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With Zain Africa Under Its Fold, Bharti Has To Now Deal With 15 Currencies, 15 Governments & 15 Regulators, Says Sunil Mittal
How different will be the new Bharti from the old one? What are the key challenges?
Parts of old Bharti must stay — these include our agility, decision-making process and focus on customers. But, large parts will have to undergo a change. Zain presents us with 15 currencies instead of one, and some of them are volatile. Then there are 15 governments and 15 regulators. Another issue is that we don't speak French and most of the documents in many of the countries are in French. Thankfully, we are inheriting a well-oiled machine with 6,500 professionals. From predominantly being an Indian company, we will now be present across 18 countries and will be a global player. Such growth typically happens over a period of 20-40 years if you look at global examples. But, for us, it is like boom and then suddenly we are in 18 countries. We have the best hand to lead us in Manoj (Kohli), who will be moving to Africa along with another 20-25 people from Bharti.
You tried twice to get MTN. There is a perception that in Zain, you settled for the second best...
We did not settle for the second best. Zain is just a smaller company. The brand Airtel can now be in Africa. In the case of MTN, it would have been their brand and their management. Yes, they have a larger footprint, but Zain works out better for us. It allows us to export our business model to Africa.
It is believed that you are looking at infrastructure sharing with MTN...
I talk all the time with MTN's CEO Phuthuma Nhleko and there will soon be an open invitation to it from our side for infrastructure sharing. We believe that Bharti Airtel is pretty good with that as we have done sharing deals with our fiercest rivals in India —Vodafone Essar and Idea Cellular. I am sure we can do the same in Africa. But, it is up to MTN. In many countries our operations are overlapping. I have spoken with them and it makes sense to share networks.
What will be the debt position at Bharti after the deal and the payment made for 3G licence?
We paid more than Rs 12,000 crore for 3G and it now depends on where the broadband wireless spectrum auction goes. So, suddenly, from no debt to more than $10-billion debt. The total payment we have to shell out to Zain is $9 billion. But the high point is that we picked up this debt at less than 2% (interest). So, if we look at Africa separately, it is costing me less than $200 million a year. The EBIDTA of our Africa operations is currently about $1.2 billion. We also have to pay the principal of the loan, but this is a long-term loan. Africa is already generating free cash flow and so the loan will be taken care of. Coming back to India, our EBIDTA is close to $3.5 billion and even if we pick up debt for 3G and BWA, our debt is less than three times that amount. People say this is very high, but Reliance Communications is close to four times.
When will Zain's African operations begin to make profits for you?
In our industry, if you stop growth, you will be profitable tomorrow. Remember how long Airtel was in losses? If I have to reach 100-million customers in Africa fast, it needs more investment in networks and then net profit will not be upcoming soon. That is a good problem to have. We used to say the same thing to investors in India. Do you need profit or growth? They all went for growth and for 15 years we did not give dividend, but at the same time we built a $50-billion market-cap company. But, this was prior to all the regulatory uncertainties that is impacting the sector today.
Investments in Zain...
Zain has been investing about $1.2 billion every year, of which about $700-800 million has been on networks. All I would like to say is that we would like to accelerate the network rollout. The $700-800-million network rollout in our hands will work much longer and so we are in good shape. Mostly, expansion will be financed by internal accruals because our buying is significantly better.
Can you share some operational details on Zain?
Zain will be a100% subsidiary of Bharti. We have not decided as to who the chairman will be, but Manoj Kohli will be its managing director. We see Zain as part of Bharti Airtel — when they are 100%-owned companies, it does not matter who the chairperson is because we are not going to be running a separate board. But, there will be an Africa advisory board that will have specialists from that continent. There will then be the main Bharti board, which will now have one or two people who will understand Africa better. There are already two executives in my mind whom I plan to bring to the Bharti Airtel board. Zain DB will now be called Bharti Airtel International BV. For the first few years, Africa needs to run on its own steam and our operations there will rely heavily on what we have done so far with IBM, Ericsson, Nokia Siemens here along with the processes we already have in place for supply chain and IT. One area that will get stitched very quickly is IT platform, it will get integrated first as this is the bedrock for all telecom companies.
We understand that not all of the leadership team wanted to move to Africa. Did you have to force people to move?
There was no resistance from people to move to Africa. Mr Manoj Kohli, who could have run the operations from here, first took a call that he would be based in Africa and then other people decided to move there along with him. At Bharti Airtel, we put out a mail just two weeks ago on our Africa policy-benefits, packages for moving and other details. Over 120 top employees applied and we selected about 20. To say all the people we had in our minds agreed to move will be wrong.
There have been reports that you have not got regulatory approvals in Kenya, Ghana, Malawi and Nigeria...
In Nigeria, no approval is required. As for Ghana, we have already got the approval. Even in Kenya, we have got the requisite approvals. The Kenyan government has constituted a committee to look into the transaction and see if taxes have been paid, and we have provided all the details. But that does not mean they will not ask more questions. In Nigeria, for example, there is a litigation with some shareholders, but the Nigerian government has said their approvals are not required.
African operators fear that you will lower tariffs, which will destroy their business model...
Tariffs in Africa are nearly 15-20 times that of India. There is huge scope for reductions. When we had entered into an agreement with MTN, their share price was at 160 and it is down of 100. So, there is this fear. But, we will not be reckless and will grow the minutes and then bring down tariffs. We can stroke tariffs a bit, but it cannot be as low as that in India because it is spread over 15 countries and each one has a different market condition. But certainly, we will make it far more affordable.
Your Indian business models leads to a lot of outsourcing. We understand that you will outsource all key functions of Zain in Africa. What is the status of these initiatives?
Yes, we will outsource all key operations of Zain and tenders for the same are already out. I will meet IBM executives over the next couple of days. We have invited bids from IT firms too and Mr Premji has even met me on this issue.
Personally for you, you have been chasing an acquisition for the last three years. Is this because you feel that growth in India will no longer be as it was in the last 10 years?
This is one of the factors, but not the main factor. If you look at it, even in 1997 we were looking at Africa. Our growth in India happened only after that. (Bharti launched services in India in 1995). We were bidding for licences in Botswana in 1997, then we launched operations in Seychelles and then again in 2005, we tried to buy Celltell (in Kenya), but Zain acquired the firm. Then we went through MTN-I and MTN-II. At the time of MTN-I, the growth in India was blistering. We want to grow and it is our desire to have $20 billion in revenues and we have set a time frame for that. In India, the revenue has tapered down and we have been hanging at the Rs 40,000-crore mark for a while.
Parts of old Bharti must stay — these include our agility, decision-making process and focus on customers. But, large parts will have to undergo a change. Zain presents us with 15 currencies instead of one, and some of them are volatile. Then there are 15 governments and 15 regulators. Another issue is that we don't speak French and most of the documents in many of the countries are in French. Thankfully, we are inheriting a well-oiled machine with 6,500 professionals. From predominantly being an Indian company, we will now be present across 18 countries and will be a global player. Such growth typically happens over a period of 20-40 years if you look at global examples. But, for us, it is like boom and then suddenly we are in 18 countries. We have the best hand to lead us in Manoj (Kohli), who will be moving to Africa along with another 20-25 people from Bharti.
You tried twice to get MTN. There is a perception that in Zain, you settled for the second best...
We did not settle for the second best. Zain is just a smaller company. The brand Airtel can now be in Africa. In the case of MTN, it would have been their brand and their management. Yes, they have a larger footprint, but Zain works out better for us. It allows us to export our business model to Africa.
It is believed that you are looking at infrastructure sharing with MTN...
I talk all the time with MTN's CEO Phuthuma Nhleko and there will soon be an open invitation to it from our side for infrastructure sharing. We believe that Bharti Airtel is pretty good with that as we have done sharing deals with our fiercest rivals in India —Vodafone Essar and Idea Cellular. I am sure we can do the same in Africa. But, it is up to MTN. In many countries our operations are overlapping. I have spoken with them and it makes sense to share networks.
What will be the debt position at Bharti after the deal and the payment made for 3G licence?
We paid more than Rs 12,000 crore for 3G and it now depends on where the broadband wireless spectrum auction goes. So, suddenly, from no debt to more than $10-billion debt. The total payment we have to shell out to Zain is $9 billion. But the high point is that we picked up this debt at less than 2% (interest). So, if we look at Africa separately, it is costing me less than $200 million a year. The EBIDTA of our Africa operations is currently about $1.2 billion. We also have to pay the principal of the loan, but this is a long-term loan. Africa is already generating free cash flow and so the loan will be taken care of. Coming back to India, our EBIDTA is close to $3.5 billion and even if we pick up debt for 3G and BWA, our debt is less than three times that amount. People say this is very high, but Reliance Communications is close to four times.
When will Zain's African operations begin to make profits for you?
In our industry, if you stop growth, you will be profitable tomorrow. Remember how long Airtel was in losses? If I have to reach 100-million customers in Africa fast, it needs more investment in networks and then net profit will not be upcoming soon. That is a good problem to have. We used to say the same thing to investors in India. Do you need profit or growth? They all went for growth and for 15 years we did not give dividend, but at the same time we built a $50-billion market-cap company. But, this was prior to all the regulatory uncertainties that is impacting the sector today.
Investments in Zain...
Zain has been investing about $1.2 billion every year, of which about $700-800 million has been on networks. All I would like to say is that we would like to accelerate the network rollout. The $700-800-million network rollout in our hands will work much longer and so we are in good shape. Mostly, expansion will be financed by internal accruals because our buying is significantly better.
Can you share some operational details on Zain?
Zain will be a100% subsidiary of Bharti. We have not decided as to who the chairman will be, but Manoj Kohli will be its managing director. We see Zain as part of Bharti Airtel — when they are 100%-owned companies, it does not matter who the chairperson is because we are not going to be running a separate board. But, there will be an Africa advisory board that will have specialists from that continent. There will then be the main Bharti board, which will now have one or two people who will understand Africa better. There are already two executives in my mind whom I plan to bring to the Bharti Airtel board. Zain DB will now be called Bharti Airtel International BV. For the first few years, Africa needs to run on its own steam and our operations there will rely heavily on what we have done so far with IBM, Ericsson, Nokia Siemens here along with the processes we already have in place for supply chain and IT. One area that will get stitched very quickly is IT platform, it will get integrated first as this is the bedrock for all telecom companies.
We understand that not all of the leadership team wanted to move to Africa. Did you have to force people to move?
There was no resistance from people to move to Africa. Mr Manoj Kohli, who could have run the operations from here, first took a call that he would be based in Africa and then other people decided to move there along with him. At Bharti Airtel, we put out a mail just two weeks ago on our Africa policy-benefits, packages for moving and other details. Over 120 top employees applied and we selected about 20. To say all the people we had in our minds agreed to move will be wrong.
There have been reports that you have not got regulatory approvals in Kenya, Ghana, Malawi and Nigeria...
In Nigeria, no approval is required. As for Ghana, we have already got the approval. Even in Kenya, we have got the requisite approvals. The Kenyan government has constituted a committee to look into the transaction and see if taxes have been paid, and we have provided all the details. But that does not mean they will not ask more questions. In Nigeria, for example, there is a litigation with some shareholders, but the Nigerian government has said their approvals are not required.
African operators fear that you will lower tariffs, which will destroy their business model...
Tariffs in Africa are nearly 15-20 times that of India. There is huge scope for reductions. When we had entered into an agreement with MTN, their share price was at 160 and it is down of 100. So, there is this fear. But, we will not be reckless and will grow the minutes and then bring down tariffs. We can stroke tariffs a bit, but it cannot be as low as that in India because it is spread over 15 countries and each one has a different market condition. But certainly, we will make it far more affordable.
Your Indian business models leads to a lot of outsourcing. We understand that you will outsource all key functions of Zain in Africa. What is the status of these initiatives?
Yes, we will outsource all key operations of Zain and tenders for the same are already out. I will meet IBM executives over the next couple of days. We have invited bids from IT firms too and Mr Premji has even met me on this issue.
Personally for you, you have been chasing an acquisition for the last three years. Is this because you feel that growth in India will no longer be as it was in the last 10 years?
This is one of the factors, but not the main factor. If you look at it, even in 1997 we were looking at Africa. Our growth in India happened only after that. (Bharti launched services in India in 1995). We were bidding for licences in Botswana in 1997, then we launched operations in Seychelles and then again in 2005, we tried to buy Celltell (in Kenya), but Zain acquired the firm. Then we went through MTN-I and MTN-II. At the time of MTN-I, the growth in India was blistering. We want to grow and it is our desire to have $20 billion in revenues and we have set a time frame for that. In India, the revenue has tapered down and we have been hanging at the Rs 40,000-crore mark for a while.
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