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Airtel acquisition of rival Warid Telecom reshapes competitive ladnscape

Edris Kisambira | April 25, 2013
In acquiring Warid Telecom Uganda, Bharti Airtel beat off competition from South Africa's Vodacom and set the stage to reshape competition in the region

In acquiring Warid Telecom Uganda, Bharti Airtel beat off competition from South Africa's Vodacom and set the stage to reshape competition in the region

Negotiations between the Abu Dhabi-based owners of Warid Group and the two rivals have been ongoing for some time but the fact that Airtel has already done a transaction like this with Warid Group when buying their Bangladesh operation most likely tipped the scales in their favor.

Airtel was not looking at Warid from a Ugandan or Africann perspective but on a global scale, said Tom Makau, an independent telecoms analyst based in Nairobi.

"Warid is a very worthy player in the telecom sector," Makau said. "There are many factors other than subscriber base that Airtel is looking at in this buyout; key among them is Warid's existing infrastructure and channel network that Airtel can leverage on to grow in Uganda."

With the acquisition, Airtel will consolidate its position as the second largest mobile operator in Uganda with a combined customer base of over 7.4 million and a market share of over 39 percent.

Airtel currently has 4.6 million customers in Uganda and Warid has 2.8 million while market leader MTN Uganda has 7.7 million subscribers.

Manoj Kohli, the Managing Director and CEO (international) Bharti Airtel said the buyout of Warid "happens to be the first in-market acquisition in Bharti Airtel's history."

Warid, which entered the Ugandan telecommunications market five years ago, has been the country's third largest player after MTN, which is the leading player, with Airtel in the second position.

Makau said consolidation of telecom operators in small markets like Uganda is inevitable and this will not be the last time a merger of this kind happens.

He said the takeover will enhance Airtel's appeal to both potential investors and customers as it will now own a bigger operation in Uganda.

While Warid has not come out to give reasons why sold, analysts say that the only way African telcos will survive and become profitable is by lowering their operating costs and at the same time extending their networks to reach more people.

"The easiest way to lower costs from a total market perspective is to merge similar roles/duties and any duplication of resources," Makau said. "This can only be achieved by merging companies. At the moment there is a lot of duplication especially in marketing and infrastructure."

Warid came into the African market with a pricing model that won them market share, but never anticipated that profitability would be elusive with such an approach, said James Wire Lunghabo, a Uganda-based telecom analyst.

"The target market that likes cheap calls also usually has lower average revenue per user and this does not augur well for a telecom that is here to do business and return value to its shareholders in terms of dividends," Wire said.

 

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