Is Airtel is exiting Africa? Perhaps by the end of this article, you should have the answer. Airtel has already sold four of their telecom companies in Africa. The company is searching for buyer for the next batch.
Africa has been described as a rising continent, so why is Airtel exiting? We track the origins of their problems that have pushed them to the verge of exiting the telecom market.
Sometime in 2010 or even earlier, Bharti Airtel Telecom almost bought MTN Group. The takeover deal was almost done. However, the two parties disagreed on small issues like colors and the name of company and that saved MTN.
Frustrated, Bharti bought struggling Zain at higher than her actual market value. The company was bought at $ 11 billion. However, reliable sources say, the company’s actual value was $8 billion. This was the beginning of problems to come. Zain Africa was already in red with loss of $100m (Ugx. 366b). The investment decisions made were perhaps the worst the company will ever make and one is left wondering where the motivation to takeover a limping company with a weak portfolio came from!
Bharti had high expectations from Zain. In fact Bharti price at India Stock exchange went up. With Nairobi, Kenya as its base, the team in Africa was given all support, finances to turn around the company in three years. Without deep understanding of the continent, they invested heavily.
Africa as a continent has many dynamics which every serious investor must understand before making critical financing decisions. Each country was a unique way of doing things thus the one-size-fits-all approach could not work in Africa.
-each country needed different approach.
Cut and paste model
Their first mistake was to import ‘tested’ business models from India to Africa. In fact, the first batch of senior management was made of Indians. Well these had the experience but that experience was not localized to the unique business realities of the countries they were placed.
For instance, for the company to attain and retain a reasonable market share required a deep understanding of the demographic and other factors influencing consumption behaviours in our young economies. Sadly, these white collar international managers, lacked local knowledge- and that was bad for business in a very competitive market like telecom. Bharti learnt this late.
Aerial bombardment never wins a war
To borrow military field terms-Airtel used Aerial bombardment will never win a war. It can only win a battle. Airtel launched call massive advertising campaign -with large billboards, they were all over TV and Radio. In fact today, Airtel Uganda is number one Advertiser-the big question, where are numbers and revenue. Today Airtel Uganda is still making losses and said to be heavily in debts.
Management ignored the need to first build the brand and thus win hearts of customers and this takes time. Meanwhile their rivals invested heavily in brand building and were able to sustain it-Airtel has just realized this. When perhaps it’s too late for them.
Poor distribution model
When they came, they thought everything of theirs was the best- so was distribution model. They dropped Celtel’s distribution which was proving effective and went for the Indian model of micro distribution. Little didn’t they know that this model only works with countries with large population and only helps you get quick numbers, because you can easily penetrate market-however profitability for distributors is minimal. You can hardly attract well grounded distributors. It’s little wonder then that Airtel Uganda has no well known distributors you can talk about.
On the contrary, MTN Uganda invested in hired big distributors who are well capitalized and more so opinion leaders-the likes of Patrick Bitature, Charles Mbiire-these are solid businessmen-in the end, they have managed to sustain MTN distribution. These also helped MTN in brand building and regulatory issues.
At one point, majority of MTN distributors were politicians meaning, they were people with influence-likes of Hon. Tim Lwanga, Hon. Otada, Hon. Oryem among others. These were grounded businessmen, seasoned entrepreneurs not short-term businessmen. These could easily influence policies at all level. For example Hon. Tim Lwanga was at one time Minister. Sadly, Airtel has never had such caliber of ‘business partners’ in their distribution system and gradually the comparative disadvantage of this seems to manifest itself in the company’s failure to outflank MTN, in spite of the former’s pioneer advantage in the industry in the country.
In Uganda some people will buy fuel from petrol station A not because of price but just because they know the owner or want to associate with owner or brand. Airtel does very badly on brand loyalty. Many of the first users of telecom services in Uganda –about two decades ago- describe Airtel’s predecessor, Celtel, as having cheated them.
When the numbers and revenues failed to come early, regional office in Nairobi would swiftly move in to fire the CEO. In Kenya, for example, Airtel has had seven CEO’s in the last 11 years while their rival Safaricom has had only 2 in same period. This is strategic management flaw on the part of Airtel. It takes time for a new CEO to understand the market, consumption culture, and associate with regulators and all people who matter including identifying the right team to work with. As he settled, he would be fired or recalled, creating an instability that would give mileage to competitor.
In Uganda, Airtel had reduced the gap with their major rival MTN in 2013 in fact there was a likelihood that Airtel would overtake MTN, only for regional office to fire Somakhar. For the first time, Airtel, in 2013, Airtel made profit of Ugx 52 billion and made to reduce on accumulated losses, he also showed rise in number of data and Mobile Money subscribers. How do you fire such a good CEO with a proven performance record? They are now paying the price for this action.
The same mistakes were committed in Chad, Gabon and Zambia. In Gabon, Airtel was the market leader and lost their it. Gabon is a small, rich country with about the highest Average Revenue per User in Africa.
One of the factors that have pushed heir operating costs up the roof and leading to huge finance deficits is abnormal salaries to employees. Research has it that Airtel company pays the highest salaries across Africa-the salaries are above market prices. This they inherited from Zain.
It’s little wonder whenever they operate, they attract the best brains. In Kenya, for example, Airtel has been poaching Safaricom employees by doubling their salaries but little has been achieved. With close to 200 employees at the regional office in Nairobi, you can only imagine the size of the monthly administrative budget. These employees are unable to perform because of reasons highlighted above.
Now that the mother company is tired of funding Airtel Africa activities after years of making losses, what should we expect? At the regional office in Nairobi, more than half of the employees have been sacked. From close to 200 employees, today there only 120 and more are yet to lose their jobs. Similar cost cutting moves have been adopted across Africa. It’s a tough call. That’s Airtel for you.
In our next article, we will analyse Airtel Uganda financial reports for last three years.
More about the Author: click here: Moses Kaketo