Airtel Africa has experienced a bumpy ride since it acquired Zain’s African assets for $10.7 billion in 2010.
Upon entering the market, the operator sought to cut prices and costs in an effort to increase its market share and compete with the established players. However, Airtel has encountered a number of setbacks, including the recent legal victory by Econet Wireless in Nigeria and a significant decline in its market share in Kenya, which could turn its African expedition into a nightmare.
A recent ruling by the Nigerian High Court found that Bharti Airtel’s ownership of Zain’s Nigerian operation was null and void because Econet Wireless was not consulted on the sale. As a result, Airtel Nigeria must change its name and reinstate Econet’s 5% shareholding in the operator.
In response to the decision, Econet has announced bring a $3.1 billion damages claim against Airtel. This threat will place a dampener on Airtel’s expansion initiatives in Africa, and could affect Bharti Airtel as a whole as its Nigerian operation accounts for 9% of the company’s consolidated profits.
Legal wrangling could force a shift in focus
Airtel Africa can’t get distracted by legal battles, and must keep its focus on its core business of maintaining and growing its African operations. However, the possibility that it will have to pay $3.1 billion in damages to Econet will seriously affect its network rollout plans in Africa.
There is already evidence of this happening, with Airtel reporting that its African capex fell by 14% year-on-year in 3Q11.
In addition, media reports have indicated that Airtel’s Kenyan operation is 12 months behind schedule on its 3G rollout plans and coverage goals, and it is experiencing similar delays in its Ugandan operation. Airtel has offered no explanation for these delays.
In Nigeria, Airtel is also coming under pressure from the Nigerian regulator, which has ruled that network operators must improve the quality of their service or they will be prevented from signing up new subscribers. Airtel’s main competitor in Nigeria, MTN, has responded to this ruling by announcing that it will invest $1.4 billion over the next year to expand its network.