In today’s Finshots, we tell you about Reliance’s entry into the African telecom space and if this foray will wage a new war against Airtel’s presence in the continent.
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The Story
The year is 1997. It’s been 2 years since Airtel began operations in India. Through grit and determination, the fledgling company has managed to corner a tiny market — about 1 lakh customers. And while some would baulk at the challenge of building a telecom brand in India, Airtel had other ideas. They weren’t just content on building a local brand. They wanted to go international — make a high-stakes bet in a completely uncharted territory.
They wanted to bid for a telecom operator’s licence in Africa’s Botswana.
And even though they failed with their bid, it didn’t faze Airtel one bit. They tried again the next year in a different location and scored the licence to operate a national telecom business in the Seychelles, thereby becoming the first company to set up and operate a telecom network outside India.
With wind in their sails, they doubled down on their international goals. This time attempting to acquire MTN, Africa’s largest telecom company. The $24-billion merger would create the world’s fourth-largest telco at the time, spanning 24 countries and 200 million subscribers. Unfortunately, government intervention in South Africa scuttled the deal and Airtel had to try again.
But the third time’s a charm, isn't it?
In 2010, Airtel bought out the African operations of Zain, a Kuwaiti telecom company for about $9 billion and finally, they made it big in Africa.
Now don’t get us wrong. This wasn’t easy by any stretch of the imagination.
Two decades ago, the African market seemed a lot like India. It had a huge population with little or no access to telecom networks, prospective customers with low purchasing power and a potential for growth.
Yet, wobbly governments across many countries in the continent forced Airtel to navigate regulatory hiccups and currency devaluations (weak currencies losing value) until it could establish a base in Africa. In fact in the early years, they had to take on boatloads of debt just to keep the Africa business running. But eventually, Airtel turned itself around. It raised money to pay down debt and expand its 4G connectivity. It strengthened local sales with the help of small SIM card distributors and expanded its reach across Africa.
By 2018 it was able to claim profitability. And today, Airtel Africa is either the first or second largest player by customer market share in 13 out of 14 African markets it operates in. The African unit also generates as much as 27% of the company’s consolidated revenues — nearly $5 billion.
Now that you understand the African telecom opportunity, we can proceed to the main headline.
A couple of days ago, news media began reporting that Reliance had announced a partnership with the Ghana government to provide cheaper internet services in the country. And that got everyone thinking — Is Reliance Jio trying to do an Airtel? Are they going to take the battle to Africa and try and dominate Airtel just as they did in India?
Well, it’s a bit complicated.
For starters, Reliance has stated explicitly that they aren’t entering the African market as a telecom service provider. Rather, a subsidiary of the company “Radisys” is shaking hands with the Ghana government and a consortium of companies like Tech Mahindra, Nokia and other African mobile network operators to build a solid broadband internet network infrastructure across the country. And they’re calling this partnership Next-Gen Infra Co. (NGIC).
This is slightly different from what Airtel did. They went to the African market directly providing telecom services to customers in Africa. Reliance or Radisys on the other hand wants to develop affordable and high-speed 4G and 5G internet infrastructure for Ghana’s masses. They are building an open infrastructure, specifically using Open Radio Access Networks (Open RAN). This open infrastructure will allow any telecom service provider in Ghana to enter the market and offer telecom connectivity to the Ghanaian people.
Now you may ask — Why doesn’t Ghana build the network infrastructure on its own? Why can’t private and public entities in the African nation come together and do this for their country? Well, building a high-speed telecom network, particularly one involving advanced technologies like 4G and 5G, requires specialised knowledge and experience. And companies like Reliance and its subsidiary Radisys have the necessary expertise to do so in a cost-effective manner.
And this is the most important part. Ghana wants to completely digitalise its education, healthcare and payments system by 2030. So it’ll need to make network connectivity affordable. And while it is true that Ghana has the cheapest internet rates in Sub-Saharan Africa at $0.61 per GB, it still pays a high price for the internet speed it gets. For context, you can download 1 GB worth of data in 2 minutes or less in India. But it takes twice as long to download the same file in Ghana and sometimes even 10x the time in areas where network connectivity is patchy.
So yeah, if this partnership turns out to be a success, it could be a model that Reliance can replicate across other African countries. It could licence its shared network infrastructure to more telecom service providers, rake in higher revenues and grow exponentially without having to acquire a single customer in Ghana directly.
Interesting, isn’t it?
Two massive telecom companies pursuing two very different strategies to make a dent in the African market.
Until next time…
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