTelecomsNews.com Website were surveyed inthe second week of April 2012 about their perceptions of Bharti Airtel in Africa.

Airtel is going for broke, and needs to establish itself as a dominant brand inAfrica in a relative short time frame. Respondents were asked how realisticAirtel’s aspirations are, and whether it might yet fail to achieve dominance.

By far the biggest group – 45 percent – thought that Airtel was capable ofachieving a dominant position in a five year timeframe; 21 percent thought itmight take a little longer and not be achieved before 2022; whilst 10 percentthought it would take till 2022. Crucially 76

Only 17 percent thought it would fail to achieve a dominant position and wouldbe relegated to second division status, whilst 4 percent thought it would findthe going too tough and actual withdraw from Africa.

Airtel’s early strategy focused on its highly successful ‘minute factory’ model ishad so successfully developed in India. It arrived in India in the first quarter2010 and immediately started cutting rates in a number of major markets.Whilst this certain shook-up the competition, it did not necessarily delivergreater market share for Airtel.

Indeed, at the GSM World Conference in Barcelona in 2012 Airtel had toadmit that its initial understanding of what the African mobile consumerwanted might have been misplaced. It claimed that the African market had notresponded as expected to the slashing of call rates. The Airtel model,developed in India, assumed that as rates were cut, usage would increase, sothat subscribers would spend the same but make longer, or more, calls.

However Airtel discovered that the volume of calls remained at previous levelsafter the rate cuts were made; consumers preferring to spend the savings onessentials, such as food. Bharti termed the outcome as an ‘unexpected andsurprising’ response. An elastic market - where demand for services rises asprices fall - was critical to supporting Bharti's low-cost model.



Chairman and Managing Director Sunil Mittal, was quoted as saying: "UnlikeIndia, we were surprised that in Africa, lower tariffs could not increasevolumes. In Africa, subscribers use the money saved on lower-calling rates tobuy food and not to talk more. This means that we have to think of a newmodels that work here”.

When asked what Airtel should now focus on to raise its game in Africa, 27percent said that rural coverage should be its priority. This is in line with itsoriginal proposition when it entered the market, promising roll-out intopreviously uncovered areas. And despite this obvious set-back with its ratecutting strategy, 25 percent of respondents thought that Airtel should continuewith its program as an integral part of its strategic market plan.

However 15 percent thought it should focus on Mobile Money, and 13 percenton rolling out mobile Internet in the form of enhanced 3G and LTE.

It is clearly critical that Airtel establishes itself in the market, as there remainsthe threat of further market consolidation and acquisition, and crucially thepossibility that an outside party will still seek to sweep into the market. Theclassic stalking horse – which given the dominance of vendors Huawei andZTE in the market is hardly surprising - is seen as China.



Africa is a major market, and Airtel needs a result to off-set slowing revenuesin its domestic market. Respondents thought that India would still be Airtel’sprime market, with 36 percent saying it will remain its most important market.The African Anglophone markets were seen as the most significant Africanmarket for Airtel, and the importance of Nigeria must not be under-estimated.

Indeed Nigeria posses some interesting problems for Airtel. It – along withMTN and Glo – is receiving a fair bit of stick from the local regulator overQuality of Service, whereas UAE-backed Etisalat is not only showing stronggrowth but has also been publicly lauded by the regulator for its focus oncustomer service.

But also Airtel has a more intractable problem in that Econet has recently wona legal battle over the way it was lost its share holding, with the court findingthat all subsequent transactions are null and void. Airtel is currently mountingan appeal.

For Airtel to achieve dominance it needs to foster strong brand values –something Africans generally like.

The survey found 14 percent of respondents rating the Airtel brand ‘verystrong’, whilst 28 percent rated it as ‘strong’. Reassuringly for Airtel, only 13percent rated it as weak or very weak. But a note of concern is that 45 percentwere ‘neutral’.

Not surprisingly, the rating of the brand was much stronger amongst activeusers of the Airtel network.



MTN is the dominant mobile operator in Africa, and this was reflected in thesurvey results, with MTN being the most noted MNO amongst thoserespondents with a an active African mobile account (35 percent). Airtel wassecond with 27 percent of respondents, and Vodacom/fone third with 14percent.



Airtel SWOT Analysis

Respondents were asked to assess the strengths and weaknesses of Airtel inAfrica.

Strengths in Africa…

Dominant market player Has established its capabilities and presence in Africa Rapid expansion Access to raw talent from India Reputation as an Innovator Has become a household name in a short time Vast experience, having successfully managed emerging markets Have an existing, established network infrastructure.

Weaknesses in Africa...

Introducing a non-native culture into a multifaceted market Problem of comparing Africa to India (Africa is 54 countries but India is 1

country) Problems of maintaining the Indian business model in Africa Rate cutting strategy is eroding revenue through cheap tariff and weak

(inherited) network Airtel is likely to transformational in the markets it operates, shaking up

sleepy markets with high prices. It can build on current market shares butis likely to struggle to challenge dominant operators in each individualmarket.

Airtel has to fend off other players who have low rate policies and quicklyprovide coverage in rural area where there is potential growth such asDRC and south Sudan.

Will need to rethink price-cut/rate war policy Inherited network infrastructure needs to be developed and maintained,

with allowance for relevant growth to accommodate traffic if it is to becomea much larger force on the continent.

Many changes in branding – Celtel, Zain and now Airtel. Successfuloperators benefit from brand consistency. Perception of ‘fancy’ marketingcampaigns rather than substantive network improvements..

Opportunities in Africa…

Need to develop a unique strategy for Africa and move away fromimplementing lessons from India.

Provided content, low-cost apps and mobile services tailored to the market Needs to focus on continued brand promotion and development Enhance network to provide improved coverage Mobile Money and Payments, and develop Banking partnerships,

potentially with a re-launch. 3G/LTE



Establish better QoS - especially in 3G - as well as strengthen its positionin m-money

Find ways to localise Airtel products services and content offerings. Whata customer in Nigeria wants is not always what's important to a customerin Kenya.

Airtel have made reasonable strides to establish itself on the continent butthey need to develop and implement a coherent payments strategy to step upfrom low cost utility provider to real player.

Threats in Africa…

The Nigerian problem… Airtel’s largest market with QoS issues; legalchallenge from Econet; and state of inherited infrastructure.

Brand reputation is important in Africa. Telephone numbers are passed onfrom father to son and long term loyalty is important - has to be earnedover time.



Survey demographics:

The demographics of the respondents can be summarised as follows:



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airtel in africa key factors & swot analysis 2012

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