Tuesday, May 26, 2009

Frost on MTN and Bharti Airtel Round 2

SOUTH AFRICA: MTN announced that it is exploring a potential transaction with Indian telecommunications giant Bharti Airtel. The proposed deal would see MTN acquiring 25 percent of Bharti, and Bharti acquiring effectively 49 percent of MTN’s share capital.

This is the second time that MTN and Bharti have entered into discussions. There were attempts to come to some sort of agreement last year, but the proposed transaction fell through, apparently due to disagreements about what each partner wanted to achieve.

“I think the important thing is that this time there is a clear definition of what MTN and Bharti are looking for,” says Frost & Sullivan senior ICT industry analyst Lindsey McDonald. “Last time, Bharti wanted to buy MTN, then MTN turned around and wanted to buy Bharti. What eventually led to the breakdown was that the management of MTN didn’t want to give up their ability to steer the company in the direction they think best.”

The transaction proposed today however seems to offer clearer benefits to both participants.

“It’s a partnership,” McDonald explains. “Basically what will happen is that both companies will get exposure to new revenues from areas they are not already in, without having to go there and establish new operations themselves.”

She says that, given the current economic climate, it would be difficult for MTN to launch its own operations in an entirely new market.

“MTN is trying to increase its exposure to new revenue streams without taking the risk of having to start operations in a new market,” she says. “It’s always difficult to go into a new country, install new infrastructure and come to grips with a new group of customers and a new culture. But the economic conditions are such that going into a new market now would be even more risky.”

MTN has already given a hint of its new approach this year through its partnership with Neotel.

“The company has made it clear that it is looking to ensure it maintains margins by taking an approach to the market that is more cautious than the MTN we might have known a few years ago,” McDonald says.

She believes that the two operators need to concentrate on what they have in common. Bharti is the market leader in India and MTN is a market leader in Africa.

“The good thing about this is that this partnership would see the two companies cooperating with each other,” she adds. “As there is no overlap in footprint, their operations would be complimentary.”

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