Big deal

Chris Gilmour, an analyst with Absa Investments, says India has always been good with technological innovation and research and development, which can only benefit Africa and SA should the deal go ahead.

Bharti, according to its website, is India`s largest integrated and the first private telecom services provider with a footprint in all of the 23 telecom circles. It has three business units: Mobile Services, Airtel Telemedia Services and Enterprise Services.

The mobile business provides mobile and fixed wireless services, using GSM technology, while the Airtel Telemedia Services business offers broadband and telephone services in 95 cities and has recently launched a Direct-to-Home (DTH) service, Airtel digital TV.

The Enterprise services provide end-to-end telecom solutions to corporate customers and national and international long-distance services to carriers. All these services are provided under the Airtel brand.

Gilmour says, "India has access to fantastic technology, which can only benefit Africa and SA". In addition, trade relations between India and SA  hich have been good since the end of apartheid - should be bolstered as a result of the deal, which should open up telecommunications access.

The opening up of the African continent through new cables would allow for greater ease of access, as well as more innovation, Gilmour says. In addition, MTN subscribers would have access to Bharti`s innovations, as well as additional funding, which could improve coverage.

BIG BHARTI

Bharti had almost 90 million customers at the end of last year, of which 85.7 million subscribe to its GSM voice services and 2.6 million use its Telemedia Services, either for voice or broadband access delivered through DSL. It is the largest wireless service provider in the country, based on the number of subscribers at the end of last year. Airtel also offers mobile services in Sri Lanka on a 3.5G network.

The company also provides an integrated suite of telecom solutions to its enterprise customers, in addition to providing long-distance connectivity both nationally and internationally. It recently made a foray into media after launching DTH and IPTV Services.

It also deploys, owns and manages passive infrastructure pertaining to telecom operations under its subsidiary Bharti Infratel. Bharti Infratel owns 42% of Indus Towers Limited. Bharti Infratel and Indus Towers are the two top providers of passive infrastructure services in India.

Bharti has a strategic alliance with SingTel, which was the largest investment made by SingTel outside of Singapore. Bharti`s mobile network equipment partners include Ericsson and Nokia.

In the case of the broadband and telephone services and enterprise services equipment, suppliers include Siemens, Nortel and Corning. It also has an information technology alliance with IBM for its group-wide information technology requirements and with Nortel for call centre technology requirements.

HELLO, INDIA?

Frost & Sullivan senior ICT industry analyst Lindsey Mc Donald says the deal would be good for trade between the two and the deal could even see call costs between the two continents ease off.

She says the "good thing about this is that this partnership would see the two companies cooperating with each other... As there is no overlap in footprint, their operations would be complimentary."

MTN is a multinational telecommunications provider, with its core operations in 21 countries in Africa and the Middle East. The group recently reached the 100 million subscriber mark, Bharti`s expertise is in offering low-cost calls, while MTN`s is in value offerings, and Bharti could benefit from the company`s product innovation in areas such as offering bundles, says Mc Donald.

In Africa, data mostly makes up less than 5% of cellular operators` revenue, and the bulk of that is in text, which provides an opportunity for expansion as large cables such as Seacom start landing. In addition, says Mc Donald, both continents have markets that are price sensitive.

NO REAL CUTS FOR CONSUMERS

Arthur Goldstuck, MD of research company World Wide Worx, says a merger "will have very little effect on customers, but could be a boost for shareholders".

"There is very little crossover between their customer bases and territories, so cross-selling won`t enter the picture. It will become useful for roaming agreements in the developing world, however."

Irnest Kaplan, MD of Kaplan Equity Analysts, says the deal is not likely to benefit subscribers in the short-term. "I doubt that there is anything on the Indian GSM network that you cannot do here."

However, roaming agreements are expected, which would lower the cost of talking between the countries in which each company is represented, he says. Kaplan says there may be other small benefits in the long term, as Bharti has expertise in working in a competitive environment in which cost is paramount, something MTN has not come across yet.

"It`s not a case of a tiny little operator...joining MTN and, instead of being on its own, is now part of a big group and can get access to research and development," Kaplan says of the two large-sized cellular companies.

In its announcement on the deal, MTN said the merger would create a "leading telecommunication service provider group". Bharti, the largest cellular operator in India, would be aligned with MTN`s operations on the continent.

WHAT MTN WANTS

MTN CEO Phuthuma Nhleko said the "rationale for this potential transaction between MTN and Bharti is highly compelling. It addresses our strategic imperative of becoming one of the pre-eminent emerging market telecommunications companies with leading positions in three of the fastest growing wireless markets globally - India, Africa and the Middle East, with no overlapping footprint."

Mc Donald says MTN is trying to increase its exposure to new revenue streams without taking the risk of having to start operations in a new market. "It`s always difficult to go into a new country, install new infrastructure and come to grips with a new group of customers and a new culture. But the economic conditions are such that going into a new market now would be even more risky."

MTN says the deal will diversify its income stream into the "fast growing and relatively under-penetrated Indian market". Bharti would be able to benefit from diversifying its income streams into the fast-growing and relatively under-penetrated African and Middle Eastern markets.

The deal is step one in a process that will eventually see a merged company and the companies would pursue expansion opportunities in each other`s territories, said a statement. Combined, the merged entity would be worth more than $20 billion with a customer base of more than 200 million.

Citi Group research says the deal makes sense for Bharti because it has been seeking "suitable diversification targets". MTN is suitable because it is a one-stop shop to operations in many low affordability areas with similar penetration geographies to India. MTN also offers Bharti a path to control, says Citi.

"MTN has been attempting to enter big markets that could make a significant difference to them. India is one of the few markets likely to be substantial enough to move the needle in MTN. Also if you are going to enter India it makes sense to do it with the market leader," says Citi.

WRAPPING UP TALKS

The cellular companies have not finalised the deal, and talks are set to continue exclusively until the end of July. However, MTN and its shareholders would acquire an economic interest of about 36% in Bharti, of which 25% would be held by MTN, with the remainder held directly by MTN shareholders. Bharti would acquire about 49% of MTN.

Reuters says the combined entity would be one of the top 10 global industry players based on subscriber numbers. Previous merger talks collapsed when the South African firm proposed a new structure that would have seen Bharti become an MTN unit. MTN also held talks with Bharti rival Reliance Communications last year, but they failed too.

International ratings agency Fitch Ratings says it has taken note of "the strategic merits of a potential partnership between Bharti and MTN, as well as the positive impact on their respective business risk profiles in terms of diversification and enhanced scale".

However, due to the early stages of the discussions, potential regulatory hurdles and other associated uncertainties surrounding the transaction, Fitch will wait for finalisation of the transaction structure before taking any formal rating action.