Bharti and China Unicom look for African expansion

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.

In India itself, Bharti recently chose Nokia Siemens for a $700m outsourcing deal, and is now set to award a $2bn GSM expansion deal to boost its capacity in 15 telecoms regions or circles. According to local newspaper The Economic Times, Ericsson will win this contract - and is already managing the cellco's infrastructure in the 15 regions. If the Swedish giant does win again, it will be its third major contract with Bharti, following two large outsourcing agreements - the most recent, signed in July 2007, worth $2bn.

Alcatel-Lucent could get some of the Bharti action too, as it will be a frontrunner for the operator's deal to manage its 120,000 kilometer intercity fibre optic cable network, which should be awarded next month. It could be worth $1bn over five years. ALU has a joint venture with Bharti, created a year ago, to manage the Indian firm's fixed line and broadband services.

Meanwhile, a consortium called New Generation, which includes China Unicom, is the highest bidder for Nitel in Africa's largest market. The group has bid $2.5bn for a 75% stake in the carrier, $1.5bn more than the next highest bid, and a great deal more than the $500m Nigerian conglomerate Transcorp offered $in 2006 for a 51% stake (this deal was later reversed). The New Generation offer seems particularly high given that Nitel's mobile arm, M-Tel, is hardly in business, even as other cellcos experience rapid growth. New Generation also stands to acquire Nitel's stake in the SAT-3 undersea cable and a terrestrial backbone.

Also in Africa, MTN has refused to comment on reports that it could move its headquarters from South Africa to the Middle East, probably Dubai. Although considered to be an African company, the group has increasingly seen its growth coming from the Middle East. Such a move could pitch two giants that were expected to be pan-African players, Zain and MTN, against one another in a more limited, and more competitive, Middle Eastern territory, leaving the sub-Saharan region more open to giants coming in from elsewhere.

BROUGHT TO YOU BY PAMBAZUKA NEW

* This article first appeared in Rethink Wireless on 22 February 2010.
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