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Bharti takes tariff war to Africa, halves Kenya rates

Bharti Airtel dares leader Safaricom, which has over 80% market share

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Bharti Airtel has dialled its highly successful minutes-factory strategy, this time for Africa.
Zain Kenya, a Bharti subsidiary, halved tariffs announcing that both prepaid and postpaid subscribers would be able to call across all networks at a flat rate of Kenyan shillings (Kshs) 3 per minute and send messages at Kshs 1.

The move is said to have led to many Kenyans switching from Safaricom, the largest Kenyan telco with about 12 million subscribers, to Zain Kenya.

“Kenya was one of the weak spots in Zain’s Africa portfolio, market share wise. Bharti Kenya has a 10.7% subs market share, lagging leader Safaricom’s 81.1%,” pointed out Rohit Chordia, Kawaljeet Saluja and Vineet Thodge of Kotak Institutional Equities in a note on Thursday.

The tariff reduction was expected as Bharti aims to ramp up its subscriber base in the continent quickly.

“African operations remain challenging, as reflected by muted revenue growth and falling margins. Currency risks remain a big threat and we believe the turnaround will be gradual,” wrote Gaurav Tyagi and Gaurav Surana, analysts with Alchemy Shares and Stock Brokers, in a recent note on Bharti Airtel’s Africa business.

Besides Safaricom in Kenya, Bharti Airtel has a formidable competitor in MTN pan Africa, a firm which it was once pursuing to acquire.

MTN is a competitor for Bharti-Africa in 5 out of 15 operations acquired from Zain namely Nigeria, Zambia, Ghana, Uganda and Congo Brazzaville, where the South African telco has grown by a robust 15-19% year on year.

These operations together account for about 40% of revenue and operating margin of Bharti-Africa.

From a region perspective Nigeria is the largest contributor to revenue and margin for both MTN (35-40%) and Bharti Africa, about 36%.

With about 50% market share and over 60% of operating margin, MTN is a strong incumbent in Nigeria which is the single largest market for both MTN and Bharti-Africa.

Analysts believe that Bharti’s success in gaining market share in Nigeria would be critical for performance improvement in Africa. 

For instance in Nigeria MTN has increased market share through quality of service and value added services in which its data revenue constituted 4.2% of revenue while increased Blackberry users has resulted in data revenue growth of over 100% year on year.

And success in Africa, analysts say, may just not be a volume game.

Operators in the continent earned about $10.49 (about Rs550) a month from their customers in the fourth quarter of last year, compared with $2.73 (about Rs130) in India.

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