19 February 2013

Africa: Airtel Targets U.S.$5 Billion Revenue Amidst Stiff Challenges

Bharti Airtel, world's number four telecommunications service provider by subscriber base, is targeting $5 billion in revenue and $2 billion in expenditure before interest, tax, depreciation and amortisation (EBITDA) next month as it moves to break even in its African operations, which has been dogged by stiff operating environment.

Bharti Airtel had in 2010 acquired the assets of Zain Africa in a deal worth $10.7 billion. Zain, formerly Mobile Telecommunications Company (MTC), acquired the operations of Celtel Africa. In Nigeria, where the group has its largest base, Airtel is still struggling to be profitable 12 years after entering the market.

According to a new report by Atul Arora, Associate Analyst, Pyramid Research, Airtel has not been able to make profit three years after stepping foot on the continent, investing billions of dollars and adopting the same strategy of low cost minutes which made it successful in India sub-continent."

Arora said, "The first path Airtel is faced with is to continue to cut prices and hope to expand the subscriber base faster than possible declines in its ARPU, while the second involves learning to make money from new revenue services." Pyramid Research believes that the former approach is vulnerable to premature saturation in some sub-Saharan markets.

He said that while the actual user bases are much smaller than what subscription rates imply in many markets due to multi-SIM ownership, reaching new customers is increasingly a consequence of costly network expansions into areas of low density and limited infrastructure.

The latter tactic, on the other hand, involves focusing on building upon non-voice revenue that has grown 65 per cent in the past two years, but is still only 13 per cent of total revenue.

"It appears that Airtel has come to terms with the brutal challenges of sub-Saharan African markets and is moving in the right direction. What remains to be seen, however, is whether it will be able to keep its head above water long enough to complete a shift in identity and diversify its revenue streams," said Arora.

The report said Airtel is positioning itself to take advantage of the shift in mobile revenues from voice to data services. In the category of simple low-margin data services, such as mobile money and VAS, the operator is trying to catch up with its competitors.

In the case of more advanced networks, it currently boasts 5,527 3G sites, 34 per cent of its total in Africa, and aggressively markets 3.75G capabilities in multiple countries.

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