Bharti Airtel to Rock Tarriffs in Africa?

By now almost every Jim and Jack, Martha and Mary (to atleast be gender sensitive), especially
in the cradle of mankind, Africa, is aware of Bharti Airtel, the Indian Telecommunications
company now operating in 19 South Asia, Africa and Channel Islands, thanks to its many
acquisitions of other telecommunications firms all over the place. On 08 June, 2010, Bharti
Airtel, in the largest ever cross - border deal in an emerging market and largest ever telecom
takeover by an Indian firm, bought the Kuwait-based Zain Telecom's businesses in 15 African
countries.

Bharti Airtel, is the market leader in over 70% of the markets it is operating in Africa, with an
average marketshare in each country of not less than 50%. In kenya however, Bharti Airtel’s
marketshare at 10%, making it after Safaricom, which has a 78% market share. The other players
in the Kenyan telecommunications market areEssar and Telekom Kenya which have a 6%
market share each.

On 19th January, 2011, the world woke up to the news that Bharti Airtel had halved its voice call
tariffs and cut the price of text messaging by 80% across all networks, in a bid to gain market
leadership in Kenya’s 20 million mobile phone market. This is a replica of the low margin -
volume game that Airtel pioneered in India. In a market penetration strategy of this kind, the
billion dollar question is for how long can this be sustained. Well, the answer in this case is, “for
as long as it takes Bharti Airtel to diluted the market share of Safaricom to a major extent.

This sure is one hell of a below – the – belt punch to Safaricom and the other players in the
Kenyan Market. In a price war, it seems logical for competitors to follow suit to cut the prices as
substantially as possible as to counter the competition, but if our fellas in Kenya are to do that, it
will be akin to digging their own grave.

For one, Bharti Airtel is the 5th largest mobile operators in the world interms of subscriber base.
What this means that, following its substantial slashing of the tariffs, the Kenyan Unit of Bharti
Airtel is sure to make losses, but the parent company will not feel the pinch that much, as it is
likely to cover the loss with its profits in its other units. The only other company that can come
close is Safaricom, because of Vodafone’s 40% stake in the company and Vodafone is the
second largest mobile network provider in the world, but it is not the only one with interests in
Safaricom. Vodafone can withstand losses due to tariff reductions in Safaricom, but what about
its partner in the company, Telkom Kenya, where will revenues and profits to offset its losses in
Safaricom going to come from?

On the other hand, Bharti Airtel has managed to reduce its operating costs considerably and can
easily transfer those low costs to its subscribers through tariff reductions for example. Bharti
Airtel is the first mobile phone company in the world to outsource everything except marketing
and sales and finance. Its network (base stations, microwave links, etc.) is maintained by
Ericsson, Nokia Siemens Network and Huawei.,[5] business support by IBM and transmission
towers by another company (Bharti Infratel Ltd. in India, which as the name suggests is linked to
Bharti Airetel).[6] Bharti Airtel, because of its business strengths was even able to have Ericsson
agreed for the first time, to being paid by the minute for installation and maintenance of their
equipment rather than being paid up front.

As we all can see, Bharti Airtel in Kenya is merely putting its global presence and business
strength to use. However another question, and one which is of much interest to subscribers in
the 15 countries Bharti Airtel is operating in Africa is; “Should they also expect Airtel to reduce
tariffs in their countries just as it has done in, Kenya, besides before Kenya it had already done
this in India?” Well, at first glance, the moment I heard the news, I thought that would be the
case but upon critical analysis, I realized believing that would be living in a fool’s paradise.
Bharti Airtel is surely not obliged to cut tariffs in all the countries it is operating, because it
already is dominating. I would not be surprised to learn that, Kenya is currently Bharti Airtel
smallest market. So for example in Malawi, a Central African Country where Bharti Airtel is a
78% market share dominance, if at all there is to be a tariff slashing, it may not be to the extent
Bharti has gone to in Kenya which is just as good news for Bharti’s competitors as it is bad news
for subscribers in Malawi, and the other countries with similar competition factors in as fas as
Airtel is concerned.

Back to the Kenyan scenario, it does not mean that all is lost for the competitors, especially
Safaricom,Punch! Here comes Bharti Airtel’s first salvo from its acquisition of Zain Group’s
mobile operations in 15 countries across Africa. In a lethal competitive move, Zain Kenya has
announced a deep cut in tariff charges in a bid to capture new subscribers and drive the big
volume growth business in the highly under-penetrated African markets.

Kenya’s second largest operator Zain has moved to halve its voice call tariffs and cut the
price of text messaging by 80% across all networks, in a bid to gain market leadership in
Kenya’s 20 million mobile phone market. The Zain consumers can now experience the
benefits of low-margin volume game that Airtel had pioneered in India.

 
Kenya’s telecom market is currently dominated by Safaricom with a lion’s share of around 78%,
followed by Zain at 10%, and 6% each by Essar and Telekom Kenya. The extent of fierce price-
war can be gauged from this statement by Zain’s managing director Rene Meza,

“We don’t foresee Safaricom cutting its tariffs close to what we have done but if they do it we
will cut ours further.”

With the reduced call rates from Sh6 per minute to Sh3 (3 shillings) per minute and rock-bottom
text messaging charges from Sh3 to Sh1, Zain becomes the cheapest network in Kenya, leaving
other mobile operators such as Safaricom, Essar and Telkom Kenya to shield for themselves by
following the intense tariff cuts flagged by Bharti-led Zain operations.

Expectedly, Safaricom retaliated by lowering costs by rewarding pre-pay users on a graduated

scale. For post-pay subscribers, the company has offered a flat rate of Sh3 on both cross and in-
network calls. Further, Telkom Kenya announced reduced charges on net tariff of Sh2 and
slashed its off net tariff to Sh4 of its GSM customers.

Bharti aims to bring down Zain’s high cost base and attract new subscribers by replicating its
famous “minutes factory” business plan (low cost, high volume) pioneered in India, by working
on infrastructure sharing and forge contracts on a network utilization-model.

By doing so they have actually tapped into the ordinary Kenyan Junta,  who now know that such
low voice call rates are possible. Also, with Zain coming down with pricing, Safaricom’s
subscriber base is going to get eroded very fast.

The stage is set for an intense price-war in Kenya and it can only be more vicious until the
large market share of Safaricom is diluted to a major extent. What’s your take?