A Great Thumps Up for Bharti Airtel - Zain Deal

After two unsuccessful attempts at acquiring international telecom company (MTN), the efforts of Bharti this time has finally consummated into a deal with a Kuwatian telecom company called Zain.

As part of this deal Bharti would acquire Zain's operations in 15 African countries at the cost of $10.8B

In my view this acquisition will bode good for the company. The reasons are enlisted below

1. The competition in India is getting fierce with ARPUs in India show a declining trend and MOUs becoming inelastic relative to price. Voice has become a commodity. There is a compelling need for telecos to enter new markets and acquire new set of customers.
2. Zain is at No.1 in 10 countries and No.2 in 12 countries.
3. The competition in African part of the world is less as compared to our country. The no of operators in these countries is 3-4 as compared to India which has around 10-12 operators in each circle.
4. ARPUs are 60% higher than in India.
5. Teledensity in African countries is around35%.

However there a few caveats to this -

1. The acquisition is a liitle expensive
2. The infrastructure in Africa is poor which will necessitate capex
3. The operative costs in Africa is higher compared to India because of poor infrastructure and power shortage.

At a time when Bharti is gearing up for 3Gbidding, laying infrastructure in the hinterlands of India, strengthning Warid position this deal will be EPS dilutive for some years.

However given Bharti's strong management and capability of reproducing the minute model in Africa I see the deal though expensive should be good for the company.