If Bharti Airtel's acquisition of South African telecom major MTN goes through, then it would give a significant boost to the Indian telecom company in terms of improving its average revenue per user (ARPU) and getting additional subscribers in the nascent African market, according to telecom analysts. Last week the Financial Times reported that Bharti Airtel might offer 165 rand a share, which would value the South African company at Rs 148,000 crore ($37billion) for 51 per cent stake in the company.
ARPU is defined as average revenue that a telecom company gets out of a subscriber. Bharti's ARPU in its mobile phone business has remained flat at Rs 357. This is the case with most telecom operators as they look to increase volume of calls made and as a result have to bring down the price of a call. This in turn impacts profitability. "MTN has an ARPU of Rs 640 ($16) as compared to Bharti's Rs 357, which is a 79 per cent increase," says Harit Shah, analyst from Angel Broking.
Competitors such as Reliance Communications had an ARPU of Rs 317 in March. The two companies are similar in size when it comes to total number of subscribers. MTNs subscriber base at the end of calendar year 2007 was 61.4 million, which is 1 per cent lower when compared to Bharti's subscriber base of 68 million, according to data from Bloomberg. "In terms of revenues MTN is larger than Bharti by 48 per cent even though it has only 10 per cent more subscribers, which points to higher profitability," says Shah.
This higher profitability is seen as lucrative by Bharti and in certain African markets like South Africa and Nigeria ARPUs are in the range of Rs 600 – 960 ($15-24)," says another telecom analyst from a Mumbai-based brokerage house who did not wish to be quoted due to protocol reasons. South Africa and Nigeria contributed 38.6 and 27.7 per cent of MTNs revenues.
The operating margins of MTN are an attractive proposition to Bharti. Operating margins is a measurement of proportion of a company that is left over after paying for different costs like wages or raw materials and higher the margin, the better.
Further, MTN has its presence in twenty one countries in Africa and Bharti could get a footprint in all these locations. Currently, Bharti has 61.29 crore shares in the market and is trading at Rs 841.