Is Zain a good deal for Bharti? Jury out

Even before the Bharti-Zain deal is signed, questions are being asked whether Sunil Mittal — who heads Bharti Airtel, India’s largest telecom company — will be able to connect Africa to profits. Manoj Gairola reports. Taking a risk

Even before the Bharti-Zain deal is signed, questions are being asked whether Sunil Mittal — who heads Bharti Airtel, India’s largest telecom company — will be able to connect Africa to profits.

A low revenue base and exclusion from lucrative markets may dog Bharti as it prepares to enter a large but difficult market through the proposed acquisition of most of the continent’s assets owned by Kuwait-based operator Zain.

Low average revenue per user (ARPU) — how much a telecom firm earns from each subscriber — in most of the 15 nations that come to Bharti will be the big challenge.

A Bharti spokesperson declined to comment on this, saying the deal is still to be signed.

In terms of revenues, subscriber base and ARPU, Zain lags well behind rival MTN — the largest telecom operator in this 62-nation continent.

At $1.6 billion (Rs 7,350 crore), Zain’s revenues were less than half of MTN’s $3.7 billion (Rs 17,000 crore).

Only two countries (Nigeria and Tanzania) where Zain is an operator had more than 4 million subscribers as on September 2009.

Zain had an ARPU of $7 (Rs 322) per month in Nigeria (the biggest market) while MTN had $12 (Rs 552).

“Zain is a badly managed affair with low ARPU compared to MTN,” said Subodh Aggarwal, chairman, Euromax Capital, a London-based investment bank specialising in Africa. “This would be a big challenge for Bharti.”

At $10.7 billion, analysts find the Zain deal an expensive buy. After paying $9 billion (Rs 41,000 crore) to Zain, Bharti will get a debt of $1.7 billion (Rs 7,800 crore). What Bharti gets is a combined revenue of $13 billion (Rs 60,000 crore), 60 per cent more than its current revenue of Rs 37,000 crore.

In India, it is facing a tough challenge from new players — Tata DoCoMo, RCOM, Uninor. For the quarter ending December 31, 2009, Bharti’s ARPU was $4.9 (Rs 230) per month, down from $7 (Rs 324) in December, 2008.