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A P R I L 1 0 , XXXXXXXXXX
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Professor Krishna Palepu and Research Associate Tanya Bijlani from the India Research Center prepared this case. HBS cases are developed
solely as the basis for class discussion. Cases are not intended to serve as endorsements, sources of primary data, or illustrations of effective or
ineffective management.
Copyright © 2012 President and Fellows of Harvard College. To order copies or request permission to reproduce materials, call XXXXXXXXXX,
write Harvard Business School Publishing, Boston, MA 02163, or go to www.hbsp.harvard.edu/educators. This publication may not be digitized,
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K R I S H N A P A L E P U
T A N Y A B I J L A N I
Bharti Airtel in Africa
The jury is still out on Africa. The cost of operations is still higher than expected, elasticity of demand could
fail to kick in, and competition could intensify. But the business metrics are showing early signs of a
turnaround. My gut feel is that we can make this work.
— Sunil Mittal, Chairman, Bharti Airtel
In Fe
uary 2012, Sunil Mittal walked past the illuminated hoardings for Airtel’s mobile services
plastered across the walls of Nairobi airport, and wondered if Bharti would be able to overtake MTN
in Africa by replicating the high-volume, low-cost telecom business model that it had pioneered for
the Indian masses.
Founded in India in 1995, Bharti Airtel (Bharti) had rewritten the rules of the global
telecommunication industry. The cellular operator had defied conventional Western telecom wisdom
that emphasized high tariffs for wealthy customers, and had instead chosen to concentrate on India’s
mass market, including the rural poor. In order to focus on acquiring customers, the company had
made the bold decision to outsource large portions of its operations. By Fe
uary 2012, Bharti had
een India’s market leader for some time, with 183 million customers, and had pioneered a high-
volume, low-cost telecom model with tariffs of less than one cent per minute, which had previously
een considered unviable.
By 2009, growth in India had begun to taper off, and Mittal began to look for new opportunities.
Africa seemed to present just the right option. Its vast population of over a billion people with low
per capita incomes mi
ored India’s demographics. Africa’s real mobile penetration was 30% and
growing rapidly, and high mobile tariffs in Africa, combined with low monthly minutes of use per
customer, indicated that there was room to grow the market not just by increasing mobile
penetration, but also by intensifying usage.1 In June 2010, Bharti acquired the 15 African operations of
Bahrain-based Zain Telecom, for $10.7 billion – the largest M&A deal in the global telecom industry
for that year, and the largest ever cross-border deal in an emerging market.
When they reached Africa, Bharti’s leaders discovered that employee morale at Zain was low,
work cultures between the two continents differed vastly, and market share revenues and EBITDA
were falling every month. Infrastructure was poor, hardware and software equipment was obsolete,
access to equipment supplies was limited, skilled technicians were in short supply, and the cost of
doing business was turning out to be much higher than Mittal and his team had anticipated. Bharti’s
initial experiments with leveling tariffs and removing Zain’s 20% to 30% premiums in its
For the exclusive use of A. Gupta, 2016.
This document is authorized for use only by Atul Gupta in 2016.
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2
Francophone and Anglophone regions had not increased demand to the extent that they had
expected; and it was unclear whether lowering prices would drive mobile usage in the hinterland of
the continent.
Despite the challenges, Bharti initiated multiple transformations in Africa, including outsourcing
active and passive managed services (networks) for all of its 16 countries; outsourcing its IT and call
centre support to BPO1 firms for the first time in Africa; revamping its distribution network;
integrating its
and, and implementing a host of human resource-related initiatives to inculcate the
company’s DNA in its new operations. Bharti’s executives felt that these measures had
comprehensively changed the structure of the telecom industry in Africa.
Africa was turning out to be far more complex than Mittal and his team had imagined. By
Fe
uary 2012, it had been over a year and a half since the acquisition, and Bharti was leading in
evenue market share in 9 of 16 countries, including Zambia as well as some smaller markets like
Malawi and Gabon. In Africa’s other larger markets, such as Nigeria, Ghana and Uganda, MTN, its
chief competitor, continued to lead. (Exhibit 1: Bharti’s Position in Africa). In Nigeria, Africa’s largest
market, MTN was improving the quality of its network, emphasizing advanced data offerings, rolling
out mobile payments solutions, conceptualizing applications such as mobile healthcare, and holding
onto its undisputed position as the market leader.
If Bharti continued with its India plan in Africa, investing in rural networks and slashing tariffs,
and demand failed to pick up, the company risked losing money. With a $12.9 billion unpaid loan
(largely on account of an approximately $9-billion unpaid loan from the Zain acquisition) still
lingering on Bharti’s balance sheet, Mittal wondered if that was something they could afford. The
other option was to wait and watch, leave prices at market levels, and focus on u
an and subu
an
areas, until it was clear that the money had trickled into the villages. As Mittal got into his car and
drove towards Bharti’s Nairobi headquarters, he wondered what their strategy in Africa should be.
Bharti in India
The Early Days
Mittal started manufacturing bicycle parts at the age of 18, with approximately $200 bo
owed
from his father, a Member of Parliament from the north Indian state of Punjab. He subsequently
imported portable generators, and assembled push-button telephones in India. In 1992, soon after the
Indian telecommunications market liberalized, Mittal secured a partnership with three other
companies, including Compagnie Generale des Eaux, the precursor to Vivendi of France, to make a
joint bid for the first round of cellular licensing in India. Mittal took a three-month sa
atical to
prepare for the bid, and spent $220,000 on the presentation, which included aerial photography and
satellite imagery2.
The Government of India gave the consortium a license to build a cellular phone network in
India’s capital, New Delhi, and Mittal’s newly-incorporated Bharti Cellular became the first company
to launch mobile telephony services in New Delhi, in 1995, under the
and name of Airtel. The
company sold equity interest to British Telecom and Wa
urg Pincus in order to raise the funds it
needed to acquire licenses to operate in new geographies, and by 2003, Bharti had acquired mobile
licenses for 15 out of India’s 23 circles. By 2004, Bharti was a pan-India operator with running
operations in all circles.
1 BPOs are Business Process Outsourcing firms
For the exclusive use of A. Gupta, 2016.
This document is authorized for use only by Atul Gupta in 2016.
Bharti Airtel in Africa XXXXXXXXXX
3
Like many Indian enterprises, Bharti contained elements of a family business. Bharti was Mittal’s
middle name. Mittal was Chairman and Group Managing Director of the company, while his
other,
Rajan Mittal, was Joint Managing Director, and a third
other, Rakesh Mittal, was on the board of
directors. Akhil Gupta, a chartered accountant and a friend of the family was Chief Financial Officer,
and later became Deputy Group CEO and Managing Director of Bharti Enterprises.
The Minute Factory Model
“In the early days, telecom was an industry where the complexity was daunting,” Gupta said.
“We were committed to making it a very simple industry. So we equated ourselves with
manufacturing. The only difference was that another factory could be manufacturing nuts and bolts,
while we manufactured minutes.”
Bharti learnt the business of telecom from their early European partners, British Telecom and
Telecom Italia. Conventional wisdom then was that mobile telephony was meant for upper class
customers who could pay premium prices. Operators prefe
ed to keep tariffs high, thereby
protecting Average Revenue per User (ARPU), considered one of the most important metrics in the
usiness. High tariffs, they felt, discouraged users from talking too much, which in turn, minimized
the need for network infrastructure, thereby reducing capital expenditure, and improving return on
investment.
But Mittal and his team felt that at an ARPU of Rs XXXXXXXXXXapproximately $222) - then considered a
minimum requirement for a telecom operator to be profitable - their customer base would be
estricted to a small segment of wealthy customers in major cities and a few large towns, and decided
to turn the model on its head. Gupta explained:
The goal of a manufacturing organization is to maximize the number of units produced
while maintaining margin per unit. Similarly, we decided that we would expand production of
our principal output, minutes, keeping margins per minute more or less constant. As we scaled
up, we would pass any cost savings we achieved onto the customer by lowering tariffs, which
would increase demand further, and would allow us to go deeper into the market and reach
lower-income customers. This would result in a rapid increase in minutes and consequently,
overall margin.
Mittal and Gupta believed that how they utilized existing capacity, and how much revenue they
collectively earned from that capacity, mattered most. The focus, therefore, was on growing total
evenues, reducing operating expenses as a percent of revenues (opex productivity), and increasing
evenues as a percent of cumulative capital expenditures (capex productivity). (Exhibit 2: Bharti’s
Key Performance