Mumbai, India (PressExposure) July 04, 2011 -- Last June, both Sunil Mittal and BhartiAirtel were the toast of the town. The $9-billion acquisition of Zain Africa transformed the 53-year-old Mittal into a global entrepreneur. And it made Airtel the fifth largest mobile operator in the world, with a footprint in 19 countries.
Exactly a year later, things look drastically different. Airtel's profits have fallen for five quarters in a row, unprecedented for a company that set benchmarks for record growth and profits in the past. It is losing revenue and market share in India. And the latest, as reported by ET on June 25, is that Airtel India is undertaking a major operational restructuring - a move that could affect almost 2,000 jobs. The company responded on Saturday saying the restructuring won't affect many jobs.
And the thing for Mittal is that the news from Africa is not cheery either. Airtel's Africa operations have missed most internal targets that it first set out for the first year - from revenues, subscriber base to profitability. Most of its operations are still making losses. Airtel had initially hoped to turn them around in 12-15 months. Outsourcing non-core operations - a practice Airtel pioneered in India - have taken longer than it was expected to in Africa. The company underestimated the cost of turning around Africa operations.
And now, to meet the growth targets there, Airtel has had to increase its Africa capex by 50% in 2011-12. "Africa with 16 countries is far more complex than India. One size fits all will not work here. They took a simplistic approach," says Federico Membrillera, managing partner, Delta Partners.
That Airtel's India operations are facing headwinds is not news. With growth peaking, especially in meatier markets like cities, average revenues per user (ARPUs) have been falling. It dropped 12% in the fourth quarter of 2010-11. The competitive intensity in the Indian market has risen with as many as nine operators in each telecom circle fighting for customers on the back of tariff cuts. Airtel India's big bet on next-generation 3G services, for which it took `13,400 crore debt for buying spectrum, is yet to pay off significantly.
The bad news from Africa - both on costs and timelines - has come as a bigger surprise. Africa-based experts point to three things. One, the company underestimated the level of complexity and set unrealistically aggressive targets. Two, Zain had made little investment in infrastructure in the African operations.