Thursday, 16 February 2012

Mobile wars in Africa: is Airtel winning?

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

Bharti Airtel has a history of making first moves and emerging as the winner just because of that. This is what built the company’s success in India, where it 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 acquired the Zain portfolio in March 2010 Airtel was reckoned to be the fifth largest mobile operator in the world on a proportional subscriber basis, putting it behind the likes of China Mobile, Vodafone Group, American Movil and Telefonica, but ahead of China Unicom.

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

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 its Africa model would run similarly to its success in India, based on a first-to-market approach and having some leverage to overcome legislative obstacles. Unfortunately, while Airtel has a 30-year history of being first in India (with pushbutton phones, cordless phones and then mobile), they were not first in Africa. There were major EU, Middle East and South African players there ahead of them.

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

Going up against market leaders such as MTN of South Africa, Airtel applied a 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 network management that offers similar advantages. Elsewhere, Airtel is engaged with Nokia Siemens Networks and Huawei, not keeping all its eggs in one basket, of course.

As a Plan B, possibly following on the indecisive outcome of Airtel’s low-cost invasion, the company has previously been negotiating a takeover of or (maybe) a joint venture with MTN itself. How this putative deal is described depends on which company is talking. This has been going on for some four years without a definitive ending. Even if it never happens, it is a signpost of just 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 20 kobo (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 cheaper peak 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 claims either 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 not just being coy. There is an ongoing dispute over branding in that country and the latest development is that Airtel has been court ordered to rebrand as Econet (EWN). Airtel will appeal that ruling, while complying in the interim. This dispute goes back as far as 2003 and is not yet over. It is, however, a good example of the challenges Airtel faces in African settings and, while it continues, the real winner is MTN, holding on to its own leading position in Nigeria as well as its brand.

To come back to what we said at the start of this article, winning wars is not just a matter of having the best weaponry, although that helps. Without a strategy, chaotic retreat is the order of the day.

Airtel’s strategy bears comparison with the different approaches of two European 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 they appeared. The final result is that Vodafone has good revenue and lower costs, whereas Orange has higher costs and less revenue.

What Airtel needs to prove is that its broad approach with low fee rates can win against competitors who have a head start and better targeting. Current usage, market share and consumer approval figures – where independently available – do not support a claim that Airtel is winning, despite the impressive growth that was claimed after the launch in 2010.

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

Nevertheless, do not underestimate Bharti Airtel. The company has deep resources, including enough to offer anything between USD 13 and USD 45 billion (as reported) to buy out its main competitor, MTN. It is also licensed to roll out 3G in 12 countries, clearly focused on the expected maturity of African markets finally proceeding to data services instead of the fundamental voice and 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 22,000 of its sites in India to solar power over three years. The company won the MWC Green Mobile Award for that in 2011. Apart from the marketing boost, there are practical and financial advantages to such technology, especially in Africa. Other MNOs are also exploring this option but Airtel is not just experimenting. It has about 6,000 towers already running solar.

While Nigeria is obviously the jewel in the crown, Airtel will continue to be an influence in other countries, driving down rates and forcing technology upgrades.

This has advantages for consumers but is a problem for operators as growth in Africa’s markets has currently reached a plateau. Big as Africa is, there might 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 IT and business topics, who has regularly contributed to PC Magazine, as well as editing TechNet Magazine for Microsoft. Roy was formerly editor of CommsAfrica and contributing editor for Intelligence magazine.

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