Why Sunil Mittal will keep trying
Sukumar Ranganathan -
Thursday, October 01, 2009 9:12 AM
As he has grown his family's business from bicycle parts and gelatin capsules to India's largest telco, Sunil Mittal has displayed several interesting traits. One, he has been willing to dilute his family's stake in the company as long as it means they end up with a smaller (but still controlling) holding in a much larger company. Two, he has been quick to walk away from deals that haven't really worked out, including a proposed joint venture with Singapore's Changi Airport for modernising Delhi's airport, a contract that was eventually won by a consortium headed by the GMR Group.
So, why has he tried hard, twice, for MTN (and failed both times)?
The answer lies in the nature of the markets where Bharti and MTN operate. Bharti largely operates in India. Growth, in mobile telkephony, in the country, will come from the rural hinterland. The amount individual companies here will spend on mobile telephony every month (called average revenue per user in industry lingo) will likely be small. It will also cost much more to roll out services to rural areas. Still, that's where up to 80% of Bharti's new customers in India will come from. To ensure profitability. Bharti has to move out, preferably to Africa.
Why Africa?
Because the continent will see the fastest growth in mobile services over the next decade. Fixed line or land line telephony has been a non-starter in Africa. The state of strife in several countries in the continent makes it impossible for these lines to be laid. And when they are laid, they don't stay underground for long: people dig them up and sell them for copper. Revenue per user in Africa is already higher than in India (where it is around six to eight dollars a month. And Africa is already seeing several interesting experiments in mobile banking and transactions (no one wants to carry around money or plastic in Africa).
Mittal has known this for several years. Which explains why he will keep trying to acquire an African company.
There may well be a third act to the Bharti MTN saga.