Indian Telecoms: Moving West
Fifteen years ago there was no private telecoms industry in India. Today not only is there a vibrant domestic industry but many of the larger players such as Bharti, Reliance and Tata are now expanding outside India.
One destination in particular – Africa – is proving to be increasingly popular for what we can term both “push” and “pull” factors.
On the “push” side of the equation, aggressive domestic competition has forced the market leaders in India to look for profitable growth opportunities internationally. With some circles now seeing over ten operators compete for subscribers, domestic margins are obviously coming under pressure.
On the “pull” side many African countries offer investment opportunities in a much less competitive environment. Some African countries such as Angola, Mozambique and Libya are still duopolies and many other markets have just three or four mobile operators.
The largest investment to date was of course Bharti’s (lead advised by Standard Chartered) $10.7 billion acquisition of the African assets of Zain, completed earlier in 2010.
This investment by Bharti gave the company an immediate presence in 15 countries, including Nigeria, Kenya and Tanzania, and a number 1 market position in 8 of these countries. It also gave Bharti some 40 million subscribers to add to its 137 million subscribers in India.
Bharti has followed up the acquisition by establishing a regional African headquarters in Nairobi, Kenya, where Manoj Kohli, CEO for Airtel’s international operations, is now based.
Another Indian investor in African mobile in 2010 is Essar Telecom, which is acquiring controlling stakes in Warid, a mobile operator in Uganda and Congo-Brazzaville. When combined with their business in Kenya, Yu, this gives Essar an interesting niche footprint in Africa.
But the mobile industry is not the only telecoms industry in Africa to have benefited from foreign direct investment by Indian companies.
A number of African countries are now licensing alternative operators providing broadband and corporate network services. One of the first examples was a South African company, Neotel, which is now majority owned by Tata Communications and is now positioned as the main alternative operator to incumbent Telkom SA.
Africa is also going through a similar process to India five years ago whereby mobile operators are transferring their towers assets into separate tower cos and monetising the assets through the sale to third party financial or strategic investors. Indian companies which are believed to be evaluating investment opportunities in African towers assets include SREI.
Until recently Africa has also been short of long distance fibre-optic cable systems, which enable rapid and cost-effective voice and data transmission from Africa to the Americas, Europe and Asia. Indian companies have been amongst those investing in this industry over the past few years.
Reliance’s subsidiary FLAG Telecom has been busy investing in NGN System 2 over the past few years, a subsea cable which connects India with a number of landing points on Africa’s east coast, including Kenya, Mauritius and South Africa.
Tata Communications has also been very busy as an investor in three subsea cable projects – SAT-3 which links Europe with South Africa via a number of west African landing points; SAFE which connects India and Malaysia with South Africa; and WACS, another African west coast subsea cable project.
Finally Bharti has invested in the EASSy cable project, which links Sudan in north-east Africa with South Africa via several east African landing points.
With consolidation in the Indian telecoms industry likely to take several more years to materialise, Indian companies are likely to continue to source more investment opportunities in Africa in the future.
Bharti may selectively add to its mobile portfolio and could also build a towers model in Africa similar to Bharti Infratel. It is also possible that other Indian towercos, including GTL Infrastructure and Reliance Infratel, will make acquisitions.
Investment in subsea cable systems is likely by all companies with operational interests in both India and Africa, both for their own traffic but also to support the ever-growing India-Africa trade channels.
So don’t be surprised if again Africa and not Bangalore is making the headlines in 2011 as the main investment destination by Indian telecoms companies.