Tuesday, June 2, 2009

Bharti+MTN: One Hurdle Too Many?

Bharti's renewed attempt at creating an Indo-African telecoms giant appears poised to face several roadblocks, some due to the inherent differences, and some due to the externalities surrounding such large deals. While Bharti has seen strong, in fact tremendous growth, in India, the company is limited in its geographic presence across the globe. MTN, on the other hand, has seen growth outside its home market of South Africa. However, there exist significant differences between the kind of markets that Bharti and MTN serve. India is a low ARPU, high usage market while markets where MTN operates typically are low ARPU, low usage. Competitive dynamics are yet to kick in pricing of services which continues to remain high in multiple African markets. While prices are expected to fall down in the coming years, however, increasing reach to the low-income rural communities will be a significant strain on their balance sheet. 

The contours of the how the deal will likely be structured, although this could change, also point at significant complexity. Bharti is looking at raising close to $4 bn in debt. Given the fact that 3G spectrum auctions in India are round the corner, and Bharti's necessity to participate heavily in them, Bharti could end up facing an uphill task in raising funds. 

And lastly, a key point in the whole proposed merger, and which was largely responsible for the breakdown of talks last year, is the nationalist feelings that are stoked through such large cross-border deals. Opposition could arise from labor unrest. Regulation in many emerging markets in Africa as well appears to be dictated by nationalist feelings, particularly in matters involving international operators. France Telecom's problems in Egypt, and, Vodafone's troubles with the local regulator in South Africa suggest caution.

In a nutshell, the path to a combined MTN-Bharti is riddled with potholes, however, the prospect of a combined entity having over 200 Mn subscribers appears too enticing for not overcoming these challenges.
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