Bharti's futuristic call

Bharti Airtel’s acquisition of an undersea cable company does make sense given the stress on voice revenues

Bharti Airtel’s acquisition of Zain Telecom in 2010 for a sizeable $10.7 billion was met with a high degree of pessimism. Not only was the price high but there was uncertainty on how the Indian telco would tackle an unknown market like Africa, where it was buying Zain’s assets in 17 countries. That apprehension has not been entirely unfounded and after six years, Airtel has not had it easy. Africa remains a thorn in Airtel’s flesh, with the operation continuing to be in the red. The company has either had to sell telecom towers in the continent or just exit its operations in countries like Burkina Faso and Sierra Leone, with the intention of cutting losses.

Now, Airtel, through its subsidiary, Network i2i, has announced it will buy over Middle East North Africa Company Submarine Cable Systems (MENA-SCS), an entity owned by Egypt’s Orascom. This network runs between India and Europe through West Asia with an option to extend it to Africa.Though the acquisition price has not been disclosed, international media reports have pegged it at $100 million, with Orascom said to have invested 3x that number. This is said to be a high quality optic network capable of carrying data at very high speeds. Airtel already has a network that covers 50 countries and this deal will allow it to offer data and enterprise services across both Africa and South Asia. It will give Airtel another 9,000 km of undersea cable and add to its existing 2.25 lakh km.

With the voice business globally failing to make serious money, the shift towards data and enterprise solutions is what telcos are focusing their attention on. Deven Choksey, managing director, KR Choksey Securities, points out that voice is largely commoditised and companies have had to look at different ways to shore up revenues. “A company like Airtel needs to move beyond being a service provider to now taking part in the overall telecom infrastructure story,” he says.

Without a doubt, the long-term strategy is to get a slice of the African story. According to Choksey, the dark continent is witnessing some big-ticket investments, especially from China. “As Africa integrates itself with the rest of the world, it will see a huge demand for data. This is what Airtel is banking on,” he maintains. Even in India, for the large telcos, data brings in at least 20% of its revenues, an increase of over 100% in barely two years. In a statement after the buyout of MENA-SCS, Airtel said it provided a high quality and diversified new route to Western Europe and the rest of the world.

For a while now, Indian telcos have tried growing their submarine cable business. In late 2003, the then Reliance Infocomm acquired Flag Telecom for $207 million (then ₹1,000 crore), which gave it 50,000 km of undersea optic fibre cable. Tata Communications has invested over $1 billion in its network, making it among the largest players globally. For Airtel, which like other telcos in India, is facing the onslaught from Jio, the need to look at more robust revenue streams is very critical at this juncture. Though the Zain deal has been no more than frosty thus far, the data and enterprise story could just end up opening a new trajectory altogether. These are still early days and a strategy beyond voice in an emerging market could just stand Airtel in good stead. However, it is sure to be in the long haul.