Bharti Airtel Chairman and Managing Director (MD) Sunnil Bharti Mittal has admitted that the company’s entry into the African market has been much “tougher” than anticipated, but maintains the decision was a good move.
As Airtel Africa continues to struggle to be profitable position, investors are increasingly nervous about the progress being made by the Indian-owned company.
Mittal has finally admitted, in an interview with the Economic Times Now, that the company may have underestimated the challenges involved in launching on the African market.
“Has it been tougher than what we thought? Absolutely,” conceded the CEO. “Tougher yes, no question about it.”
Airtel entered the African arena by buying Kuwaiti-owned operator Zain in 2009 in a US$9 billion deal and taking over its operations across Africa. But the company has largely failed to have the desired market impact and has amassed significant losses.
The main challenges, according to the CEO, have been the poor infrastructure on the continent and the dominant demand for low-cost services from the majority low-income consumer base.
“Africa is not for the weak hearted, infrastructure issues are there,” he says. “The middle class is absent in most of the countries. We have to cater to the low end of the market to grow.”
However, Mittal maintains that Airtel will see success in Africa.
“We will get it to the $5 billion mark in 2013,” he says.
While admitting that the company remains lagging far behind its US$2 billion earnings before interest, taxes, depreciation and amortisation (EBITDA) target, Mittal insists that the African acquisition was a positive move that will prove a fruitful addition to the company’s portfolio.
“…$2 billion EBITDA target is something where the disappointment is. We are away from the $2 billion mark, but if you ask me if Africa was a good move? My answer would be, absolutely. Will this be a star in the overall portfolio of Bharti Airtel? Absolutely, it will be.”