Bharti looks to Bangladesh to offset Indian market pressures - US$300M investment in Warid Telecom marks entry into largest non-Indian market

Indian mobile market-leader Bharti Airtel (Bharti) is poised to make its first investment in Bangladesh, a market set to become its largest outside of India and potentially a launch-pad for further expansion into Southeast Asia. Bangladesh’s telecoms regulator has given Bharti the green light to invest an initial US$300 million in Warid Telecom, the country’s fourth-largest mobile operator.

The payment is understood to be the first of many investments in Warid over the next few years, which will eventually see Bharti take a 70 percent share in the operator. Unconfirmed reports suggest that total investments could eventually top US$1 billion. Warid Telecom is currently owned by the UAE-based Dhabi Group, which was last month given permission by local regulators to sell the asset. The operator had 2.7 million mobile connections by end-Q3 2009, according to GSMA Intelligence data (see table).

Bharti is the latest in a long line of foreign operators attracted by the high-growth potential of the Bangladeshi mobile market. Market-leader Grameenphone is majority-owned by Norway’s Telenor, Eqypt’s Orascom owns second-placed Banglalink, and Malaysia’s Axiata and Japan’s NTT Docomo jointly control AKTEL, the number three. There are six mobile networks in the country in total; however, mobile penetration is only just above 30 percent, suggesting plenty of room for future growth.

Expansion into Bangladesh is part of Bharti’s strategy to break out of its crowded home market into new emerging territories. In India, Bharti is adding over 8 million new connections per quarter (see table) and yet its market leadership is under pressure from a raft of new market entrants, such as Telenor’s Uninor (which launched in Q4 2009). Fierce competition in the market has inevitably led to extreme price pressures; the effective price per minute in India is close to slipping below US$0.01, making it one of the lowest-cost mobile markets in the world. Although Bharti’s market share has remained stable in India, the operator has warned recently that intense competition and pricing pressures are beginning to impact earnings.

Bharti’s strategy to expand outside of India had been, until recently, dominated by its ill-fated attempt to merge with pan-African mobile firm, MTN. The planned US$23 billion merger – which would have created the world’s third-largest operator group - was shelved for the second time in as many years last September, reportedly due to the South African government’s reluctance to relinquish control of the Johannesburg-based MTN.

The collapse of the deal means that Bharti Airtel’s only current interest outside of India is in neighbouring Sri Lanka, where it launched services in January 2009. The network had reached 1.2 million mobile connections by Q3 2009, commanding an 8 percent market share and taking a third of the country’s net additions in that quarter. Last year, Bharti was linked with a bid for Millicom’s rival Sri Lankan mobile network - known as Tigo - in an apparent attempt to combine the business with its own network in a move that would have created the island’s second-largest mobile operator with over 3 million subscribers. However, Bharti eventually lost out on the deal to Etisalat, which acquired Tigo Sri Lanka for US$155 million in October.

Sri Lanka also represents Bharti Airtel’s only experience in delivering 3G (WCDMA) services to date; WCDMA accounted for over 6 percent of Bharti’s Sri Lankan mobile connections in Q3 2009. This experience could prove vital in the coming year with Bharti expected to be a leading bidder in India’s long-awaited 3G auctions, which are currently scheduled to take place in February. The first 3G licenses in Bangladesh are also expected to be issued later this year.

Matt Ablott, Analyst, GSMA Intelligence:

As market-leader in India, Bharti Airtel has been largely successful in defending its position from an influx of new market entrants and has wisely eschewed some of the more cut-throat pricing strategies deployed by some competitors. Nevertheless, Bharti will continue to face ongoing margin pressure in India as connections growth becomes focused on poorer, rural areas, which could drive down prices further. Now the MTN merger deal is dead – and unlikely to be revived for a third time – Bharti is clearly focused on looking at investment opportunities closer to home; indeed, Bharti could even be a catalyst for consolidation in the Indian market, as many of its competitors are ripe for acquisition. Meanwhile, expansion into neighbouring Sri Lanka last year saw Bharti quickly build a sizable connections base thanks to its strong brand and marketing expertise. It will likely look to pursue a similar strategy in Bangladesh via Warid.