Final Transcript Bharti Airtel Limited Recently Concluded Acquisition of Zain's Mobile Operations

Conference Call Transcript

Transcript for Bharti Airtel Limited Recently Concluded Acquisition of Zain's Mobile Operations Conference Call

Event Date/Time: July 14, 2010 / 2:30 PM IST

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Final Transcript Bharti Airtel Limited Recently Concluded Acquisition of Zain's Mobile Operations

CORPORATE PARTICIPANTS Akhil Gupta Deputy Group CEO & Managing Director - Bharti Enterprises Manoj Kohli CEO (International) & Joint Managing Director - Bharti Airtel Limited Manik Jhangiani Group Chief Financial Officer - Bharti Enterprises Harjeet Kohli Group Treasurer - Bharti Enterprises CONFERENCE CALL PARTICIPANTS Ravi R. Daiwa Capital Markets- Mumbai Jean Charles JP Morgan - London Srinivas Rao Deutsche Bank - Mumbai Sachin Gupta Nomura Securities - Singapore Sanjay Parikh ICICI - Mumbai Suresh Mahadevan UBS - Mumbai Pankaj Kapoor RBS Equities- Mumbai Henry Cobe NEVSKY - London Rajiv Sharma HSBC - Hong Kong Vivek Doval Boyce Allen - London Sean Gardiner Morgan Stanley - Hong Kong Andrew Sinwell Highside Capital - USA

PRESENTATION Hina - Moderator Good afternoon ladies and gentlemen, I am Hina, the moderator for this conference. Welcome to the Bharti Airtel Limited call on the recently concluded acquisition of Zain's mobile operations in 15 countries across Africa. The duration of the call is one hour. The call will commence with opening remarks during which all the participant lines will be in the listenonly mode after which the question and answer session will be conducted for all the participants on this call. Present with us on the call today is the senior leadership team of Bharti Airtel Limited. We have with us Mr. Akhil Gupta (Deputy CEO and MD), Mr. Manoj Kohli (CEO International and JMD, Airtel), Mr. Manik Jhangiani (Group CFO) and Mr. Harjeet Kohli (Group Treasurer).

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Final Transcript Bharti Airtel Limited Recently Concluded Acquisition of Zain's Mobile Operations

Before I hand over the call, I must remind you that the overview and discussions today may include certain forwardlooking statements that must be viewed in conjunction with the risks that we face. I now hand over the call to our first speaker of the day, Mr. Harjeet Kohli. Thank you and over to you Mr. Kohli.

Harjeet Kohli - Group Treasurer - Bharti Enterprises Thank you, Hina. I would want to start by a very warm welcome to all of you. With due thanks for taking the time to attend this call. We are also aware that our listeners from US and West, they have logged into this call very early in the morning, so we appreciate your stretching to accommodate this call for us. Just before I invite Akhil to open up the call, we wanted to highlight that the context of this call is our African acquisition and hence the call will be primarily focused on Africa. As you know, we are also running into the quiet period post our June quarter closure hence we would request you to be mindful of the same and allow us to stay away from any specific questions related to immediate financials or operational aspects in India. With that I would now hand over to Akhil for his opening remarks. Thank you.

Akhil Gupta - Deputy Group CEO & Managing Director - Bharti Enterprises Thank you, Harjeet. Good afternoon and a very warm welcome to all of you. Thanks for joining this call. You might recall that on our previous call that we had on the April 28, 2010 we had promised that we would get back to you once the Zain transaction is complete and when we have taken over the operations. This call is primarily on that issue and I am extremely pleased and proud to report that post the completion of transaction acquiring operations in 15 countries across th Africa on the 8 of June this year, we have now taken over the management of all the 15 operations in every aspect. With this acquisition, I am very pleased to report that Airtel becomes the first Indian brand that goes truly global with a footprint that would cover just under 2 billion people. We would also become a major Indian MNC in the true sense with operations which will spread across 18 different countries both in the Indian subcontinent and in the continent of Africa with a customer base of over 180 million which we hope would cross 200 million in a very short period of time. As I mentioned, we have completed the take over of the management and operations now and we are firmly in the driver's seat. Manoj, as you know, is the CEO International and responsible for the entire African operations. He had just returned from a month long trip from Africa and I would request him to tell you more about Africa and the process of integration that he has commenced. Before I hand over to Manoj, I also wanted to touch upon some of the other major developments that have taken place in the Indian telecom space in the intervening period. As you know these are mainly the completion of auctions on 3G and the Broadband Wireless Access. The advent of these services particularly 3G would truly add to the broadband across the length and breadth of this country in the coming years. As we have reported earlier, Bharti Airtel won spectrum in 3G auctions in 13 key circles for a total consideration of about 12,000 odd crores, just about US$2.6 billion. On BWA, we have acquired spectrum in four circles - Karnataka, Punjab, Kolkata and Maharasthra for a total consideration of just over 3,000 crores which is approximately US$700 million. We are in the process of working out the appropriate roaming arrangements for 3G in the remaining nine circles and are confident that we would have our 3G footprint in every circle across the country. We would similarly explore the right possibilities of BWA as well. The other aspect, which I wanted to report, was that the financing for all these initiatives has been completely arranged and done in a very smooth manner at what we consider are extremely favorable terms. This reflects the strong standing of the company in the financial world on the back of a very strong balance sheet. I would request Manik to give you more details on the financing after Manoj gives you a glimpse on Africa. In summary, I would like to say that we are truly entering a very exciting and of course a very challenging phase of our journey. We believe that we have begun this journey well and the strategy whether on our international expansion or on the broadband front is the right one. We are in a good position to exploit the overall potential and are confident that in times to come. we would be able to derive maximum synergies and efficiencies in all respects. It is our belief that with the steps we have taken, we will not only continue to consolidate the overall lead in the Indian telecom sector, but would have a special standing on a global basis as a leading global emerging market operator in years to come. Before I hand over to Manoj to tell you about Africa and our plans there, let me take this opportunity to specially thank each one of you on behalf of all my colleagues for tremendous support that you have extended to us over the years right since our inception, which has enabled us to be bold in our vision, and innovative in our business models and delivery mechanism and has also allowed us to be transparent in sharing all ups and downs with you and in results and developments. Thank you. Manoj.

Manoj Kohli - CEO (International) & Joint Managing Director - Bharti Airtel Limited Thank you Akhil. A warm welcome to all investor friends across the world who are on this call. Akhil just gave a good background of how we closed the Zain transaction on June 8, and let me tell you with the Bharti DNA we immediately moved into action and very quickly we had a leadership conclave at Kampala where 130 senior leaders of entire Africa

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Final Transcript Bharti Airtel Limited Recently Concluded Acquisition of Zain's Mobile Operations

participated and within a week of the transaction closure, we had aligned the top 100 leaders from Africa. Immediately thereafter, I left for country visits and in three weeks covered 15 countries and let me tell you the conviction that I am coming back with is that our decision was right and his decision will be great for our long-term future, the conviction is much more than few weeks back. What I saw on the ground was actually better than what I expected - in terms of our company, the markets, the governments, etc., which I will share with you, but before I get into that, I will first share with you what is Africa, what is African market, why did we choose Africa, because a lot of people across the globe are still not fully sure or fully clear on African opportunity, how the market will grow in the coming years and decades. Firstly, let me share with you that the Africa population is about a billion today and is expected to go up to 1.8 to 2 billion whereas India and China are expected in the same period to go up to 1.6 and 1.4 billion. It clearly means in the longterm, Africa as a market will be even bigger than China and India in terms of production and consumption. The combined consumer spending of Africa is growing to about 1.4 trillion by 2020. The top 20 companies of Africa have revenues of more than USD 3 billion, so they are not small companies; they are large corporations who are doing very well. Urbanization, which actually is a very key factor of telecom penetration, is about 40%, comparable to China & India once more and is projected to grow to 50% of the total population. Middle class, which is again a very important parameter of success for telecom, is very, very big. It is today about 400 million and it is projected to go beyond 500 million in African continent. Another important parameter, which is important for future growth is youth. The youth's population is huge enough. It is about 25% of the world and the median age is about 17 to 18 years, which means that more young people who are hungry for more telecom services. Now the working class, again the working population is also large. It is actually bigger than what China has. Also in terms of economies, out of the total 30 economies, 27 economies are doing very well, about 5% or even more than 5% per year GDP growth. In the last five years, the democratic transformation is taking place. Many African countries have become good democracies; social transformations are happening, more and more education and literacy, so in all these social aspects, I think transformation is taking place. Also the raw materials of Africa, whether it is copper, many of the minerals, metals, gold, and now of course oil is the big raw material which is being leveraged for the society improvement, which means funds are coming from these raw materials for improvement of basic infrastructure of the country. More than 10% of GDP is being spent on transport and telecommunications, which actually will be a great catalyst for future economic growth. FII has grown by seven times in the last five to six years and finally the trade with developing markets like India and Asia is growing at a rapid speed. More than half of the trade of Africa is with developing markets, not with the developed markets. Finally most importantly for us, I think respect for India, respect for Indian companies is very high. There are some old relationships, positive relationships, political relationships, social relationships, which are very fondly remembered by all African countries and there is more respect for Indian companies, Indian brand, etc., etc. So that is what Africa was as I travelled across each country and I think the opportunity which we have chosen for ourselves is going to be really great. Let me now move on to a very important stakeholder, which is government. The government of each of the 15 countries were extremely positive, extremely delighted to welcome Bharti Airtel. They continuously encouraged what we are planning. They gave us blessings for our agenda. Finally some of the presidents, prime ministers, telecom ministers, regulators informed me that Bharti agenda seems to be very close to government agenda and will infact be a joint agenda which both of us - governments and us will drive for future success. The agenda clearly is about rural coverage, it is about affordability, it is about creating more employment at small towns, villages where we will spread our services and of course important CSR initiatives which Bharti has taken in India and now we will spread those initiatives in Africa too. All governments were very happy with our commitment to contribute for higher teledensity and were very happy with the deep coverage commitments, which we made through our various announcements. Moving on to the markets, as I went around the markets, one thing is very, very clear that in all 15 countries the net teledensity is around 20%. Of course, in some countries, tele-density will be 10%, 11%, and 12%, which is very low, maybe one of the lowest in the world. I am removing the multi sims, the two sims, three sims and those habits of multisimming is happening because on-net and off-net tarriffing is independent, so people want to use on-net benefits in various phones, which they carry, but there is an opportunity that three phones will come down to two and two will come down to one and people have to choose one preferred brand, which of course we will try to make it Airtel in future. Other big opportunity as I see is the usage opportunity. As you know, the usage in Africa ranges between 50 to 60 minutes which is far lower than the global average of 300 minutes and Indian average of about 450 minutes and primarily it is because the industry has not really penetrated deep in terms of network or distribution and of course tariffs are comparatively higher. Other opportunity as I saw in the market was data and 3G because the penetration of PC is low but the need for Internet is very high. In many countries I saw, Nigeria, Gabon, Kenya, Tanzania, Zambia, DRC, and Ghana of course to name a few, the need for broadband utilization is high and because our spectrum availability is also good, I think we will definitely give services to fulfill this need in future. Overall my market feedback is that the growth will be catalyzed with our entry into these 15 countries, we will catalyze the growth further. The growth is mixed up with basic teledensity, second - usage improvement and third - data usage

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Final Transcript Bharti Airtel Limited Recently Concluded Acquisition of Zain's Mobile Operations

improvement, which is also important. On the competition side, I think, competition is reasonable. It is really ranging between three players, four players and may be maximum five players. I think, it will be good to also collaborate in terms of network sharing, infrastructure sharing whether it is towers or fiber optics, etc., etc., so I think that definitely is also a positive thing. Moving to our people, we have 6500 high-quality talent. There is huge diversity. We have more than 42 nationalities working in the company and let me tell you there was an overwhelming response, positive response from all the staff in the company when I visited all the countries. They are warm people, they are talented people and they are very hungry to drive for big success in future. I also want to share with you that we have established a headquarters at Nairobi where it will be a lean headquarters of about 100 people and it will be fully operational in the month of July itself. Moving to our specific strategy, which we are in the process of finalizing, but I will share with you an overview of the strategy and we will finalize this over the next few weeks because each country will need a customized strategy, but the journey has started. In the three day workshop which we had in the city of Kampala with top 130 leaders of Africa, we finalized our vision for the next five years, our strategy, our business model, our various action plans from various functions and I think it was a very good alignment of the top leadership to Bharti DNA, the Bharti way of working which actually was a great start. We are also now getting into finalizing our partners, finalizing the business model, how we will drive it, whether it is for network, IT, BPOs, shared services, etc., and all this will actually implant the unique business model and of course low cost business model in Africa. Our partners have been extremely positive and let me share with you that before we even closed the deal, many of the partners had realigned their organization design, organization structure to support Bhartis growth by giving their support at Nairobi, which is our headquarters. Partners are very eager to travel this journey of Africa along with us. We have not finalized any partners however, RFPs are out; we are having discussions and dialogue with them on commercials etc., which will be finalized in the next few weeks, but they are all very eager to support our growth in Africa. Our brand launch is another very important event. We are planning the launch in October. We have not decided the specific date, but it will be in October in all the 15 countries. There are three pre-requisites, which we have decided before that happens, 1) our network quality needs to come up and we have already initiated the improvement initiatives. 2) our quality of service, which is the call center, etc., showrooms have to come up, which has also been initiated and finally 3) we need to have some good quality products ready before we launch the brand. So all these three pre-requisites are work-in-progress and by October, we will have a brand launch across the continent. Coming to our capital expenditure, we have made tentative plans. Of course, the final plans will be made in the next few weeks, but our plan for the next one-year looks to be around $800 million and in that, along with the Bharti rates and commercial terms, we should be able to satisfy the initial need of rollout for the first year. Also we have finalized our new governance structure, how we will govern the Africa business, country-by-country, hub-byhub from Nairobi and from India. We have also released empowerment schedule because earlier, the empowerment was very limited and the Bharti way of working is very different and we would like to empower people much more. The senior leaders in each country, especially, are delighted by that positive stroke and they would like to utilize the empowerment as judiciously as possible. The transition and integration plan has taken off very well in the last four weeks to transplant our DNA, our business model and many other systems and processes and let me tell you whether it is people transition or systems transition, IT transition, all that is moving extremely well and as per plan and I think this transition and integration should be completed in less than 180 days. Bharti's execution focus I think will be exhibited very well in our key challenging markets whether it is Nigeria, Kenya, Ghana and all these markets will see a tremendous execution focus of the company which we have seen for so many years in India. At the end, I just want to conclude that in Africa, we have a twin advantage; first, we are sitting in the largest growth market in the world and secondly, we are entering that market with a global size and scale so that we can really make that growth as profitable as possible. Personally, my own conviction as I said earlier is bigger. My confidence is bigger that we are heading towards leadership of Africa markets and I believe these aspirations will now get converted into reality day after day as we execute our strategy as well as the business model. So thanks a lot for being on the call. I will now hand over to Manik who will give you some details of financing. Thanks.

Manik Jhangiani - Group Chief Financial Officer - Bharti Enterprises Thanks Manoj. Before we open up the call for the Q&A session, I just wanted to provide a quick update on our financing and balance sheet position post the closing of the acquisition and the 3G and BWA auctions. As Akhil mentioned, the financing for all these initiatives have been fully completed. The transaction related to the acquisition of the African assets was financed through debt through a consortium of 11 banks led by Standard Chartered and Barclays. We believe that the terms of the financing were very competitive with tenure of six years, and an average maturity of 4.75 years. Repayment of the loan is also rear-ended with the first principle repayment to take place only 2.5 years post rollout. We
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Final Transcript Bharti Airtel Limited Recently Concluded Acquisition of Zain's Mobile Operations

have also kept the loan term flexible for voluntary prepayments. The all-in cost for this financing is 195 basis points over LIBOR, which at current LIBOR rates is approximately 248 basis points, which results in an annual debt servicing cost of approximately $200 million, which will be serviced entirely by the African operations. I also believe it is important to highlight the financing cost on all other debt for the Indian and South Asian business is sub 5%. Our current net debt position including the borrowings for 3G and BWA is approximately $12 billion and with the consolidated EBITDA of approximately $4.7 billion, it results in a current net debt to consolidated EBITDA of approximately 2.6 times, which is a very comfortable position and very much in line with global telco peer group. Having said that, as a management philosophy we have always been debt averse and we are very confident that the operating fee cash flows generated by our business that is EBITDA less CapEx of approximately $2 billion annually on a consolidated basis we will be able to bring down our leverage substantially over the coming quarters. Operator with that we will open up the floor for the Q & A session.

Hina - Moderator Thank you Sir. We will now begin the question and answer interactive session for all the participants who are connected to the audio conference service from Airtel. Due to time constraints we would request if you could limit the number of questions to two to enable more participation, hence management will only take two questions to ensure maximum participation. Participants who wish to ask questions may please press * 1 on their touchtone-enabled telephone keypad. On pressing * 1 participants will get a chance to present their questions on a first-in-line basis. To ask a question participants may please press * 1 now. The first question comes from Mr. R. Ravi from Daiwa, Mumbai. Mr. Ravi, you may ask your question now.

Ravi R. - Daiwa Capital Markets- Mumbai Hi this is Ravi calling from Daiwa capital markets. I have two questions; one, how are you going to achieve your guidance of $5 million revenues and $2 billion EBITDA and 100 million subscribers by FY'13 and that is one and the second is that you have given a CapEx guidance of $800 million for the first year, but what is going to be the capital expenditure plan for year two and year three? Thank you.

Akhil Gupta - Deputy Group CEO & Managing Director - Bharti Enterprises Well, Ravi, I think just to be fair to Manoj, this is a personal challenge that he has taken and announced of 100 million customers and $5 million EBITDA and $2 billion of net profit but this is certainly not a guidance by the company, so it is a challenge which Manoj has taken for himself and his team though of course, we feel that this is something achievable but I do not think it should be taken as a guidance. On the CapEx, I think what we had given the guidance in terms of the first year figures of around $800 odd million stays, but what could happen in second and third year, please give us some time. I think we will come back on that, but at this stage our focus is entirely on seeing how we can integrate and get the building blocks in place.

Ravi R. - Daiwa Capital Markets- Mumbai Thank you.

Hina - Moderator Thank you, sir. The next question comes from Mr. Jean Charles from JP Morgan, London. Mr. Charles, you may ask your question now.

Jean Charles - JP Morgan - London Jean Charles from JP Morgan from London. Just two questions; I think first could you elaborate on how you plan to go with rural coverage because you are talking to the joint operators in Africa and even to some of the tower companies and some of the regulators, you know, there seems to be little current momentum in terms of going into rural areas and taking population coverage, let us say 60% at Nigeria, so we are interested in finding out what are the plans there? And the second thing is on infrastructure sharing again it looks like there is quite a lot of capital that is available to the tower companies so on and so forth, but there has been operator reluctance so far in Africa to share infrastructure so how quickly you think you can bridge the gap let us say MTN on towers and also on backbone and Backhaul the fiberoptics because there seems to be even less happening there on the tower side at this point?

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Final Transcript Bharti Airtel Limited Recently Concluded Acquisition of Zain's Mobile Operations

Manoj Kohli - CEO (International) & Joint Managing Director - Bharti Airtel Limited Thank you. This is Manoj. You know our experience in rural coverage in India is stupendous, you know, we cover 450,000 villages and we have made rural markets very viable in India and that is why the margins in India has been quite stable despite covering so many villages. I think we will pursue similar kind of strategy in Africa. Infrastructure sharing will be an important initiative. We already have decided to hive-off the towers into a separate tower company in each country and then of course consolidate them into an Africa tower company in the next few quarters that should definitely help. We have already initiated some discussions at country level in collaborating on fiberoptic sharing and tower sharing, etc., and let me tell you that will definitely help us go to small towns as well as villages in each of these countries. Today the population coverage in some countries is as low as 60%; we are definitely going to improve that. In some countries it is already close to 70% to 80%, which also will get improved, so the expansion into smaller towns and villages will be at a lower CapEx cost through sharing. Also, we have discussed with some governments about USO like fund, because governments have such fund and we would like to utilize that fund wherever it is available. So, these are some of the ideas, which we have and over the next few weeks, we will finalize the details.

Hina- Moderator Thank you, sir. The next question comes from Mr. Srinivas Rao from Deutsche Bank, Mumbai. Mr. Rao, you may ask your question now.

Srinivas Rao - Deutsche Bank - Mumbai Thank you, very much. Srinivas here. Just one question; given within Africa if I look at the distribution of the industry revenues and GDP, basically the countries which seem to matter at this juncture would be Nigeria, Kenya, and Uganda and probably one or two more and there are very significant incumbents, which have fairly dominant market share, so could you throw some light on how you would like to kind of try and close the gap considering that in India, you yourself have seen that incumbents have significant advantage of defending their profitability and market shares?

Manoj Kohli - CEO (International) & Joint Managing Director - Bharti Airtel Limited I think this is a very important point you raised. Very frankly, I do not want to share my specific country-wise strategy because that is where we will have success from, but it is really very, very clear that we are entering the market at the right point because teledensity overall is around 20% and making it change in share and going towards a bigger leadership becomes easier if the teledensity is as low as that. One thing you have to note that we are already leaders in 10 countries, in four countries we are number two, and in one country, we are number four in Ghana because we are new and we know that each of these at least two to three countries have big market leaders, but you know big market leaders who have 50%-60% share actually are also more prone to a competitive action, so we will definitely focus on execution of our strategy, execution of network, execution of distribution, execution of our affordability platform, service as well as innovative products and with our brand launch coming up in October, you will see our share inching up in each of these countries.

Srinivas Rao - Deutsche Bank - Mumbai Thanks a lot, sir.

Hina - Moderator Thank you, Mr. Rao. The next question comes from Mr. Sachin Gupta from Nomura Securities, Singapore. Mr. Gupta, you may ask your question now.

Sachin Gupta - Nomura Securities - Singapore Thank you, very much. Just two questions; this all-in cost of 248 basis points that you talked about, is that inclusive of your hedging cost? I just wanted to know how are you thinking about the CapEx volatility in the African market. That is one question. Second is this $800 million CapEx is that the incremental CapEx from the day you took over the business or is it going to be $800 million over lap of 2010? If so, how much CapEx has been spent for this year?

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Final Transcript Bharti Airtel Limited Recently Concluded Acquisition of Zain's Mobile Operations

Manoj Kohli - CEO (International) & Joint Managing Director - Bharti Airtel Limited Let me start with your second question, $800 million is the CapEx, which we estimate up to March 2011, which is the new fiscal year we are adopting, and for the next two years, we will have more clarity as we finalize the plan in the next few weeks from now. I will just request Manik to share with you about the financing cost.

Manik Jhangiani - Group Chief Financial Officer - Bharti Enterprises On the financing cost, the 248-basis points that I mentioned is all-in but does not include the hedging cost. Keep in mind that I have indicated that the tenure of the loan is about six years and we have no principal repayments really coming up for the first two and a half years, so the real cost that we are talking about just the interest cost of about $200 million, which will be serviced by the African operation. Hedging opportunities will be looked at in Africa on a country-by-country basis; we look at what the hedge costs are in those markets. Keep in mind we also have a mix of local currency and foreign currency borrowings there, but that is on the existing debt that we have of about 1.7 billion net debt that we have got with the acquisition. This mix can be worked well for forex hedging purposes.

Sachin Gupta - Nomura Securities - Singapore Okay. Why I am asking is if you look at the December numbers for some of these countries, I mean, for Nigeria for example, the EBITDA has gone from a 100 to 60 million or so.., I am not sure if that is because of the fx rates or is there something else happening operationally. That is one thing, and I think hedging is also quite complicated and hence quarterly earnings can be a nightmare. Are you looking to hedge some of the big countries you are in?

Manik Jhangiani - Group Chief Financial Officer - Bharti Enterprises I think today our specific function is looking very holistically at what is the right capital structure that we should be implementing in each of the operating countries, so just to give you a flavor for instance, at present a lot of these operating companies are under leveraged and so we might want to look at pushing down some of the debt at the local currency level, which will match up with the revenues in local currency terms as well. So we are looking at adopting appropriate hedging strategies and we will be able to give you a lot more guidance in that in the future, but our focus is on how we can manage to hedge and reduce the volatility due to currency and interest rate fluctuation.

Sachin Gupta - Nomura Securities - Singapore Thank you, very much.

Hina - Moderator Thank you, Mr. Gupta. The next question comes from Mr. Sanjay Parik from ICICI, Mumbai. Mr. Parik, you may ask your question now.

Sanjay Parikh- ICICI Mumbai Two questions, one is if you can guide us in terms of what are the taxes, in terms of license fee or revenue sharing debt and what do you think about them when they go up, I mean, what I am trying to understand is in case there are any higher dependence because of the higher fiscal deficit do you think that would increase? The second is what is the tenure of the licenses there? When do they come for renewal in each of the countries? And then in that case, what would be the incremental capital cost?

Akhil Gupta - Deputy Group CEO & Managing Director - Bharti Enterprises Sanjay, on taxes, it is good news because the license fee, tax, etc., is very miniscule. In one of the countries there is this small USO like fund, which government is initiating to help rural penetration and I think that fund will be utilized by as we go rural, so if it comes back to the company. Hence, it is not an issue. So, overall I think there is very good news, I do not think we expect any major cost on this. On tenure, it ranges between 15 to 20 years and at least for the three years or four years, there is no renewal coming up. After that, we will see because these things are country-by-country, so we will see it country-by-country and then take it up on case-to-case basis.

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Final Transcript Bharti Airtel Limited Recently Concluded Acquisition of Zain's Mobile Operations

Sanjay Parikh- ICICI Mumbai One related question is in each of them you said, the maximum is five players, so is there any buyer from the government to increase the number of license fee?

Manoj Kohli - CEO (International) & Joint Managing Director - Bharti Airtel Limited There is no bar per se, no government can bar it, but one thing we have noticed the average spectrum in Africa is about 20 MHz of 2G and 10 MHz of 3G wherever we have 3G, so if you add up, let us say this spectrum in three players, four players, five players, so actually the spectrum left for new operators is not much. So clearly that itself is a limit to future competition.

Akhil Gupta - Deputy Group CEO & Managing Director - Bharti Enterprises Just one point, I think in terms of our discussions there seems to be general recognition on part of all regulators and government that unlimited competition is not good for this sector, they do take that into account.

Manoj Kohli - CEO (International) & Joint Managing Director - Bharti Airtel Limited Actually the regulators are quite happy with the operators and with our entry definitely they are happier because I think we are bringing more coverage, more affordability, so we really do not see competitive intensity going up.

Sanjay Parikh- ICICI Mumbai Thank you, and best of luck.

Manoj Kohli - CEO (International) & Joint Managing Director - Bharti Airtel Limited Thank you.

Hina Moderator Thank you Mr. Parikh. The next question comes from Mr. Suresh Mahadevan from UBS, Mumbai. Mr. Mahadevan, you may ask your question now.

Suresh Mahadevan - UBS - Mumbai Good afternoon sir. Thank you for this call. I have a quick couple of questions; one is I think Manoj talked about transporting the low cost minute factory there to Africa. What I would like is I understand you cannot go too much into the specifics but at least point out areas where there could be quantum level of savings, etc., where you know Bharti expertise could come in handy? That is one. And second is I think it is related to interconnect. My understanding is that and I think Manoj also alluded to this in his part of the speech, I think the interconnect in some of these markets is extremely high, which leads obviously off-net calls being priced at a very high rate and my sense is if that is the case, I mean it is related to the first question, how will the minute factory based model work? Thank you.

Manoj Kohli - CEO (International) & Joint Managing Director - Bharti Airtel Limited Suresh, on first you are right, we cannot share too many details with you on the business model, but I can broadly share that it will cover three big elements of our business - network, IT, and BPO which is a call center piece should all lead to significant savings because fortunately the partnerships will be consistent with overall geographies wherever we are whether it is South Asia or Africa and the partners will look at the whole business, which they get from Bharti Airtel rather than a particular country and I think the moment they look at that, the economies of scale will definitely be superior and hence the savings will be significant. I cannot quantify it for you unfortunately but they will be significant. On interconnect rates you are right, they are actually high and in some countries, I have seen it is as high as Europe or US, which actually is surprising. Our policy on interconnected rates are very simple and that we follow everywhere whether it is India,
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Final Transcript Bharti Airtel Limited Recently Concluded Acquisition of Zain's Mobile Operations

Bangladesh, Sri Lanka. It has to be cost based - basis the most efficient operator. So we are talking to all the regulators to make interconnect rates as cost based as possible. The quantum of traffic on off-net is not very high, which means that on-net is very high, but on-net itself in terms of quantity is small, so the issue is that there is an opportunity to grow usage both in on-net as well as in off-net because let us say, in a country, the minutes are only 60 minutes per month, large proportion of 60 minutes will be on-net, which itself is also low. So over the next few months you will see these will get initiated. Regulators are very open, very positive to review the interconnect rates and make them cost based country-bycountry and as the off net goes up, on-net will also go up naturally.

Suresh Mahadevan - UBS - Mumbai Thanks a lot and all the very best in Africa.

Manoj Kohli - CEO (International) & Joint Managing Director - Bharti Airtel Limited Thank you, Suresh.

Hina - Moderator Thank you sir. The next question comes from Mr. Pankaj Kapoor from RBS Equities, Mumbai. Mr. Kapoor, you may ask your question now.

Pankaj Kapoor- RBS Equities- Mumbai Hi Sir, Two questions, first on the balance sheet of Zain Africa - can you give some sense on the debt and the cash position. Second, if I am looking at it basically from the Zain Africa operations over the next two to three years, is our focus going to be more around getting the profitability numbers up or is it more going to be on the revenue side where we can see the upside coming in faster where you see the first signs of movement happening and third a small clarification, you mentioned about the taxes and the local license fee being close to zero in most of the regions in Africa, are these covering corporate taxes because I guess MTN has almost 33%-34% of effective tax rate done versus much less number for Zain, so if you can clarify on the tax part? Thanks.

Manoj Kohli - CEO (International) & Joint Managing Director - Bharti Airtel Limited Pankaj, let me start from point number three, corporate taxes are not covered in our statement, I mean the question was more about license fee and government taxes on the telecom revenue. Corporate taxes I think are different country-bycountry. We can share that with you separately but corporate taxes was not covered by me. Now coming to our strategy, clearly the number one strategy is RMS (Revenue Market Share) and as we drive revenue market share, we will get more revenues and hence larger share in each country. Concurrently, we are driving the business model, which is lean, and especially network, IT, and BPO all this will be driven and we will get economies of scale, which will definitely impact margins and improve our EBITDA. So I think these are the two big strategic moves which we have already initiated in the last four weeks and you will start seeing the impact in the coming quarters. I will just request Manik to share with you on your question on balance sheet.

Manik Jhangiani - Group Chief Financial Officer - Bharti Enterprises On the balance sheet front, we acquired the business with about $1.9 billion of gross debt and $1.6 billion of net debt. As I indicated and you know, if you look that phase on the overall EBITDA performance for Zain for 2009, which was just under $1.2 billion, you know, really that is the opportunity to lever up the operations a lot more and be able to push down some of the debt that we have taken at the overall level.

Pankaj Kapoor- RBS Equities- Mumbai Thank you, sir. All the best.

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Final Transcript Bharti Airtel Limited Recently Concluded Acquisition of Zain's Mobile Operations

Hina - Moderator Thank you, Mr. Kapoor. The next question comes from Mr. Henry Cobbe from NEVSKY, London. Mr. Cobbe, you may ask your question now.

Henry Cobe - NEVSKY - London Thanks for the call. I was just wondering in the upcoming quarterly results, would you give us full details of the subscriber base in each company, the revenues in each company, EBITDA in each country, so that we can actually start modeling the operations in Africa on a kind of detailed basis rather than relying on the old Zain financial statements?

Akhil Gupta - Deputy Group CEO & Managing Director - Bharti Enterprises I would not unfortunately be able to give you any firm answer today because this is something, which we are deliberating. I think the consideration we have, as you know is on one hand to maintain the transparency, which would enable all our investors and analysts to take considered calls on our stock. On the other hand we are also conscious of the fact that we are never going to load you with some unnecessary and irrelevant information and that is the balance we are trying to strike, so while I have my very serious doubts that we would like to share every countrys minute information because I do not think that is what is going to help our investors and analysts in taking an informed decision. All I can promise is that we would absolutely be taking these two factors into account when we finalize the format, so please allow us some time for that.

Henry Cobe - NEVSKY - London But you will not give us the combined Africa revenue and EBITDA numbers?

Akhil Gupta - Deputy Group CEO & Managing Director - Bharti Enterprises Of course, Africa will be one of the geographic segments as and when we are doing it but I am sure we will give you a little more than just the overall Africa.

Henry Cobe - NEVSKY - London Well, certainly we would decide whether that is too much information rather than too little?

Akhil Gupta - Deputy Group CEO & Managing Director - Bharti Enterprises You can also do the other way round if you find it too little, may be we will increase it. We like having the dialogue going. I think we want to do it in a manner, which is suitable on both sides. Please also remember that there would be some factor for the competitive information as well, which we would not like to divulge. So I think we are trying to balance all these factors. And as you are aware, we have always led from the front in giving a very transparent position in the quarterly reporting going well beyond what is legally required. I think we will absolutely be maintaining that trend.

Henry Cobe - NEVSKY - London Great. Thank you, very much.

Hina - Moderator Thank you, Mr. Cobe. Ladies and gentlemen, we are in the last five minutes of the conference call. Due to constraints of time management will have to speed up the pace of the questions. The next question comes from Mr. Rajiv Sharma from HSBC, Hong Kong. Mr. Sharma, you may ask your question now.

Rajiv Sharma HSBC - Hong Kong

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Final Transcript Bharti Airtel Limited Recently Concluded Acquisition of Zain's Mobile Operations

Thanks for the opportunity. I was scared with that last five minutes, but I got one. The branding cost Manoj, if you can throw some light as to how do you estimate that cost to be and how would you account it for or amortize it for a period of three years, five years and second my question is how will you make network sharing really work because you started with saying that there are generally two to three market players in most of the markets except for Nigeria where there could be five, so you do not have a seven to eight player scenario, so what is that will make network sharing really work when the players are not enough in these markets? Thanks.

Manoj Kohli - CEO (International) & Joint Managing Director - Bharti Airtel Limited On the branding you are right, branding being a major focus of the company, we will do serious investments in building a brand because Airtel is new in Africa and from October onwards, you will see major investments country by country, retail points, airports wherever we need the brand to be showcased. Normally in the past I think we have not amortized the branding cost, we debit the branding cost.

Akhil Gupta - Deputy Group CEO & Managing Director - Bharti Enterprises I guess in terms of how we will deal with that, I am sure, Manoj, we are not letting him bother with all that. I think this is something, which Manik will have to sort out with the auditors as per the accounting policy.

Manoj Kohli - CEO (International) & Joint Managing Director - Bharti Airtel Limited And coming to your second question on sharing, I do not think it makes a difference if there are three players, still they can share, if there are five players still they can share, so we are leading this culture of sharing so that the cost can come down and the cost can be passed on to the customers for more affordable tariffs so that markets can grow. The same ethos will continue in Africa and if we start with two players sharing wholeheartedly, I think that is a very good start.

Rajiv Sharma HSBC - Hong Kong Okay. Just the cost on branding, how are you estimating that cost, is that $400 million, $500 million, what would that be?

Manoj Kohli - CEO (International) & Joint Managing Director - Bharti Airtel Limited We have not estimated, you are estimating faster than we have done. So in the next few weeks, as we finalize the budgets, we will estimate the brand launch cost also, but as on date, we do not have an estimate.

Rajiv Sharma HSBC - Hong Kong Ok. Thanks.

Hina - Moderator Thank you Mr. Sharma. The next question comes from Mr. Vivek Doval from Boyce Allen, London. Mr. Doval, you may ask your question now.

Vivek Doval - Boyce Allen - London Thank you very much for taking my question. The question is actually to Manoj. Just to actually understand you know for this Zain businesses, what is the kind of revenue growth opportunity that you are actually seeing forth and will this share adjust, trying to understand, qualitatively or quantitatively some kind of elasticity stimulation that you might have actually undertaken and try to see how much of revenue growth is possible, so that is question one. Second of all, in terms of networth utilization and your staff levels, do you think you have a lot of room to grow with where the current capacity you have and thirdly is on your CapEx of $800 million for this year, is that likely to be pre-CapEx so we might like to see higher CapEx going forth?

Manoj Kohli - CEO (International) & Joint Managing Director - Bharti Airtel Limited

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Final Transcript Bharti Airtel Limited Recently Concluded Acquisition of Zain's Mobile Operations

On revenue, I really cannot share with you any guidance, but I can say that the opportunities are threefold. First is teledensity, which is more customers, second is usage, which is very low at 60 minutes or so and third elasticity. We have done some pilots in few countries and we have seen elasticity in Africa will be good, so to that extent we are optimistic that growth of customers as well as usage as well as data usage in future will be quite good and elasticity will definitely support that growth. On network utilization, we are growing the capacities wherever we need to especially in urban cities. There are parts of some countries where utilization is not to the level of congestion, so we do not have to worry about that, but wherever there is high utilization, it has already been plugged by our network teams. On CapEx as I said, our initial plan for first year is $800 million, we are well covered for the first year and broadly for the first two three years it should be around that figure, but I cannot give you more precise number today till we finalize the next three years plan.

Vivek Doval - Boyce Allen - London Thank you, very much for that. That was very useful.

Manoj Kohli - CEO (International) & Joint Managing Director - Bharti Airtel Limited Thank you, Mr. Vivek.

Hina - Moderator Thank you, Mr. Doval. The next question comes from Mr. Sean Gartin from Morgan Stanley, Hong Kong. Mr. Gartin, you may ask your question now.

Sean Gartin - Morgan Stanley - Hong Kong Thank you. On the Nigerian business, it seems to be the worst performing Zain business last year. Could you talk about what we need to do there on the network quality, whether we need to add more base stations so forth for optimization?

Manoj Kohli - CEO (International) & Joint Managing Director - Bharti Airtel Limited Sean, our network quality plan is for all the 15 countries. Nigeria of course is one of the 15 and we owe to our customers to give good network quality and good service quality. So as I said earlier, that is one of the prerequisites for our brand launch and we will definitely ensure that our network quality is plus one over our competitors.

Sean Gartin - Morgan Stanley - Hong Kong How much of this network quality improvement is required in Nigeria as a percentage of your revenue, 40% of your revenues at your end?

Manoj Kohli - CEO (International) & Joint Managing Director - Bharti Airtel Limited Sean I cannot give you a very precise answer country-by-country because those are specific competitor information, which we normally do not share in our calls. But I can assure you that network quality is an important aspect in Nigeria.

Sean Gartin - Morgan Stanley - Hong Kong And may be then just generally on network policies in Africa, is it lack of base stations or is it just a lack of optimization and that is it?

Manoj Kohli - CEO (International) & Joint Managing Director - Bharti Airtel Limited I feel network optimization is definitely not as good as it should be all over Africa, not only Zain networks, but many other competitive networks. I think optimization skills, optimization rigor has to be improved in Africa.

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Final Transcript Bharti Airtel Limited Recently Concluded Acquisition of Zain's Mobile Operations

Sean Gartin - Morgan Stanley - Hong Kong Thank you. That is all from me.

Manoj Kohli - CEO (International) & Joint Managing Director - Bharti Airtel Limited Thank you Sean.

Hina - Moderator Thank you Mr. Gartin. The next question comes from Mr. Andrew Syinanweoo from Highaside Capital, USA. Mr. Syinanweoo, you may ask your question now.

Andrew Sinwell - Highside Capital - USA If you could just talk about any ongoing challenges either from any government bodies or any private corporate bodies to any of the license transfers in any of the market, it will be great?

Manoj Kohli - CEO (International) & Joint Managing Director - Bharti Airtel Limited Andrew, let me share with you, we have had extremely positive response from each government, at the top level, at the middle level, ministers, prime ministers and presidents, so let me tell you that Bharti Airtel's reception in Africa has been extremely positive and we really do not see any challenges on that front. Actually government will go out of the way to support Bharti for future growth.

Andrew Sinwell - Highside Capital - USA Any kind of private corporate challenges to the license transfers, could you comment about where those stand?

Akhil Gupta - Deputy Group CEO & Managing Director - Bharti Enterprises There is no challenge to any license, but we are aware of the pending litigation in Nigeria; we had already settled it with the main Nigerian partner who is now the chairman of the Nigerian company and a great supporter of the company now. He has been with us and helped us in government meetings and everything; you know we have settled that. There is another litigation; hopefully we should be able to sort that out. We have already sought legal advice and we are told that we are absolutely at no risk on that.

Andrew Sinwell - Highside Capital - USA Thank you.

Manoj Kohli - CEO (International) & Joint Managing Director - Bharti Airtel Limited Thank you.

Hina - Moderator Thank you Mr. Sinwell. Ladies and gentlemen due to time constraints we would not be able to entertain any further questions. I would now hand over the call proceedings to Mr. Manoj Kohli for the final remarks.

Manoj Kohli - CEO (International) & Joint Managing Director - Bharti Airtel Limited

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Final Transcript Bharti Airtel Limited Recently Concluded Acquisition of Zain's Mobile Operations

Thank you. I really want to thank you all of you. Grateful for your time today. I hope we were able to satisfy all your queries and doubts about our Zain acquisition. I am really very, very confident on our success and future leadership in Africa continent and we will definitely come back to you quarter-after-quarter with positive updates. Thank you and meet you in the next call for the quarter. Thank you.

Hina Moderator Ladies and gentlemen, this concludes the call. You may now disconnect your lines. Thank you for connecting to audio conference service from Airtel. You all have a very pleasant day ahead.

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