Five years later, Airtel Africa still struggling to hit targets

Former Warid offices which Airtel is currently using as its headquarters pending completion of repairs on its Jinja Road offices. Photo by Rachel Mabala.

What you need to know:

For five years now, the Airtel Africa segment has, since acquiring Zain assets, failed to hit key targets among them growing subscriber numbers to 100 million and improving revenues. Othman Semakula & Mark Keith Muhumuza look at some of the challenges that have stood in the telecoms’ way.

Five years ago, Bharti Airtel, the Indian – based telecom and the world’s third largest mobile telecom bought Zain Africa with the hope of turning around assets that were in the loss-making zone of $100m (Shs366b).
Bharti’s plan was to become a global competitor spread across some of the world’s fast-paced markets in Sub-Saharan Africa and Asia.

Indeed to achieve this plan Bharti invested in the Airtel Africa business with focus put on growing subscriber numbers from 42 million in 2010 to 100 million by 2013 as well as improving the segment’s revenue performance.
In its strategic plan, Bharti had given itself 2013 as the year for achieving the targets but five years on, none has been achieved and its beginning to seem like the Indian-based could have bitten more than it could swallow.
According to results released last month, as of June 30, 2015, the Airtel Africa segment had 78.3 million customers, 21.7 million shy of the 100 million it had set to achieve by 2013.

In the same period, the segment posted a net loss of $154m (Shs563.4b), widening from $137m (501.4b) it had registered as of March 31, 2015.
Total revenue earnings dropped to $970m (Shs3.5 trillion) from $1.16b (Shs3.89 trillion) posted as of March 31, 2015, which according to analysts, could in the long run be a drag-on on Bharti’s consolidated earnings.

Weak currency markets
The cut in earnings, according to notes published along the telecom’s results were bruised by heavy currency depreciations that have, since the beginning of the year, patronised Africa with an average depreciation rate of more than 21.6 per cent.

For a telecom to operate and generate the much-needed revenue and profit, it needs some level of economic stability in the various countries of operation.
Many economies across Africa have been facing headwinds since 2014.
By June 30, 2015, Airtel’s earnings in all its 17 markets in Africa had been heavily eaten into with the worst cuts happening in Madagascar, whose currency depreciated by 37.5 per cent.

Ghana’s depreciation of 30.7 per cent, Nigeria (28.3 per cent) and Uganda (26.9 per cent) all had significant knockons, on the telecom’s earnings.
In Seychelles, the currency registered a 22.8 per cent depreciation compared to Tanzania’s 20.9 per cent and Zambia’s 19.2 per cent. All these impacted on earnings.
Airtel conducts business in local currencies in all the countries it operates. However, it has debt obligations, equipment purchases and service providers that bill in dollars, hence the rise in foreign exchange losses.

Not so far off
At the times of acquisition Bharti, which has a combined subscriber base of 324.3 million customers in its 20 markets, had secured a $8.5b (Shs31.1 trillion) loan facility to accelerate its growth but the loan could have done little, given that the company continues to post losses - albeit with widening margins.
But Christian de Faria, the Airtel Africa chief executive officer, exudes an optimistic future on the basis of growing subscriber numbers that have grown to about 78.3 million – notwithstanding the 2013 target of 100 million customers.
Bharti Airtel is the third largest mobile provider, but the telecom has not leveraged its large spread to lift the Africa segment out of the losing abyss – at least for the last five years.

This, analysts say, presents the telecom with a dilemma, which might force it into ‘risky investment’ decisions at a time when economic fundamentals are not reading right.
A report published by Credit Suisse, a research and credit rating firm, describes Africa as a ‘pain point’, pointing to the continent’s dwindling fortunes amid heavy currency depreciations, political uncertainty and falling crude oil prices.

“Africa continues to be a pain point—with external factors (currency fall, economic weakness) and crude oil fall compounding an already tough competitive and regulatory environment,” the report published on April 28 says, stressing the challenges awaiting investors.
But Bharti could be prepared to splash some more cash given that Sunil Bharti Mittal, the founder and chairman of Bharti Enterprises, recently told participants at the World Economic Forum in Abuja that “we will invest $1b (Shs3.66 trillion) in Africa per annum over the next few years.”
At the time, according to the company’s financials, the telecom had already invested more than $5b (Shs18.3 trillion) in network upgrade, expansion and creating new platforms such as mobile money and data connectivity, among others.

Trouble in paradise
When Bharti entered Africa the logic had been simple - the continent had more than a billion people and they needed telecom services, which were available, but only to a rich few, who through average revenue per user (ARPU), illustrated they had the money to spend on telecom service.
ARPU provides the company a grainy view of what a particular customer on average spends on calls and allows it to track revenue sources and growth.
But the logic could have read off the grid because, Airtel Africa, which operates three divisions, including Anglophone, Francophone and Nigeria markets, continues to play second fiddle in majority of the markets where it is present.

This, together with other challenges could be starting to scratch the telecom in the wrong parts as it is beginning to show willingness to exit some markets.
In Nigeria, Airtel is still engaged in legal disputes since the Zain acquisition. This is compounded by other challenges such as capital controls on dollar purchase, and the drop in oil prices is draining people’s expenditure power.

In Kenya, Adil El Youssefi, the country’s Airtel chief executive officer, warned recently that investors in the telecom could be forced to quit the market “if government does not curb ‘anti-competitive’ behavior by the market leader (Safaricom) which has condemned competitors to losses”.
However, the response was outrageous as the country’s telecom regulator told Airtel to compete or exit the market.
Last month, Airtel confirmed it would exit Chad, Sierra Leone, Burkina Faso and Congo Brazzaville, selling its stake to French giant - Orange Telecom at $1b (Shs3.66 trillion).

Not exiting Uganda
The exits could have created jitters allowing speculators to buffet the market on allegations that Bharti could be planning to sell its Africa segment to Millicom, the parent company of Tigo, which is present in 14 African and Hispanic America markets.
But in an email to this newspaper, Christian de Faria, the Africa segment chief executive said such “rumours of Airtel withdrawal, particularly from Uganda are baseless and without fundamental”.

“We remain committed to our operations as we see growth opportunities in Uganda and on the continent,” he said dispelling fears that Airtel could be planning to exit Uganda.
Similarly, Tabitha Aldrich-Smith, the Millicom interim communications director reaffirmed they had no interest, at least for now, to enter Uganda.
“We don’t comment on market rumours or speculation, but I can say we are focused on building our six markets in Africa and have no plans to enter Uganda,” she said via email.

Millicom has operations in Tanzania, Ghana, DR Congo, Chad, Rwanda, and Senegal, under the Tigo brand.
But in all this, Airtel Uganda could be unique in its own right as its $500m (Shs1.8 trillion) acquisition of Warid Telecom in 2013 gave it some numbers to become the number two after MTN.
The telecom has since then exuded some growth - albeit slow - with subscriber numbers rising from 7.2 million in 2013 to more than 7.4 million at the end of 2014, which represents just 3 per cent, according to Uganda Communications Commission.

MTN, on the other hand, has grown its subscriber numbers over the same period by 35 per cent from 7.7 million to 10.4 million as at the end of 2014.
Airtel’s slow growth, however, could be beginning to affect Airtel as the market share which it had threatened to grow is slowly beginning to fade.
Additionally, the Warid assets, which Airtel took over, were loss making entities, which presents a tricky position for the company’s financials.

In fact as of mid-2014, according to the Bharti Airtel 2014/15 annual report, acquired assets [Warid] made revenues of $91m (Shs332.7b) but all this was wiped out by expenses leading to a loss of $8.7m (Shs31.7b).
Airtel Uganda could not give us a comment as Sandor Walusimbi, the telecom’s public and corporate affairs manager insisted Christian de Faria (Africa chief executive) had sufficiently presented their position.

Decision to quit some markets

According to market analysts, Bharti decided to sell the four subsidiaries in Burkina Faso, Chad, Congo Brazzaville and Sierra Leone to fund its Nigerian subsidiary as it seeks to make substantial inroads in a market dominated by MTN and Globalcom. As of June 2015, MTN had 62.8 million subscribers followed by Globalcom which has 312.5 million and Airtel at 29.5 million.
However, in notes published along the June 2015 financials, Airtel said the decision to sell part of its Francophone division (the four franchises) had been informed by the need to let Orange Telecom, which understands those markets sufficiently serve customers.

About Bharti airtel
Bharti Airtel has a combined subscriber base of 324.3 million customers spread across 20 markets. It has operations in 17 African countries, India, Bangladesh and Sri Lanka.
It is the third largest telephone operator after China Mobile and Vodafone Group. The telecom who founded by Sunil Bharti Mittal and is the current group chairman.


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