Bharti Airtel in Africa Essay

The jury is still go forth on Africa. The cost of operations is still advanceder than expected, elasticity of demand could fail to kick in, and disputation could intensify. save the calling metrics are showing early signs of a turna beat. My gut feel is that we can make this work. Sunil Mittal, Chairman, Bharti AirtelIn February 2012, Sunil Mittal walked past the lighten up hoardings for Airtels erratic services plastered across the walls of Nairobi airport, and wondered if Bharti would be able to overtake MTN in Africa by replicating the high-volume, number 1-cost telecommunication business model that it had pioneered for the Indian deales.Founded in India in 1995, Bharti Airtel (Bharti) had rewritten the rules of the global telecommunication assiduity. The cellular performer had defied conventional Western telecom wisdom that emphasized high tariffs for wealthy clients, and had instead chosen to concentrate on Indias mass market, including the rural poor. In aim to foc us on acquiring customers, the union had made the bold decision to outsource large portions of its operations. By February 2012, Bharti had been Indias market leader for some time, with 183 million customers, and had pioneered a highvolume, low-cost telecom model with tariffs of less(prenominal) than one cent per minute, which had previously been considered unviable.By two hundred9, gain in India had begun to taper off, and Mittal began to look for novel opportunities. Africa seemed to present just the decent option. Its vast population of over a billion people with low per capita incomes mirrored Indias demographics. Africas real mobile penetration was 30% and growing rapidly, and high mobile tariffs in Africa, combined with low periodic minutes of use per customer, indicated that there was room to grow the market non just by increasing mobile penetration, but also by intensifying usage.1 In June 2010, Bharti profitd the 15 African operations of Bahrain-based Zain Telec om, for $10.7 billion the largest M&A deal in the global telecom effort for that year, and the largest ever cross-border deal in an emerging market.When they reached Africa, Bhartis leaders observe that employee morale at Zain was low, work cultures between the two continents differed vastly, and market donation tax revenues and EBITDA were falling every month. Infrastructure was poor, hardware and software equipment was obsolete, access to equipment supplies was limited, masterful technicians were in short supply, and the cost of doing business was turning out to be much higher than Mittal and his squad had anticipated. Bhartis initial experiments with leveling tariffs and removing Zains 20% to 30% premiums in its ________________________________________________________________________________________________________________ Professor Krishna Palepu and enquiry Associate Tanya Bijlani from the India Research Center prepared this case. HBS cases are developed solely as the introduction for class discussion. Cases are non intended to serve as endorsements, sources of immemorial data, or illustrations of effective or ineffective management.Copyright 2012 President and Fellows of Harvard College. To order copies or request permission to reproduce materials, call 1-800-545-7685, write Harvard course School Publishing, Boston, MA 02163, or go to www.hbsp.harvard.edu/educators. This publication may not be digitized, photocopied, or new(prenominal)wise reproduced, posted, or transmitted, without the permission of Harvard Business School.This enter is authorized for use only in International Business by Prof. R. Sugant at SDM Institute for Management and Development (SDMIMD) from September 2014 to November 2014.Francophone and Anglophone regions had not development demand to the extent that they had expected and it was unclear whether lowering prices would drive mobile usage in the hinterland of the continent.Despite the challenges, Bharti initiated multiple transformations in Africa, including outsourcing lively and passive managed services (networks) for all of its 16 countries outsourcing its IT and call centre take for to BPO1 firms for the first time in Africa revamping its distribution network integrating its brand, and implementing a host of human resource-related initiatives to inculcate the companys DNA in its new operations. Bhartis executives felt that these measures had comprehensively changed the structure of the telecom industry in Africa. Africa was turning out to be far more obscure than Mittal and his team had imagined.By February 2012, it had been over a year and a half since the acquisition, and Bharti was leading in revenue market share in 9 of 16 countries, including Zambia as well as some smaller markets comparable Malawi and Gabon. In Africas other larger markets, such as Nigeria, gold coast and Uganda, MTN, its chief competitor, continued to lead. (Exhibit 1 Bhartis Position in Africa). In Nigeria, Africas largest market, MTN was modify the quality of its network, emphasizing advanced data offerings, curl out mobile payments solutions, conceptualizing applications such as mobile healthcare, and holding onto its uncontroversial position as the market leader.If Bharti continued with its India plan in Africa, investiture in rural networks and slashing tariffs, and demand failed to pick up, the company risked losing money. With a $12.9 billion amateurish loan (largely on account of an approximately $9-billion unpaid loan from the Zain acquisition) still lingering on Bhartis balance sheet, Mittal wondered if that was something they could afford. The other option was to wait and watch, leave prices at market levels, and focus on urban and suburban areas, until it was clear that the money had trickled into the villages. As Mittal got into his car and covey towards Bhartis Nairobi headquarters, he wondered what their strategy in Africa should be.Bharti in IndiaThe advance(preno minal) DaysMittal started manufacturing bicycle parts at the age of 18, with approximately $200 borrowed from his father, a Member of Parliament from the north Indian state of Punjab. He subsequently imported portable generators, and assembled push-button telephones in India. In 1992, soon by and by the Indian telecommunications market liberalized, Mittal secured a partnership with three other companies, including Compagnie Generale stilbestrol Eaux, the precursor to Vivendi of France, to make a joint bid for the first round of cellular licensing in India. Mittal took a three-month sabbatical to prepare for the bid, and spent $220,000 on the presentation, which included aerial photography and satellite imagery2.The Government of India gave the consortium a license to build a cellular phone network in Indias capital, New Delhi, and Mittals newly-incorporated Bharti Cellular became the first company to dunk mobile telephony services in New Delhi, in 1995, on a lower floor the bra nd name of Airtel. The company sold equity interest to British Telecom and Warburg Pincus in order to raise the funds it needed to acquire licenses to operate in new geographies, and by 2003, Bharti had acquired mobile licenses for 15 out of Indias 23 circles. By 2004, Bharti was a pan-India operator with running operations in all circles.Like many Indian enterprises, Bharti contained elements of a family business.Bharti was Mittals middle name. Mittal was Chairman and Group Managing Director of the company, while his brother, Rajan Mittal, was Joint Managing Director, and a third brother, Rakesh Mittal, was on the board of directors. Akhil Gupta, a chartered accountant and a friend of the family was Chief Financial Officer, and later became Deputy Group chief operate officer and Managing Director of Bharti Enterprises.The Minute Factory ModelIn the early days, telecom was an industry where the complexity was daunting, Gupta said. We were committed to making it a very simple indus try. So we equated ourselves with manufacturing. The only difference was that another factory could be manufacturing wrong(p) and bolts, while we manufactured minutes.Bharti learnt the business of telecom from their early European partners, British Telecom and Telecom Italia. Conventional wisdom then was that mobile telephony was meant for upper class customers who could pay premium prices. Operators preferred to keep tariffs high, thereby protecting Average Revenue per User (ARPU), considered one of the most master(prenominal) metrics in the business. High tariffs, they felt, discouraged users from talking too much, which in turn, minimized the need for network infrastructure, thereby reducing capital expenditure, and improving return on investment.But Mittal and his team felt that at an ARPU of Rs. gigabyte (approximately $222) then considered a minimum requirement for a telecom operator to be profitable their customer base would be restricted to a small segment of wealthy cu stomers in major cities and a fewer large towns, and decided to turn the model on its head.Gupta explainedThe goal of a manufacturing organization is to maximize the number of units produced while maintaining margin per unit. Similarly, we decided that we would billow production of our principal output, minutes, keeping margins per minute more or less constant. As we scaled up, we would pass any cost savings we achieved onto the customer by lowering tariffs, which would increase demand further, and would allow us to go deeper into the market and reach lower-income customers. This would result in a rapid increase in minutes and consequently, overall margin.Mittal and Gupta believed that how they utilized existing capacity, and how much revenue they collectively earned from that capacity, mattered most. The focus, therefore, was on growing total revenues, reducing operating expenses as a percent of revenues (opex productivity), and increasing revenues as a percent of cumulative capital expenditures (capex productivity). (Exhibit 2 Bhartis Key Performance Metrics)Outsourcing trading operationsA telecom company, it was originally thought, would have to be an infrastructure company, a network company, an IT company, and a customer service company rolled into one. But in early 2004, given that Bharti was growing rapidly, expanding into new territories, and entering new businesses like fixed line services and long distance operations, Mittal and his team were forced to question what constituted their core activity. Again, we broke away from conventional telecom wisdom, Gupta said. We had no choice at our back end, we were collapsing.