To compete with Reliance Jio, Bharti Airtel is exploring to sell Burkina Faso, Chad, Congo B and Sierra Leone to Orange

Bharti Airtel’s Africa operations has not been performing as per expectations and it is now official that the company is in talks with Orange to sell its operations in four countries – Burkina Faso, Chad, Congo Brazaville and Sierra Leone.

First, let’s look at some key numbers for Airtel Africa. In 2014, the revenue numbers for Airtel Africa was Rs 27,249 crore and net loss was Rs 1,855 crore. In 2015, the revenue numbers was Rs 26,907 crore and net loss was Rs 3,548 crore. In last one year, the revenue numbers decreased by 1.3 percent whereas net loss increased by 91 percent. The increase in net loss was due to currency devaluation because of drop in oil prices. So, Airtel’s strategy is to divest its portfolio in countries which are not paying off and are difficult to manage and invest in geographies which are paying off.

Second, Airtel needs to invest a lot in 4G services if it plans to take its competitor, Reliance Jio head on in 4G services. Reliance Jio has already invested Rs 70,000 crore in pan-India 4G services and plans to invest another Rs 180,000 crore in digital pillars be it infrastructure, devices, content, distribution and start-up fund. The limited sale of African operations will definitely help Airtel draw funds to invest in 4G services back in India.

Airtel Africa Statistics (as on March 31, 2015)
Customers in Africa – 76.3 mn
Revenue FY 2014-15 – Rs 26,907 crore
Net Income FY 2014-15 – Rs (3,548) crore
Data Customers – 30.4 mn
Airtel Money Customers – 6.2 mn in 17 countries
Sites/3G Sites – 18,819/10,011
Employee – 5,130
3G Launched – 16 countries
Operational – Kenya, Ghana, Sierra Leone, Tanzania, Zambia, Uganda, Malawi, Democratic Republic of Congo, Niger, Burkina Faso, Gabon, Chad, Congo Brazaville, Madgascar, Seychelles, Nigeria and Rwanda
Source: Bharti Airtel; TeleAnalysis

Orange Africa Statistics (as on Q1, 2015)
Customers in Africa & Middle East – 101 mn
Orange Money Customers – 13.3 mn
Revenue 2014 – Euro 4.3 bn (Africa & Middle East)
4G Launched - Botswana (Feb) and 2 countries with 4G end of Q1
Operational – Botswana, Cameroon, Côte d’Ivoire, Egypt, Guinea Conakry, Kenya, Madagascar, Mali, Mauritius, Morocco, Niger, Central African Republic, Democratic Republic of Congo, Reunion Isle, Senegal and Tunisia
Source: Orange; TeleAnalysis

Third, Airtel Africa operation is not being profitable in 2015 and also looks unlikely to be profitable in 2016. It is also taking a lot of top management bandwidth for Bharti Airtel. The divestment in few countries in Africa will help Bharti Airtel to conserve on management bandwidth which can be be utilized to counter competitors like Reliance Jio in India.

Fourth, the Airtel Africa capex has been increasing in the last one year. For e.g. Airtel Africa’s capex in FY 2013-14 was Rs 3,842 crore and the capex for FY 2014-15 was Rs 6,538 crore, an increase of 70 percent. The capex will increase further due to regulation and 4G services rollout as competition is rolling out 4G services in few countries. In Burkina Faso, the regulator is considering imposition of fixed line obligations on operators. In view of this regulation, Airtel will have to incur huge financial outlay that will be required for cabling and wiring.

The Africa sale would be a win-win for Orange as this helps in increasing its geography in Africa to 20 countries. For Orange, Africa and Middle East is their highest growth geography in Q4, 2014 as Africa and Middle East grew by 7 percent whereas all other geographies have shown a negative growth be it France, Spain, Poland, rest of Europe and enterprise divisions.

Airtel Africa sale definitely helps both Airtel as well as Orange but one needs to see the outcome of Bharti Airtel and Orange talks with respect to Africa operations

original post published in teleanalysis.com

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