Bharti Airtel’s second quarter conference call, yesterday, was focused mostly on its operation in the African continent, and how it is restructuring the Zain operations that it acquired. A roundup of all the Africa data and discussion, mostly with Manoj Kohli, CEO (International) & Joint Managing Director of Bharti Airtel, from the conference call for Q2-11:
– Airtel Brand Launch: in the next week or so. Wont just be a brand launch, Kohli said, but also about improving experience: network, call center service, product, services. Airtel will be “Branding and repositioning the companys approach in each country. New innovations, new offers, which will surprise the customers and the government in a positive way. I think the next 5-6 months post launch will be important.”
– Arresting declining trends: Kohli said that Airtel has arrested the declining trends in revenues and EBITDA in Africa, which were largely due to lack of investment and market participation by Zain. Airtel is redefining strategy country by country, and says it is seeing positive trends
– Addressing unsustainable tariffs, but no price war: Kohli said that Airtel withdrew unsustainable tariffs in 10 out of 16 markets. In some markets, Zain had priced services at 30-40% premioum over its closest competitor, and this was harming its marketshare for the last many quarters, and was unsustainable. “We thought that as the first flush, we should correct this,” Kohli said, hastening to add that it’s not that Airtel doesn’t charge a premium in some markets. “We have sustainable premium of up to 5-10% elsewhere. Every country has an independent market strategy.” Pricing in Africa is healthy, and “We’ll utilize the price power of Africa, but with stable and competitive prices” Kohli said, adding that they’re not in Africa for a price war, despite the speculation about the same in the last few months.
– Interconnect strategy: The interconnect cost has gone up, “because we’re driving the off net traffic, which has traditionally been low in Africa, in some countries, in single digits. It will have to go up because we can’t just drive on-net traffic. We’re working with regualtors to bring down interconnect rates, which are really very high in relation to the GDP per capita of a country. You’ll see the interconnect charges come down over the next year.”
– Distribution model: “We have dealers and distributors, but need to do much more. We need to have a matchbox (FMCG) strategy, of going deep into the market. We will relaunch and have deeper distribution like FMCG companies have, and introduce electronic recharges.” Logistics in Africa are very tough.
– Data & VAS: “Non voice revenue is just about 7%, and there’s a huge opportunity to grow this with m-commerce and 3G data. There is no internet connectivity in terms of DSL in many countries, and we have 3G licenses for 9 countries.” Airtel is going to push data.
– Multi-SIM & Churn: Market faces challenge of multi sim environment (and very little off-net calls). Also due to KYC registration has been initiated in many countries, there is high churn, of around 5-6% per month, which will continue for a short period.
– Cost per employee – India vs Africa: cost per employee is about $4000 per month, higher than India, and this, Kohli said is because the competitive costs are higher. “We also have no outsourcing in Africa today, so we have 6371 employees. As we outsource, the number of employees will transition to partners. However, the cost per employees might go up. We’ll see how productivity can be improved: that’s a program for the next two quarters.” Labor costs in Africa are rather high too.
– On Subscribers per cell site – India vs Africa: As the intensity of network coverage has to be better. network utilization in some parts of africa is very moderate. as the marketing operations become more intensive, you’ll see an improvement, quarter after quarter.
– Network: CapEx deployment is picking up. Airtel will use a low cost model – not necessarily an India model – but a low cost model for Africa. “It’s better to do it early on, than at 100 million or 200 million scale. More and more economies of scale will come to us if we do it now.”
– Towers demerger in Africa? “We’ve been through an understanding of the legal and regulatory framework, for the establishment of a separate tower company in each of these countries. The work has started up, but we’re no way through with it. We should be able to complete that over the next couple of quarters.”
– Access and license charges in Africa? “There is a license fee in africa, of different size in each country, in some in gross revenue, in some on net revenue, linked to the DRx’es you deploy. We’re working with regulators to standardize the definition of adjusted gross revenue. There’s a cost of 3-4%, of license fee and spectrum fee.”
– Complicated Tax Structure: Across the 16 countries in africa, it’s a complicated tax structure for specific numbers. We’ve got several countries that are loss making, and several are profit making. in profit making we’re recording a tax. In some of the loss making countries, we’re not creating a deferred tax asset. when we know they’re turning profitable, which we’re finalizing, we’ll start with recording a deferred tax asset. country tax rates range from 30-35%. A couple of countries have a tax charge on turnover, and others have an MAT charge.