MTN hang-up not the end of Bharti expansion

Smaller deals would be preferable as they are more likely to succeed and would not stretch Bharti's finances as much as the $20 billion or so it could have spent for a majority of MTN.

"I don't think it's the end of the road for Bharti in terms of acquisitions, but perhaps now they will be looking for smaller companies close to home," said Andrew Jobson, analyst at Daiwa Institute of Research in Hong Kong.

Bharti ended talks with MTN after failing to agree a structure for a group that would have been the world's sixth-largest mobile operator with over 130 million subscribers.

Bharti said it is still keen to expand and be a multinational telecoms giant. Funding offers of $60 billion during the MTN talks show financing should not be a problem.

Egypt's Orascom Telecom and Nasdaq-listed emerging markets firm Millicom International "may be interesting given their reasonable scale and exposure to growth markets," said Merrill Lynch analyst Reena Verma Bhasin.

"We think the African markets are fairly consolidated and MTC Zain, which ranks No.2 in Nigeria (behind MTN) may not be available," she said in a research note.

Bharti, 30.5 percent owned by Singapore Telecommunications, has more than 64 million subscribers and is leader in the world's fastest-growing mobile market, with over 17 million more users than its closest rival.

Millicom is valued at almost $12 billion and Orascom at $15.5 billion. Even allowing for a takeover premium, the market would be more comfortable with that sort of number than the estimated $50 billion valuation put on MTN, about 25 percent more than Bharti's market value.

Orascom, which also operates in Algeria, Bangladesh, Tunisia, Pakistan and Zimbabwe, has more than 74 million subscribers. A tie-up with Bharti would rank it sixth in the world.

Millicom, controlled by Swedish investment firm Kinnevik, has interests in 16 countries in Central and South America, Africa and Asia and had 26 million users at end-March.

HEDGE AGAINST SLOWDOWN

Overseas expansion would offer Bharti a hedge against an expected slowdown in growth in India after 2010, when more than 40 percent of the population is expected to own a mobile phone and average revenue per user will come under pressure as operators have to venture into less-affluent rural areas.

Add in the news that smaller rival Reliance Communications has opened talks with MTN, and the incentive for Bharti to expand outside India remains strong.

"We believe that while MTN could be one missed opportunity, Bharti management could focus its attentions on other targets," Credit Suisse analysts Bhuvnesh Singh and Sunil Tirumalai wrote, adding Bharti would prefer friendly takeovers to hostile bids.

They said Bharti could look to developed markets for opportunities to exploit its ability to deliver high volumes of service at low cost. Others reckon Bharti will pursue growth in emerging markets.

"Why were they looking for MTN? It's a market where they would have implemented their Indian model," said Priyank Chandra of Dolat Capital.

"I don't think they will go for an acquisition in saturated markets like Europe and the U.S., at least for voice services," though he did not rule out targets in the data market. "They are not desperate, and funding is not an issue."

Bharti Airtel Chairman Sunil Mittal has other distractions. His business group is launching retail operations in India and a wholesale cash-and-carry venture with Wal-Mart Stores will follow.

As well, Reliance Communications plans to roll out GSM services across India and the government has issued more GSM licences, so domestic competition is heating up.

Bharti shares fell sharply when it confirmed it was in talks with MTN early this month, and jumped this week when those talks collapsed, reflecting market concern about the size of the deal. "People don't want them to make huge acquisitions," said Daiwa's Jobson, who rates Bharti "outperform" and has a 6-month price target of 1,085 rupees, more than 25 percent above Tuesday's close.

"People were worried that a deal with MTN would have distracted them from the Indian market, which is itself very exciting and a high growth market," Jobson said.