Africa has bigger potential than even India

Africa has bigger potential than even India

New Delhi: Manoj Kohli, the head of Bharti Airtel Ltd’s international operations, is just back from his second visit to Africa, one in which he covered eight of the 15 countries in which the company is present in the continent (he covered all 15 on his first trip last month and is off again by the end of this week). In an interview with Mint, he spoke about Airtel’s Africa opportunity. He began the interaction by claiming that Shakira was indeed right: “It’s time for Africa," he said. Edited excerpts:

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You have been travelling extensively in Africa. What are your topline learnings?

First and foremost, our decision to enter Africa is validated as the market is fantastic.

The African population will double to two billion people whereas India will go up to 1.6 billion and China, up to 1.4 billion.

It has consumer spending of $1.4 trillion, which is far higher than India’s; a middle class of half a billion. The median age is 17-18 (which is much lower than the Indian median age of around 24-25); and 25% of global youth will be in Africa.

In terms of economies, of the top 30 economies of Africa, 27 are doing very well with more than 5% growth. Oil is being found in many countries. Democratic and social transformation is happening. Sectors like transport, communication are giving a catalytic boost to the economies. Not only the decision of the acquisition is good but the timing is good because all these positive changes are happening in Africa as we are entering.

Also the industry teledensity is only 20%, which is right for us because we can grow this to 60% teledensity.

Are there any markets there which are like India? What about usage patterns? What’s the average revenue per user (Arpu)?

Many markets are close to India. Some are under-developed markets like Bihar, and some very developed markets like Karnataka or Tamil Nadu.

The single biggest difference is the usage patterns. India uses 480 minutes over 150 million customers. There, the average is in double digits— very low because of much higher tariffs. This is because cost structures are high; we need to get this right.

That is one objective. We want to bring down the cost. Infrastructure sharing is one idea; we have talked to every regulator to make infrastructure sharing mandatory. Interconnect rates are also very high. In the next few years, as the change happens, I’m sure usage will go up.

The Arpu is $8, which is almost double of India. As we take up usage, there is an opportunity to take up revenue.

How is the regulatory environment?

They (regulators) are very conducive to growth. Regulations are not uniform across the countries. My first meetings with regulators and ministers have been extremely positive. They are not only welcoming Bharti but encouraging ideas like infrastructure sharing.

Your latest quarter results show a loss for Africa and the earnings for India have also fallen.

The 23 day result for Africa is not enough to judge completely. I think you should look for the full year or full quarter at least. This is the opening balance sheet for the company we acquired on 8 June to 30 June.

We are building the Africa business for the long term– decades if not centuries. We can’t look at it short term and we are confident, that the market will pick up.

Will the African operations be profitable in the nine months of this fiscal to March 2011?

I hope so. I can’t give a guidance on profits.

The transition from Zain is over but integration into Bharti may take till the end of this calendar year. There are major synergies which we will garner from the economies of scale of Bharti—be it networks, IT (information technology), BPO (business process outsourcing) and call centre, products, shared services among others; these will increase cost efficiency and productivity that will have a positive impact on the profit and loss accounts. I divide the African market into three parts. First, in 11 of the 16 markets, we are leaders and we have to become bigger, like Zambia. Second is, where we are challengers, where we need to be very assertive and become leaders. Third are markets where the teledensity is very low, markets like DRC (Democratic Republic of Congo), Niger, Chad, where teledensity is 10-12%. That’s where we need to really create a market like we have done in rural India.

Is competition likely to increase very significantly in Africa?

It’s reasonable now and will increase. The African regulators and governments are very long-term oriented and understand that industry health is important.

Most of the markets have three-five players. Five players in any market gives enough competition to get the right quality and affordability for the customer. It also ensures a profitable organization which is very important because you are spending millions of dollars, financial health of the telcos is important.

What about investments?

I have already announced investments of about $2.5 billion over the next three years, which comes to around $800 million a year. The investments are ahead of us. The procurement efficiency of Bharti would allow us to manage with that amount.

What are the big integration challenges you foresee?

Integration should not be difficult. The integration team is there. My first line is fully staffed. We have made some changes in the existing management and we will make some more changes.

Only around 25 people have moved from here and another 15 may move. Out of a total strength of 6,500, only 40 people from India will be there— half of them in Nairobi, which is the headquarters. We are encouraging local talent. We will also bring about 10-15 Africans to work here in India to understand the scale of Bharti.

Rebranding will happen in October. We are getting ready for it. We are getting our network quality right and getting our service quality right. We are getting some new products ready which is very important because customers need to get new experiences.

Tell us a bit about the products that you will be looking at launching in Africa?

We will cater to all needs of the customer. M-commerce in Africa will definitely do well and Bharti will also utilize that opportunity. We have a very good M-commerce product called Zap. That product and platform will be deployed. We have already deployed that in eight countries and the balance will be deployed within the next three months. It should do very well.

We are working with some governments on M-health, education.

What was the need to transfer the Seychelles operation from Bharti Enterprises to Bharti Airtel?

Seychelles becomes the 16th country (where Airtel is present in Africa). It is part of Africa like Madagascar, which we have. It has one of the highest GDPs (gross domestic products). It’s doing well; we have 57% market share and an Arpu of $24.

Will the Africa assets completely integrate into Airtel or will there always be separate entities on the balance sheet?

Africa is a huge continent and will remain a very important new market. My focus for the next one-two years is to execute the business model and strategy in these 16 countries and maybe look at other markets after that. As a continent, this will have bigger potential than even India. So it’s important to look at it in a very independent fashion.