What next for Bharti Airtel in the wake of scuppered MTN deal?

Sunil Bharti Mittal: looking to new opportunities in the wake of scuppered MTN deal?

Will they? Won't they? Will they? Won't they?

No. Not now - and maybe not ever.

Of the two big telecoms M&A deals discussed by this blog over the last few months, one has definitely stalled, seemingly not to be revived again this year.

We've been here before. Giant Indian cellco Bharti Airtel and South Africa's multinational mobile group MTN failed to come together last year. Now, after months of discussions and a repeatedly extended deadline for those talks, the two firms have once again failed to find a way to combine their assets into one giant emerging markets player which would have been the third largest telecoms company in the world, according to the Indian MNO's statement about the scrapped merger plans.

Bharti Airtel maintains that the planned alliance "was a vision based on solid fundamentals" and that "substantial synergies could have been captured" with the proposed transaction. The Indian firm's statement indicates that much thought was given to the "the sensibilities and sensitivities of both companies and both their countries" and contends that "the proposed deal structure took into account their leadership in their respective geographies to ensure continuity of business - including listing, tax residencies, management, brand etc." With what sounds like a note of regret about a missed opportunity, the statement expresses the opinion that "the deal would have been a significant step in promoting South-South cooperation - a vision of the two countries."

So what's gone wrong this time? The Bharti Airtel statement indicates that failure to gain the approval of the South African Government is what has caused both companies to take the decision to disengage from discussion. James Middleton of Informa Telecoms & Media also describes the aborted transaction as a case of both firms failing to convince the Zuma Government, which is MTN's biggest shareholder via the Public Investment Corporation (a pension fund), of the value of the deal.

Another Informa scribe, the shadowy 'Informer', in his usual playful manner, reaches for the fairly obvious metaphor of a cancelled wedding and has some fun with it. Writing yesterday, the mystery man of Mortimer House jokes that that "the parents of the bride-to-be" were "clearly unimpressed by the quality of her suitor."

While the Indian firm expresses the hope that "the South African government will review its position in the future and allow both companies an opportunity to re-engage," it's probably legitimate to wonder if there will be the appetite to revisit this again for a third time. I'm all in favour of persistence - God loves a tryer and all that. I've also learned, though, that 'no' often means... 'no'. Happily, I've not had the chastening experience of asking several times for a lady's hand in marriage and being repeatedly spurned. My guess, though, is that I'd probably start to take the hint at the second knock-back. If Sunil Bharti Mittal and his management team feel at all like that, then this recent disappointment begs a new question: What next?

In its statement about the failed tie-up with MTN, Bharti Airtel stated that the company "will continue to explore international expansion opportunities that are consistent with its vision and bring value to its shareholders." I would expect that to be the case, having expressed the view back in February that competitive pressures on home turf might force the Indian operator to identify investment targets around the world.

As the year has unfolded since then, some of these pressures have not proven to be as strong as might have been feared. For example, one threat my February article identified was state-owned operators (i.e. BSNL and MTNL) stealing a march in the 3G space and in the WiMAX services arena. As we have seen here since, however, it now appears that the two big public sector telcos have failed to make much of this this first-mover advantage.

Other pressures do continue to exist, though, even in a massively booming market. Since that February article, India's mobile operators have added almost 100 million subscriptions. Bharti Airtel's share of the vast subscriber base, however, has slipped a little, with ground conceded to a strongly performing Reliance Communications and to smaller players whose market share has improved a bit, notably Aircel and Russian-owned MTS India.

Where, then, will the giant MNO seek new growth opportunities outside its home territory? Back in February, I aired the view that Bharti Airtel may be almost uniquely well suited to the challenges of African markets, noting that the Indian operator has to cope with the lowest tariffs in the world while sustaining growth. More than once, when reporting the rumoured sale of a set of African mobile operators, this blog has noted that those operations are rather less profitable than the parent company's properties in the Middle East. Bharti Airtel, then, might be the most obvious fit to purchase those assets. The group being referred to here is, of course, Zain.

So, could the failure to tie-up with MTN now put the Indian operator in the frame as a suitor either for Zain's African portfolio or for a stake in the entire Kuwaiti-headquartered group? Maybe. Consider this from the chuckling 'Informer':

"You shouldn’t stick around where you’re not wanted... there are, after all, plenty more fish in the sea. The Informer suggests that Bharti has a look at Zain, instead. Zain gives the impression of being a little more, how shall we say… available."

If this were to happen, I'd guess that a link-up with MTN would be permanently off the cards, due to the significant overlapping of the Zain and MTN footprints.

What next for Bharti Airtel in the wake of scuppered MTN deal?