Forthcoming, June 2010

Is the Indian model right for sub-Saharan Africa?

By Jamie Anderson, Jean-Paul Evrard and Ronan Moaligou

We have spent the past five years researching and advising mobile network operators in India and Africa, and
like many other industry observers we have followed Bharti Airtel Limiteds recent acquisition of the subSaharan African assets of Zain Group with great interest. The acquisition raises many questions; both about
the impact that the entry of a major Indian mobile network operator (MNO) will have upon competitive
dynamics on the African continent, and the business model that Bharti will choose for its African operations.
Manoj Kohli, CEO and Joint Managing Director of Bharti Airtel, once declared that the Indian model is great
for all emerging markets, and in this article we explore the fundamental aspects of Airtels approach. We then
turn to an analysis of the degree to which the Indian MNO model can (or should) be transferred to the subSaharan Africa context.
Up until the turn of the new millennium the traditional view in the wireless industry had been based around the
ARPU Model, where business viability was assessed primarily in terms of ARPU (average revenue per user)
and cost per subscriber (combining acquisition and ongoing care costs). The entry of Reliance Infocomm to
the Indian market in the early 2000s saw a totally different perspective emerge Reliance introduced a
volume perspective based on metrics such as net margin per minute, cost per minute and capacity utilization
on airtime capacity created. This intense focus on volume and margin was an ideal fit for the geographically
large Indian market in which there were literally hundreds of millions of very low-income consumers awaiting
mobile telephony, but was also accelerated by the Industry regulatory regime which fostered the entry of
multiple MNOs and the push towards operational efficiency as a key lever for competitive advantage. Indias
mobile telecoms sector has one of the lowest Herfindahl indices in the world, and the highly fragmented and
competitive nature of the industry has resulted in hyper-competition that has only intensified in recent years.
The Indian volume model involves the aggressive management of capex and opex per minute, and aims to
maximize the net margin per minute (also referred to as the AMPU model average margin per user). Total
usage, and therefore capacity utilization, have become critical operational parameters in the Indian market,
and typically, the Indian MNOs have spent less on marketing when compared to operators in many other parts
of the world. The focus has been upon maintaining a low tariff rate to attract and retain customers, and costs
associated with joining (for example SIM card costs) have been designed so as to cover the costs of
acquisition. The lower variable price for usage has driven higher minutes of use (MOU) per subscriber, with
operators adopting strategies to ensure that the average capacity utilization is kept at as high a level as
possible.
Bharti Airtel adopted the volume model wholeheartedly from 2003, and was one of the first operators in the
world to scale the approach through the aggressive outsourcing of five critical value chain activities network
(active infrastructure), mobile towers (passive infrastructure), information tehnology (IT), call centre support
and distribution. Manoj Kohli and his senior management had the brilliant foresight that no integrated MNO
1

could possibly scale fast enough to keep pace with the rapid growth of the Indian mobile market. Kohli led the
strategy to build a complementary network of vendors and partners to meet the challenges of adding millions
of new subscribers every month, and Airtels success in implementing this approach propelled the company
into industry leadership.
It should be acknowledged, however, that Airtels success in scaling the volume operator model occurred in
the context of several unique aspects of the Indian market. Each of these aspects will be discussed in turn.
1. SCALE & CO-SPECIALIZATION: The huge size and massive capital investments in the Indian market
enabled large MNOs to leverage their scale to drive down procurement costs as well as generate operating
scale benefits on back office operations. Operators such as Airtel also benefitted from the existence of a large
domestic base of Indian companies in areas such as call centre operations and other areas of business
process outsourcing. The scale of the Indian market presented a relatively attractive proposition for companies
such as Nokia Siemens, Ericsson and IBM to enter into partnerships with operators to deliver network and
back-office outsourcing. These companies already had significant representation in the country and therefore
had existing structures which they could grow organically, or into which they could incorporate the respective
functional departments and personnel of the operators themselves.
Within just a few years India became the global centre of excellence for outsourcing of key elements of the
MNO value chain, and a reference point for cost efficiency for telecoms operators around the globe. There
emerged clusters of co-specialized suppliers who worked with mobile network operators to deliver discrete
activities within the mobile value chain whether it was network outsourcing vendors, back-office systems
suppliers, call centre specialists or smaller-scale regional distributors. The core competence of many MNOs
shifted from operating a mobile network (and supporting infrastructure) to managing vendor/partner
relationships and a few key areas such as customer management, brand, regulatory affairs, financing and
people management (HR). Today, the lions share of a large Indian MNOs value network is delivered by an
interlinked ecosystem of complimentary partners. In the words of Manoj Kohli: Overall what we have done in
this new business model is that we have outsourced expertise areas to people that are better than us...and we
have kept to ourselves our core competence...Everything else we dont do.
2. LOWER TECHNOLOGY COSTS MET MASSIVE LATENT DEMAND, HIGH POPULATION DENSITIES
AND AFFORDABILITY OF LOW-COST HANDSETS: The economies of scale benefits from the technology
and back-office outsourcing in India enabled a lowering of costs per minute of airtime capacity created. The
lowering of costs per minute was also enabled by the relatively low costs of customer acquisition in the early
phases of mobile market growth. There was huge latent demand in India for mobile telephony, and the initial
growth phase of the industry was focused upon urban and semi-urban areas with high population densities.
Mobile network operators leveraged established distributor networks that had been created by the fast moving
consumer goods (fmcg) industry, and operators were frequently able to piggy-back on this existing distribution
at relatively low incremental cost. There were real advantages for first movers, especially in the semi-urban
areas, whereby operators could enter into exclusive dealer relationships with established distributors.
Furthermore, Airtel and other Indian MNOs directly benefitted from the focus of Nokia, the worlds largest
handset vendor, in building a pervasive distribution network across the country for affordable mobile handsets.
In India most handsets were sold by retailers which were not affiliated with the network operators, and Nokia had acted
to strengthen distribution relationships with these retailers, not just in larger urban areas such as Mumbai and Calcutta,
but also in smaller towns and rural areas. Within just a few years Nokia handsets were being sold through more
than 80,000 retail outlets, and the company offered models that had interfaces in local languages like Hindi and
Marathi. Nokias activities boosted key complementary drivers of mobile penetration and usage the

acceptability, affordability and availability of low-cost handsets.

The combination of these factors meant that the relative cost of technology versus customer acquisition costs
was very favourable in the Indian market, boosting the success and expansion of the volume operator model.
But as Bharti Airtel moves into Africa it is necessary to ask if these factors are present.
As has been mentioned above, Indias massive scale in terms of geographic area and population was a key
enabler of the emergence of the volume operator model, and Bharti Airtel will need to understand the degree
to which the key metric of population density matters for the applicability of its model to Africa. India has a
population density of approximately 324 inhabitants per square kilometre, but no sub-Saharan African country
in which Zain has an operation comes close to this. Nigeria has more than 150 million inhabitants and a
population density of 141 inhabitants per square kilometre. Uganda and Malawi have population densities of
greater than 120 inhabitants per square kilometre, but just 31 million and 15 million inhabitants respectively.
Congo DRC (68 million), Tanzania (42 million), Kenya (38 million) and Ghana (23 million) have relatively large
populations, but population densities of between just 25 and 60 inhabitants per square kilometre or less not
even close to the population densities of even the least populous Indian states of Jammu & Kashmir and
Arunachal Pradesh (see Exhibit A).
One could argue that scale economies could be achieved in sub-Saharan Africa through the creation of
regional network outsourcing contracts rather than national arrangements, but there are significant regulatory
and socio-political barriers to such cross-border integration in most of the continent. For example, existing
African operators have reported challenges in leveraging resources such as network engineering personnel
between some neighbouring African states due to restrictive labour laws or complex visa requirements.
Similarly, the free flow of technical equipment and spare parts is frequently complicated by customs
requirements, import duties or taxes.
The presence of co-specialized suppliers (eg. outsource network vendors, tower companies, IT vendors, call
centre operations, and exclusive distributor/dealer networks etc) has been critical to the success of the Indian
model, as too has been the role of complementary players such as Nokia in the area of handset distribution.
But in many parts of sub-Saharan Africa these co-specialized suppliers and partners are either completely
lacking, or in early phases of establishing local capability and capacity therefore the ability of an operator to
internally manage and scale core functions such as network, IT and customer care has been critical to
competitive advantage. Quite simply, even though both the Indian and African mobile telecoms industries
deliver the same core products (ie voice and text messaging) to millions of relatively low-income consumers,
the way that the mobile value chain has produced and distributed these products has evolved in distinctly
different ways in the two regions. This has serious implications for the entry of Bharti Airtel to the African
continent.
The lack of co-specialized suppliers is compounded by relatively low population densities and poor
infrastructure (especially roads and electrification) in many sub-Saharan African countries. Fewer than half of
all African countries have more than 20% of their population electrified, which means that MNOs in most
African markets not only run a mobile network they also run decentralized power plants. The three leading
MNOs in Nigeria alone are estimated to consume more than 250 million litres of diesel fuel a year to run
generators on their BTS sites, and collectively employ more than 20,000 security personnel to protect their
assets. Paved roads are the exception rather than the rule in sub-Saharan Africa just 5% of Nigerias
roadways are paved, while in Congo DRC the share of paved roads is just 2%. In India paved roads represent
30% of the total. Recruiting and retaining skilled personnel can also be a challenge for MNOs in some subSaharan African countries due to a lack a strong technical training institutes, while access to skilled labour in
India is much less of a barrier. There are admittedly some very challenging markets in which to operate in
India Bihar and Jharkhand for example but these truly complex regional markets still represent a relatively
small slice of total Indian operator revenues.

The complexities of running mobile networks in Africa have resulted in relatively high technology and
distribution expenses versus customer costs when compared to large parts of India. This divergence from the
Indian mobile market scenario suggests two options for an operator that might wish to launch the Indian
volume operator model in Africa:
a. An operator could bring in the full spectrum of co-specialized partners from India (or other parts of the
world). But this could be expensive and time consuming as partners develop local expertise and capacity, and
could be impossible for some activities. This is especially true for distribution as established dealer networks
can be stubbornly difficult to transform, especially in situations where the traditional dealer model has been
non-exclusive and/or the operator is a challenger (eg. Zain in markets such as Nigeria and Kenya).
b. An operator could use a hybrid approach to deliver the volume model. This would involve bringing in some
vendors (eg network outsourcers and IT), developing local partners (eg distribution) and/or building own local
competence for areas that are still lacking (eg call centres). Early indications suggest this is the approach that
Bharti Airtel has adopted for its entry to Sri Lanka where local competitive conditions and the structure of the
mobile value chain differ quite markedly to India - despite the geographic proximity to the home market.
There is no doubt that Bharti Airtel is a highly professional and well managed company its track record of
success asserts to the fact. If its volume operator model can be adapted for sub-Saharan Africa then it offers
the potential to significantly disrupt the status quo, especially in large and increasingly competitive markets
where Airtel is the challenger as was the case in India after the entry of Reliance Infocomm in the early
2000s. But if the company decides to migrate its home-market model to Africa it will need to acknowledge that
the way skills and activities have evolved and been divided between different firms within the mobile telecoms
industry value chain has occurred in a locally specific manner in India and sub-Saharan Africa, underpinned by
significantly different socio-demographic, regulatory and competitive conditions.
While Bharti Airtels Indian model has the potential to work in some large African markets (Nigeria being the
most likely case), success would still depend upon the degree to which co-specialized partners could be
brought in, already exist or could be developed. It would also depend crucially upon the ability of Bharti to
transform established distribution approaches no small task in markets such as Nigeria and Kenya where it
faces negative network externalities in its battle against MTN and Safaricom respectively. But the volume
model would likely struggle in markets with small populations and/or very low population densities, or in
markets where it is prohibitively expensive, time consuming or socio-politically difficult to build the
complementary ecosystem of vendors and partners that underpin the Indian approach. In the latter case,
Bharti Airtel would have to prove that it is better than the established firms at playing their own game, and that
could well prove a daunting proposition.
Jamie Anderson is jointly Professor of Strategy at TiasNimbas Business School the Netherlands, and
Professor of Innovation Management at the Lorange Institute, Zurich. Jean-Paul Evrard is Partner and Ronan
Moaligou is Head of the Telecoms Practice with Globalpraxis.

Exhibit A

Density vs. population per country - M

Country pop. - M hab.
140

Nigeria

120

100

80

D.R. Congo
60

Tanzania
40

Kenya
Uganda

Ghana
20
Chad
Gabon
0
0

Niger
Madagascar
Zam bia

Malawi
B. Faso

Sierra Leone

R. Congo
20

40

60

80

100

120

140

160

Density hab/km2