Last week, Orange announced it was buying Bharti Airtel operations in Burkina Faso and Sierra Leone. The sale of the two operations followed months of negotiations where France Telekom Orange is seeking to increase its footprint in the African market to 20 countries, with Francophone nations as the main targets. (Orange is offloading its 70% stake in Telekom Kenya to Helios Investment Partners). Airtel is set to receive $900 Million from the sale according to S&P
Bharti Airtel entered the African market in 2010 with the $9 billion purchase of Zain operations in 15 countries. Airtel had previously sought to enter the market three times via a merger with MTN Group. Airtel sought to replicate its successful model in India, Sri Lanka and Bangladesh which focused on grabbing subscriber market share then penetrating the market.This model failed to kick-off. Airtel has not been able to get a return on its investment in the African market, with the market often driving the overall performance of Bharti Airtel down.
In 2015, rumors emerged of a planned exit of the African market after the Telco put up its subsidiaries in
Burkina Faso, Chad, Congo Brazzaville and Sierra Leone on sale. Airtel denied the rumors stating in its argument,that the subsidiaries represented a relatively small percentage of its overall Africa business. A sale, it said, would help it “establish a sharper focus” on the remaining countries.
In its entry to the market, Airtel set a target of $5Billion in revenues, EBITDA of $2 Billion and a subscriber base of 100 Million by 2013. Its not been rosy. As of March 2015, Airtel had a net loss of $585 Million out of the $ 4.4Billion the Telco made in its African operations. Its subscriber base was 76 Million with expenditure of over $5 Billion. Bharti Airtel has a debt of $10.7 Billion fueled by purchase of African operations and the sale of these operations point at deleveraging efforts. The company has already selling its towers in six African countries stating this will reduce its debt by 9%.
There are other pointers of an imminent exit of the African market. Airtel Kenya recently shed 60 jobs in Kenya as part of a restructuring effort, which will see some departments merge. “The company said that the retrenchment was necessary since the telecom firm had to realign its structure with its operating model”. However, there is talk that Airtel is looking to offload its Kenyan operations to Tigo. According to the Nairobi Tech, contractors, suppliers and partners are said to be repositioning themselves as it becomes imminent that the Telco could be exiting with service providers cutting costs associated with the Airtel Kenya account.
Where did they get it wrong?
Airtel enjoyed market leadership in 10 of the 17 markets in which, it had a presence in. My guess, is the replication of the model they used in Asian markets here. It did not work so well. Airtel was not able to amass as many customers as it planned, and while it almost doubled subscriber numbers, there was no real value to keep them locked to their network (case in point, Kenya). In 2013, Airtel sought to change this by increasing the Average Revenue Per User (ARPU) but I think it was 3 years late.If Airtel ventured into the African market and focused on the 42 Million customers Zain had, offered attractive value packages for services like data and Mobile money, it might have been a different game, different story altogether.
Time to abandon ship.