Company Trend Analysis - Airtel Looks To Consolidate In Africa - FEB 2018

BMI View : Unable to continue financing unsuccessful ventures in Africa with its domestic revenues, we believe Airtel is actively looking to consolidate or sell off some of its ventures in East Africa. Profit in the continent is being driven by VAS and data packages and Airtel will attempt to improve its market position through consolidation , starting with a purchase of Millicom ' s Rwanda operation and a bid to take over Etis alat ' s former unit in Nigeria.

Airtel relies heavily on its domestic Indian market to compensate for losses in other regions. Low population density, lack of purchasing power and strong competition from established players has prevented Airtel's low-margin high-volume strategy from flourishing. As such, it has been repeatedly reported by media that the operator is considering selling some of its African units in order to reduce overall company debt, specifically mentioning operations in Kenya, Tanzania and Rwanda.

Airtel Losing Ground In Unprofitable Markets
Airtel's Market Share in Kenya, Tanzania and Rwanda (%), 2015-2017
Source: BMI, regulators.

Airtel has stated that it is open to consolidation opportunities, either through acquisitions or mergers. It has already entered a joint-venture with rival Millicom's Tigo in Ghana and in mid-2015 acquired subscribers of Essar-owned Yu Mobile in Kenya in a SH8bn (USD77.5mn) shared deal with its rival Safaricom. It also bought off Warid in Uganda and Congo Brazzaville. More recently, in December 2017, Airtel has acquired Millicom's Tigo Rwanda, positioning Airtel as the second operator in the country.

  • In Tanzania, Airtel lags behind Vodacom and Millicom's Tigo in market share but we do not discard the possibility that it might acquire or merge with Tigo, which would make Airtel the largest operator in the country;

  • Airtel has also been listed as one of five qualified bidders to acquire 9mobile, Nigeria's fourth largest network operator and former Etisalat unit. If successful, it would become the largest operator in Nigeria, ahead of MTN and Globacom Ltd, but it would have to take on 9mobile's USD1.2bn debt. Airtel has previously shown strong interest in its Nigerian unit, increasing its ownership in November 2016 by purchasing Econet Wireless Limited's 4.2% shareholding;

  • In Kenya, Orange has already withdrawn from an highly competitive market dominated by Safaricom, which has a 72.6% market share. We do not believe consolidation or acquisition to be a viable possibility for Airtel, but it is not an attractive market for other players either ( see ' Orange Greatest Beneficiary Of Airtel Africa Pullback', May 3 2017). In any case, Airtel would have to cede at least 20% of its stake in Airtel Kenya to local investors before a planned full exit from the country as part of strict conditions by the industry regulator.

Airtel Africa turned to profit for the first time in FY17, witnessing a 3% y-o-y increase in revenues: data is a key growth driver and Airtel Money provides money transfer services in six countries. We believe Airtel will continue to pursue market consolidation to invest in VAS services and increase ARPUs, but do not completely discard the possibility that Airtel will exit some of its worst-performing markets, either partly or fully.