Bharti and China Unicom look for African expansion

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Bharti and China Unicom look for African expansion

The region's huge growth potential means traditional multinational giants like Vodafone and Orange will not have the market to themselves

By CAROLINE GABRIEL

Published: 22 February, 2010

READ MORE: M&A | Africa & Middle East | Zain Group | Bharti Airtel

Africa is the next region for the cellular arms race, with its huge growth potential, and the traditional multinational giants like Vodafone and Orange will not have the market to themselves. Although these European majors have expanded significantly south of the Sahara, last week saw the powerhouses of India and China taking the lead. India's largest cellco, Bharti, bid for Zain's African assets, while shaking up its strategy at home ahead of 3G; and China Unicom was part of a consortium that placed the highest bid for Nigerian stated fixed/mobile incumbent, Nitel.

Zain, once tipped itself to be a regional leader, is selling its African operations to focus on the more immediately profitable Middle East activities. Various companies have reportedly held talks, including Vodafone, China Mobile and France's Orange and Vivendi, but Bharti is set to win out, for a reported price of $10.7bn. This will be an attractive consolation prize for losing South Africa based MTN last year, as Bharti aims to become an international player and expand in to markets with higher margins than its native India.

Bharti has entered exclusive talks with Kuwait based Zain, with a deadline of March 25 to iron out the details (which, remembering the on-off MTN talks, is by no means a foregone conclusion). The deal will not cover Zain's holdings in Morocco and Sudan, with the Kuwait firm looking to remain a leader in the Arabic speaking world. This would give Bharti a presence in 15 other African countries. A previous bidder, the Vavasi Group, which included China Mobile's support, had a four-month period of exclusive talks, but this has now expired.

Indian operators are looking for new opportunities, and state-owned BSNL and MTNL were also said to be interested in Zain. Others have made lower profile moves - Vodafone Essar acquired Warid's assets in Congo and Uganda, and has a GSM unit in Kenya, while Reliance has a license in Uganda and Tata is a shareholder in South Africa's Neotel.

Zain Africa accounted for about 38% of the group's revenues in the first nine months of 2009, but made a net loss of $111.6m, with seven of the 15 units suffering losses. Zain Nigeria is the largest of the companies Bharti will acquire, accounting for 16% of total group revenue in the same period, but posted an $88.3m loss, which makes the $10.7bn price tag seem generous. Bharti has limited experience of operating outside India's very specific market conditions, having so far only roamed as far as Sri Lanka and Bangladesh.

One much discussed issue is whether Bharti will import its Indian business model to Africa. This relies heavily on network sharing, full-scale outsourcing and division of risk with vendors. RAN sharing is virtually unknown in Africa to date, and outsourcing is in its infancy, though both Ericsson and Nokia Siemens have recently won major contracts.

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