India's Competitive Edge By JOSEPH STERNBERG This week has brought into focus a new scramble for Africa—the race for the continent's mobile-phone market. The competition is all the juicier because it's setting India and China against each other. Nigeria's government on Tuesday announced that a consortium including China Unicom, the country's second-largest mobile provider by subscribers, bid $2.5 billion for Nigeria Telecommunications, a struggling state-owned provider. Meanwhile India leader Bharti Airtel on Monday unveiled a $10.7 billion deal to buy the African operations of Kuwait's Zain. African consumers will decide which of these ventures will prosper—perhaps both will, or neither. While we wait for that verdict to come in, placing bets is certainly allowed. The real issue to bet on is whether a relatively liberal, competitive market at home is determinative of success abroad. Punters can start by observing of Bharti that you don't become the largest mobile provider in the world's second most populous country by sheer dumb luck. The competition is too fierce. A dozen mobile providers currently duke it out for their share of a large but poor mobile market. Regulators over the years have opened the doors not only to domestic upstarts but also to foreign players. A steady increase in the number of mobile licenses combined with the growing ability to attract foreign investment capital and expertise—foreign ownership is now capped at 74%, up from only 26% in the early 1990s—has spawned a healthy number of vicious competitors. Indian mobile providers have been forced to innovate to keep up. Airtel CEO Manoj Kohli trumpeted some of his company's inventions in an op-ed on this page in 2007: a pilot program to give farmers access to commodity-price data; mobile banking services; scooter-based marketing in rural areas. That's just at one company. Oh, and did we mention that Indians pay among the lowest mobile tariffs anywhere? Tata Teleservices, 26%-owned by Japan's DoCoMo, last year started billing voice calls by the second instead of the minute. This crucible has forced Airtel to forge its most important innovation—its business model. Bharti is more interested in marketing mobile services than in actually providing them. It has pioneered a method of outsourcing nuts and bolts ranging from various IT services to the mobile network itself. Those who expect great things of Airtel in Africa point to this innovation in particular, combined with the Indian company's competitive agility in its home market, as predictors of success. This all makes for a striking contrast with China Unicom. Luck might not suffice for success in India, but in China's mobile market it's everything. Unicom's particular good fortune is to be one of only three well-connected state-owned mobile companies situated in the world's largest country. It helps that China is governed by an authoritarian regime so skittish about communications that it blocks any foreign competitors from entering the market. That breed of luck keeps Chinese mobile-call prices so high text messaging is the preferred form of communication. It also has seen Unicom through competitive disasters that might have destroyed a company in India. When Unicom was the unfortunate recipient of a Beijing mandate to deploy the CDMA technology standard in 2002, it hardly mattered that Unicom devised a pricing plan that failed to pull customers away from the more popular GSM-equipped phones they were already using. In the latest round of government-sponsored industry reorganization, Beijing simply handed Unicom's CDMA network to a different company, China Telecom. Unicom likewise has survived the botched roll-out of the iPhone, which hit China two years after its introduction elsewhere, at a higher price, and (at government decree) without the signature wi-fi facility for wireless Internet connectivity. In fairness, China has had some notable successes abroad in mobile-related markets. Companies like Huawei and ZTE are major players in the African handset field. Huawei last year joined a consortium that plans to build Europe's first next-generation mobile network. Note, however, that these Chinese companies have faced strong competition both at home and abroad, unlike the mobile-service providers themselves. Unicom, of course, has the advantage of Beijing's deep pockets as the company plants the Chinese flag in Africa. Bharti will have to succeed or fail on its pluck alone. Some might argue that this tilts the scales in Unicom's favor; at a minimum it's a big advantage. But Beijing's money can't buy Chinese companies love overseas. Up to now China's main mobile-services investment abroad has been China Mobile's purchase of a struggling Pakistani provider with about one-third the number of subscribers of the market leader. It's just not competing successfully. So we come to our last data point before placing final bets: Bharti is buying a company that boasts 42 million subscribers and a market share greater than one-third in 12 of the 15 countries covered by the deal. China Unicom's consortium is bidding on a provider with a subscriber base in the very low hundred-thousands that has already been the subject of one botched privatization attempt and reportedly is 17 months behind paying its staff wages. That kind of mess takes real competitive skill to turn around.