Merger move reflects telcos’ need to look beyond India

Adith Charlie on The Hindu Business Line on 26 May 2009

Mumbai, May 25 Indian telecom operators are venturing into emerging geographies such as Africa to arrest falling subscriber revenues and counter long-term fears of a slowdown in the home market.

This explains why Bharti Airtel is trying to woo over MTN all over again, exactly a year after the two fell short of a potential business arrangement, analysts and industry observers say.

Dip in ARPU
In India, telcos have been largely unable to arrest the dip in the average revenue per user (ARPU) which currently hovers around $4. Given the spate of new operators that have flooded the market, both average revenue per user and revenue per minute are expected to further decline. Nomura Securities analysts, Mr Sachin Gupta and Mr B. Roshan, expect the ARPU dip to continue on an average 6-8 per cent over the next three years for Bharti Airtel and Reliance Communications.

On the other hand, the ARPU in African countries (as a whole) and other emerging geographies is around $9-11, according to Mr Raman K., Practice Head (Telecom Media & Technology) at Tata Strategic Management Group.

“In regions such as Cyprus (Eurasia), the ARPU is close to $30 while in countries like Zambia, it is around $10,” he said. The overall tele-density in Africa could be around 30 per cent while it is around 36 per cent in India. Key markets such as Mali and Tanzania have a tele-density of less than 30 per cent, said Mr Raman.

Mr Madhusudan Gupta, senior research analyst with Gartner, believes that the telecom industry in India has passed the stage of hyper-growth and hence focusing on under-penetrated, yet profitable markets of Africa makes sense.

“The Indian telecom story is still very much intact. However, 4-5 years down the line, one expects the industry to still grow but at a slower pace,” said Mr Kunal Bajaj, Managing Director of advisory firm BDA Connect.

Greatest advantage
Achieving critical scale would be the greatest advantage for both Bharti Airtel and MTN if the deal were to go through.

“We are talking about creating a telecom entity which would be the sixth largest in the world. Moreover, it would have a footprint across 24 countries and hence be able to compete with the big boys of telecom world globally,” said Mr Mohd Saif, Deputy Director, Consulting, ICT Practice, Frost & Sullivan.