Airtel may take 2 years to turn Zain Africa profitable

The entry of India’s largest service provider Bharti Airtel in the African mobile market is likely to be marked with a number of challenges. Analysts say Bharti may take 15-24 months to turn around the loss-making operations of Zain Africa, apart from tackling the regulatory hurdles that may come across while operating in the African countries.

“The implementation of Bharti’s low-cost model in Africa will be a challenge. It will take 15-18 months for Bharti to turn around Zain Africa into a profitable venture,” KPMG head of telecom practice Romal Shetty said.

Bharti Airtel is acquiring Zain’s African assets (in 15 countries) at an enterprise value of $10.7 billion. Zain Africa reportedly has a loss of $100 million, while Bharti Airtel has a profit of $1.84 billion. Further, all the 15 African countries have different norms and regulations. It would be a daunting task to tackle this, since some of the countries are politically sensitive. In addition, there would be tough competition from MTN and Vodacom, he pointed out.

Telecom expert Mahesh Uppal said: “Bharti has been especially innovative in controlling costs and scaling up its operations. However, it might take one-two years for the company to become a profitable venture in Africa.”

Research firm Gartner’s principal research analyst Kamlesh Bhatia said: “The immediate challenge is the need to bring predictability into operations and streamline revenue flow from a largely loss-making business. This will require deft maneuvering from the Bharti management, taking into account cultural and local challenges in each of the 15 countries.”

Deal to be signed soon
Bharti Airtel said today it would soon sign a final definitive agreement with Zain Telecom to consummate the deal.

“The due diligence process has been completed and the parties are finalising definitive agreements, which are expected to be signed in the coming days,” both the companies said in separate statements.

“The definitive agreements will address all key terms and findings arising out of the due diligence. Upon signing, the parties will move towards obtaining any required approvals,” it said on the last day of the exclusive agreement for negotiations between the two firms.

The board of Zain had yesterday approved the deal, which already had got the approval of Bharti’s board on Saturday. This would make Bharti Airtel the seventh-largest global mobile company, with a subscriber base of 171 million and yearly revenues of $11.67 billion.

The total payout from Bharti for the deal would be $9 billion. It would pay another $700 million after a year of closing the deal, besides taking a loan liability of $1.7 billion.