The Bharti-MTN deal that wasn’t is, in some ways, a contemporary twist to the age-old make or buy dilemma that companies, especially those in manufacturing businesses, face.

There’s one school of thought that argues that since Bharti faces increased competition at home, from the local arm of Vodafone and Tata DoCoMo, it would be better off spending the money it wanted to spend on acquiring MTN on local marketing activities.

Illustration: Jayachandran / Mint

Such arguments are flawed because they ignore the fundamental financial concept of return. What would give Bharti a better return on investment: expanding in India, or expanding overseas?

An answer to this question would require taking into account another very important financial concept—that of risk. And while the risk involved in an Indian telco going out and acquiring licences to operate in other countries and then building a subscriber base in these is definitely likely to be high, that of acquiring a telco that operates in these markets will likely be low—as low as operating in as competitive a market as India.

That’s probably the strategic imperative that is driving Bharti’s quest for an overseas asset, preferably an African telco, because Africa is emerging a lucrative market for mobile telephony as also a sophisticated one in terms of use of value-added services such as mobile banking.

In some ways this, Bharti’s need for an overseas company then, is a higher-order one, not similar to the reasons that prompt most other Indian companies to acquire overseas assets: hubris, for one (and it is behind more deals than is usually given credit for); access to raw materials or markets; and the need to build size and scale.

The interesting thing is that it was a similar desire for profitable long-term growth that prompted Vodafone Group Plc to spend $11.1 billion to acquire the local operations of Hutchison Telecommunications—the company that is now Vodafone Essar, the third largest mobile telephony company in India. Vodafone has a presence in Africa. Bharti doesn’t. And Africa is definitely the next big thing in the telecom business.

Sure, Bharti can continue to focus on India and try and grow business in markets such as Sri Lanka, but its growth in these markets will come at the cost of profitability. Which explains why most people expect Bharti’s chief Sunil Mittal to continue looking for an overseas telco that he can buy.

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