News from islands large and small

More than once, reference has been made here to the idea that some developing countries may well be set to experience consolidation of the mobile sector in the near future. I've quoted luminaries from emerging markets players such as MTN and Zain who contend that in Africa, for example, there currently exists a larger number of mobile operators than the continent's markets should really be able to support. With this in mind, I have often turned the baleful gaze of DevelopingTelecomsWatch towards the hopes and struggles of smaller cellcos competing for a slice of often quite small markets in the face of competition from multinational telecoms groups with far more formidable assets.

This week, however, I've found my thoughts turning to the the prospect of market consolidation much closer to home because here in Britain, Vodafone has declined to comment on a report that it is considering buying the UK operation of T-Mobile International.

For me, this is very close to home. I've been a T-Mobile UK subscriber a number of years. Also, a number of people I know socially make the very short journey every day from St Albans to their jobs at the operator's HQ a few miles away.

I don't know how likely this deal really is. Local reports have made much of whether the UK authorities would welcome the creation of an operator with a market share of 40%. Press articles here have also featured questions about why Deutsche Telekom would offload such a significant asset at the bottom of the market, why Vodafone would take on extra operational costs during a recession and how such a deal would affect 3 UK, with which T-Mobile UK has a network sharing arrangement.

The same reports, however, do remind us that earlier this year, Vodafone CEO Vittorio Colao said that his company was prepared to play an active role in consolidation between operators and that this has already happened in Australia. There, in February, Vodafone and rival cellco 3 Australia announced their merger.

The good people of my home town here in the commuter belt to the north of London will certainly watch this with interest. This is a relatively prosperous place, even by UK standards, but we have certainly not escaped the effects of the recession. A growing amount of retail space stands empty and, albeit from a low base, we have seen a recent surge in the number of people who are unemployed. The T-Mobile campus in nearby Hatfield is one of the larger office complexes in the area and must be one of the more significant providers of decent jobs that do not involve taking the train into Central London. I am therefore struggling to think of how the prospect of a Vodafone-T-Mobile merger could be viewed with anything but apprehension in my neck of the woods.

It's much easier to write dispassionately and remain cool about the human impact of M&A activity when the action is a long way from home. So perhaps it's best if I stick to the emerging markets/developing countries brief of this blog and turn my gaze to distant shores. This will be a far more comfortable expercise than trying to avoid becoming maudlin about friends and neighbours employed by T-Mobile worrying about their jobs.

So I'll pick a really distant shore - about as far from home as I can possibly find. How about Nauru, a tiny island in the Micronesian South Pacific? According to Cellular News, the world's smallest independent republic is finally joining the mobile revolution.

With no existing mobile operator and a population of just 10,000 to serve, you might think that the Nauru might not need a Minister of Telecommunications. Such a post does exist, however, although I get the impression from telecoms research consultancy BuddeComm that the performance of past Ministers has been somewhat underwhelming. The synopsis of the BuddeComm Nauru market profile indicates that up to now the Government has been both regulator and the sole provider of all telecoms services. According to BuddeComm, "the state of telecommunications in Nauru resembles the country’s own economic chaos". Their Nauru profile notes that in 2003 the telephone system collapsed due to equipment failure leaving the island cut off from the rest of the world and that the Government could not afford to have the necessary repairs made. In 2004, apparently, satellite communications were to be shut down for non-payment of subscription fees.

All this looks set to change rather dramatically - the current Minister, Sprent Dabwido announced this week that Government of Nauru has awarded Digicel a license to operate a GSM network.

Can any company make a profit from operating in such a tiny market? Well, while Nauru might be an extreme case, Digicel does have a track record of establishing operations in very small territories and is therefore probably better suited than any other company to a challenge of this kind. Digicel provides mobile services in 26 countries and territories throughout the Caribbean, Central America and the South Pacific. In the latter region, operations have been set up in markets including Vanuatu (pop. 216,000) Samoa (pop. 189,000), Tonga (pop 112,000). Small territories, then, seem to hold no fear for Digicel.

The company will presumably have been buoyed by being able to report its first net profit since its launch in 2001. According to a TeleGeography report earlier this month, Digicel recorded a net profit of USD 41 million in the twelve months to 31 March 2009, compared to a loss of USD 74 million in the previous year. EBITDA reached USD 680 million, a 34% increase year-on-year. Revenues rose by 11% to USD 1.73 billion, while the company's subscriber base was up 34% to 9.2 million. The company’s net debt at the end of March was USD 2.7 billion.

Digicel said that the subscriber growth in subscribers was helped by successful rollouts in El Salvador (where it now has about a million customers), Trinidad & Tobago and Suriname. Other new additions to the footprint are Honduras and Panama, both added in late 2008. According to Digicel, 1.1 million new subscribers were signed up across these two new operations in their first five months of operation. According to a Cellular News article the month, the operator is now planning to extend its reach to Costa Rica, breaking the monopoly currently enjoyed by that country's incumbent telco Instituto Costarricense de Electricidad (ICE).

Meanwhile, across the sun-drenched Caribbean islands where Digicel first established operations (before expanding into Central America and the Pacific), the company faces a potentially interesting new competitor.

According to a TeleGeography report, Lycamobile is looking to make the transition from its prepaid MVNO model to becoming a full MNO in the Caribbean, starting in St Kitts and Nevis and following on across six other islands. Since 2006 Lycamobile has launched its prepaid brand in eight European countries, where it offers very low tariffs and claims to have around four million customers. My understanding is that the focus of its market efforts tends to be the diaspora populations of African and Asian countries who are working in Europe and looking for good deals on calls home:

Quite what has prompted the company to look to the Caribbean and to setting up physical networks I don't yet know, but given that we started with worries about job losses in the satellite towns around London, St Kitts and Nevis just seems like a pleasant place to end this meandering tour through the world's island markets large and small.

News from islands large and small

Chad: What does the future hold for the country's under-developed telecoms sector?

Earlier this week, courtesy of Alastair Sharp of Reuters, I learned that Orascom Telecom has received a USD 4.9 million settlement from the Government of the Republic of Chad following a dispute over the ownership of a mobile operator in the country.

In July 2004, Orascom Telecom suspended the operation of MNO TchadMobile, then a joint venture between the Egypt-headquartered group and Chad's national incumbent fixed-line operator SOTEL Tchad. At that time, the country's mobile market was split two ways: TchadMobile had just 33,000 subscriptions, according to WCIS. Its rival - now branded Zain Chad - had around 78,000 subs.

The suspension of operations resulted from Chad's telecommunications ministry invalidating the transfer of of a 51% stake of TchadMobile to Orascom Telecom (as part of an agreement struck in 2002), which then took the case to the International Chamber of Commerce (ICC) in March 2005. A long wait, then, for a modest payout.

As far as I know, Orascom Telecom has yet to comment on the degree to which this is felt to be a satisfactory outcome. I don't have any data on how much money the company would have invested in its Chad operation, but I'd guess that the ICC award must represent a fraction of that sum. Further, the breakdown of the relationship between the telco and the Chadian Government means the former has foregone the opportunity to profit from the growth of the country's telecoms sector in this years that have followed. In terms of mobile subscriptions, this has been quite significant - Chadian mobile subscriptions now number almost 1.9 million.

Looked at one way, this figure represents a mobile boom. However, relative to other African nations, Chad continues to be a laggard in terms of mobile penetration - this now stands at just 16.33% vs. the overall African figure of 39.19%.

According to telecoms research consultancy BuddeComm, Chad has one of the least developed telecommunications market in the world, with low penetration rates across all market sectors – fixed telephony and Internet as well as mobile – well below African averages. BuddeComm's Chad country profile states that the country lacks a national backbone infrastructure to support efficient broadband services and that in order to raise the capital needed to fund development of the network, the Government is intent on privatising SOTEL Tchad. Any telecoms group potentially interested in that particular opportunity would presumably want to have a thorough understanding of how Orascom Telecom's relationship with the Chadian Government went sour, not least because the country is listed by Transparency International as one of the most corrupt in the world. Perceptions of this kind can hardly be reassuring for prospective investors.

Further, the country is not only thought of as corrupt but also is also suffering the effects on an ongoing civil war and an influx of refugees from neighbouring Sudan. Chad is also one of the world's least affluent countries, with much of its population living in poverty as subsistence farmers and herders. Poverty this extreme will always be an inhibitor to growth, with even very low-cost services beyond the reach of many citizens.

This country of about 10.8 million people, then, would seem to represent a daunting challenge for telecoms groups looking for a solid return on investment.

One company which has been brave enough is Millicom International Cellular, which, in November 2004, won a tender for a 10 year licence to operate a GSM network in Chad. The group's Chad operation now has a 37.41% share of those 1.9 million subs. In March this year, Millicom deepened its commitment to its Chad operation by buying out the 12.5% share held by former joint venture partners.

One threat to the current status quo (a Zain-Millicom duopoly in mobile) identified by BuddeComm is the possibility of SOTEL re-entering the mobile space via adding mobility capability to its CDMA WLL network.

Taking all of this into account, troubled Chad seems like an above-averagely tough place for a telecoms group to make money. I wonder, therefore, if Orascom, the small scale of its recent payment from the country's Government notwithstanding, sheds many tears over its exit from the Chadian market.

Chad: What does the future hold for the country's under-developed telecoms sector?

From a reader: more on the Russian state's mobile ambitions

I drive a bit of traffic to this blog by putting up links to some of the posts in relevant interest groups' news sections on LinkedIn. The only downside of this is that some comments/responses/questions which would add value for readers of DevelopingTelecomsWatch are only visible via these particular groups. By and large, this is not a huge problem for me. This week, however, one reader left such a well-written and insightful comment via LinkedIn, that I wanted to post it once again here for slightly wider consumption.

On Thursday, I picked up on press buzz about the Russian state telecoms investment vehicle Svyazinvest looking to get a lot more active in the sector, particularly in the mobile space. I reflected on the suggestion that this would be done via some kind of link up with one of the country's 'big three' cellcos and wondered which one it might be.

In response, Kiev-based Tim McQuillin leveraged a much better understanding of the Russian market than my own to weigh in with a more thorough analysis than anything I was able to come up with quickly. Over to you, Tim:
I'm not surprised that the Russian government is now turning its sights towards more control over its telecom industry, as it has done with its energy sector and most recently doing with its banking industry. I think a "merger" with a mobile operator would be a euphemism, and will be more like a nationalization.

The economic crisis is creating an opportunity to consolidate its position by taking advantage of the weakened oligarchs who own these businesses. Yevtushenkov (Sistema/MTS) has lost an estimated 90% of his wealth and worth barely $1 billion. Fridman (Alfa/Vimpelcom) has reportedly lost about 70% but is still worth around $7 billion and also is involved with the energy sector.

As MTS and Vimpelcom are both the most attractive mobile targets, the Kremlin would probably be satisfied with either. Therefore, as usual, the oligarch who isn't "playing nice" with Mr. Putin will be the likely loser. In this case, Yevtushenkov and his affiliations seems to fit this bill closer than Fridman, who has generally supported Putin and his party.

So with Yevtushenkov's weakened financial position, his relative distance from Putin, the "merger" with Sistema/MTS seems more likely. Additionally, to merge with Vimpelcom, the State would either need the agreement of Telenor's Vimpelcom board members for the deal or just railroad them. While it has shown it's willing and able to do that to foreign investors, Telenor has proved very tenacious over the years in its battles against Alfa and that it cannot be bullied or pushed out easily. But, if they've tired of the fight, this might be a good chance to sell out and move on. So there is my hedge. :-)

From a reader: more on the Russian state's mobile ambitions

Lucky Seven? Can the Tanzanian market offer solid returns for its (growing) plethora of mobile players?

Via TelecomPaper on Tuesday, I learned that one East African country will soon home to its seventh mobile operator, which will offer services over a CDMA network. With a population of around 40 million, Tanzania is not an insignificant country, but one must wonder if there is room for all players to run profitable operations in a market split so many ways.

How many other markets of about this size support such a large number of MNOs? The answer seems to be... none. Here is a fairly comprehensive sample of nations with populations of roughly the same size:

• Spain - 45m - 4 operators
• Colombia - 44m - 3 operators
• Sudan - 42m - 5 operators
  
• Argentina - 40m - 4 operators
• Kenya - 39 m - 4 operators
  
• Poland - 38m - 4 operators

Even highly penetrated, mature European markets of roughly the same population size, then, are home to fewer MNOs - cause enough, perhaps, to be cautious about the prospects for a brand new entrant in Tanzania. Further, it is already the case that two existing CDMA operators in the country have failed to establish large customer bases. One of these, Benson Informatics, is an ISP and telecoms service provider founded in 2000, which added mobile services to its product portfolio in 2007. To date, according to WCIS, the company has built a market share of just 0.2% - barely 3000 subscribers.

A bit more significant is the mobile network of Tanzania Telecommunications Company (TTCL), with a reported 110,000 subscriptions, down from a high of around 160,000 subs in September 2007. Prior to 2007, TTCL offered a fixed-wireless CDMA WLL service. The decision was then made to offer mobile services. In the two years that have followed, the impact on the market has clearly been very limited.

Once wholly state-owned, TTCL is the oldest and largest wireline telco in the country and operates the PSTN network of mainland Tanzania. The country's name is portmanteau of Tanganyika (the mainland of the present day country) and the Zanzibar achipelago of islands a few miles offshore. In the latter, the fixed-line market is split between TTCL and Zantel, the second basic telephony services provider there.

Given that CDMA mobile operators across Africa are typically pretty minor players in terms of market share, it is perhaps not surprising that TTCL's mobility proposition has not really grabbed the attention of Tanzanian consumers. Further, the company itself is perhaps not ideally geared to compete with the three GSM operators that have collectively established almost a 90% share of the mobile market. While these three are outposts of significant multi-country mobile groups (Zain, Vodacom and Millicom International Cellular), TTCL has, since the early part of this decade been in a number of joint management arrangements necessitated by its financial instability.

The company's rival in the Zanzibar fixed-line space, Zantel, has fared rather better in the mobile space, with a 9.19% market share (about 1.1 million subs on its GSM network).

Overall, the mobile penetration rate of Tanzania has not yet passed the 30% mark, lagging well behind the overall rate for the African continent as a whole (39.19% as of March 2009). Does that mean there is sufficient room for growth for this veritable plethora of mobile players? Perhaps not. In terms of GDP per capita at Purchasing Power Parity, Tanzania appears to rank as low as 50th out of 53 countries in Africa. Further growth of the overall market, therefore, will doubtless by constrained by consumers' ability to afford even very low-cost services.

A discussion of this type is not new territory for Developing Telecoms Watch. In March, I considered the case of Gabon, asking whether a fourth entrant mobile operator could expect to be profitable. Around the same time, I was thinking a bit about how tough the Burundi market appears to be.

Blog posts of this kind are just very quick thumbnail sketches of these markets - a quick look at mobile market metrics (penetration, market share etc.) cross-referenced with some very basic information about the countries themselves. You might be able to guess that for the latter, I am rarely looking further than Wikipedia. So when I raise questions such as whether these markets are attractive to new entrants or likely to see market consolidation, you are seeing nothing more than a bit of pure conjecture. Readers who really understand the markets concerned are warmly invited to correct any glaring errors in my rough analyses or to add some local colour and detail to the stories. Please use the comment function to do so, if you feel so inclined.

I note, for example, that this blog does get visits from Tanzania. Perhaps someone there will be able to offer a view on the prospects of success for the country's latest mobile market entrant which, according to the Citizen newspaper, will trade under the name Sasatel. The company apparently has a licence for voice and data services, Internet service provision and international gateway services and will have a fixed-wireless (CDMA WLL) offering as well as full mobility via a CDMA network.

I would be interested to know the level of this operator's ambitions and to what degree it expects to compete more effectively than Benson Informatics, whose offerings appear to be somewhat similar.

Lucky Seven? Can the Tanzanian market offer solid returns for its (growing) plethora of mobile players?

Russian state telecoms company to go mobile - but how?

A cursory reading of telecoms sector news items emanating from Russia this month makes it clear that a big shake-up of the country's mobile sector may be on the cards. It is less clear what form this will take.

Whatever happens, a reorganisation and a change of priorities for Svyazinvest, the mainly state-owned telecoms holding company, look set to be the drivers for this shake-up.

The change of priorities is a shift from playing mostly in the fixed-line space towards being much more aggressive in the mobile business than is currently the case.

Svyazinvest's key assets are controlling stakes in seven large regional telecoms operators and Rostelecom, the national domestic long-distance and international operator - the Russian Federation does not have a single fixed-line incumbent operator along the lines of those typical of many European, Asian and Latin American countries.

Some of the seven regional operators are quite active players in the mobile space. For example, Uralsvyazinform (the dominant telco in the Urals region) had nearly 5.8 million subscribers on its GSM network by March 2009, according to WCIS. Siberia's Sibirtelecom has slightly fewer subscribers on its own network.

These figures, however, are dwarfed by those of Russia's big three cellcos - MTS, Vimpelcom and MegaFon, which have nearly 159 million subs between them, a collective market share of about 82%.

According to Maria Kiselyova of Reuters, writing this week, the Russian Government wishes to play a bigger role in the telecoms sector "and in the high-yielding mobile business in particular." With this in mind, writes Kiselyova, Svyazinvest has plans "to become the country's fourth-largest mobile phone operator by consolidating its mobile assets and partnering with private regional providers." Citing an article in business daily Vedomosti, she says that Svyazinvest is reportedly discussing partnership a scheme with regional providers, including Tele2.

Tele2 Russia Chairman Yuri Dombrovsky is reported to have said that his company and Svyazinvest could create a joint venture to build a third or fourth-generation mobile network in Russia and that Tele2 would be interested in using Svyazinvest mobile networks in regions where it has no presence, while Svyazinvest would use Tele2's networks in other regions in return.

Other reports this week, however, suggest that Svyazinvest might also opt for a quite different route towards more active participation in the Russian mobile market. A TelecomPaper article, for example, contends that the company "is seeking to close a merger deal with one of the top three mobile operators in Russia," and cites Communications Minister Igor Shchyogolev as saying that this "would be the optimal path for the development of Svyazinvest's mobile business."

If this is the more likely option, I wonder which of the big three cellcos would be involved. A clue might be extracted from a look at the ownership structure of Szyavinvest itself. The Russian Federal Property agency owns 75% minus 1 share. The next largest shareholder, with 17.31% plus one share is Comstar-UTS, whose main shareholder is Sistema - owner of a 52.8% stake in market-leading cellco MTS. I personally find the intricacies of Russian corporate structures to be fairly bewildering at times. Is it naive of me, then, to wonder if an tie-up with MTS is, due to this overlap of interests, more likely for Svyazinvest than an arrangement or merger with either Vimpelcom or MegaFon?

Whether it will be with MTS, another of the 'big three' or with Tele2, various reports do seem to settle around one fairly consistent idea - that Svyazinvest will not remain content with a relatively minor role in Russia's mobile industry. Having organised and hosted a number of telecoms sector conferences in Moscow, I retain an interest in this story and will try to follow it as closely as I can.

Russian state telecoms company to go mobile - but how?

Zain Africa Speculation Watch: Episode 6

For an entity supposedly up for sale and coveted by a wide variety of interested parties, Zain's African unit has certainly been very busy creating new partnerships and gaining publicity for its various activities.

One example of this, brought to my attention by TelecomPaper this week, is the operator's cooperation with Western Union, whereby the two organisations will work together to deliver mobile money transfer services in countries in Africa and the Middle East through Zain's new Zap platform. The service enables Zain subscribers to manage their bank accounts, top up mobile airtime (and transfer airtime to other subscribers), pay utility bills, pay for goods in retail outlets, and transfer money to friends and family.

The opportunity around providing financial services to the unbanked in Africa and in developing countries worldwide is a certainly a rich one. At the Mobile World Congress in Barcelona earlier this year, GSM Association CEO Rob Conway observed that "there are over one billion people in emerging markets today who don’t have a bank account but do have a mobile phone." Conway feels that mobile operators "are perfectly placed to bring mobile financial services to this largely untapped consumer base" and that "mobile money for the unbanked has the potential to become a USD 5 billion market opportunity over the next three years."

Conway was speaking during an announcement made jointly with the Bill & Melinda Gates Foundation, which provided a USD 12.5 million grant to the Mobile Money for the Unbanked (MMU) programme, the aim of which is to "encourage the expansion of reliable, affordable mobile financial services to the unbanked."

With Rob Conway having set out the scale of the opportunity for MNOs, the Foundation's Bob Christen was keen to stress the humanitarian benefits, noting that "technology like mobile phones is making it possible to bring low-cost, high-quality financial services to millions of people in the developing world so they can manage life’s risks and build financial security."

Mobile financial services then, should surely be a vital component of the strategy of any telecoms group whose operations are, in large part, in developing countries - a nice revenue opportunity plus wonderful CSR benefits around poverty alleviation.

Setting up services of this kind, however, can be challenging. The last time I heard this discussed at a conference (East Africa Com in Kenya this April), delegates were asking questions about regulatory complexity and about to what degree securing the necessary participation of established financial institutions was going smoothly.

Bearing this in mind, it is perhaps worth noting that while Zain's announced partnership with Western Union sounds exciting, much of the text refers to this being a work in progress - not yet fully operational and subject to regulatory clearance in countries worldwide.

This leads me to wonder whether it would be sensible to dedicate considerable efforts to this venture if up to sixteen of the operations in which the service will work are really to be sold in the near future.

Another initiative possibly set to do wonders for Zain's image as an organisation committed to improving lives in Africa was announced only days ago. Dubbed "Weather Info for All", this involves Zain, Ericsson, the Global Humanitarian Forum and the World Meteorological Organization. The aim is to "radically improve Africa’s weather monitoring network in the face of the growing impact of climate change," which is said to be responsible for some 300,000 deaths worldwide each year and over USD 100 billion of economic losses, mainly because of shocks to health and agricultural productivity. As the Weather Info for All announcement indicates, "Sub-Saharan Africa accounts for close to a quarter of these losses, and is the region at the most immediate risk of droughts and floods."

Africa suffers not only from the effects of these adverse weather conditions, but also from a dearth of reliable information about when and where disaster is likely to strike. This is due to the continent having a weather monitoring network eight times below the WMO minimum recommended standard, and less than 200 weather stations that meet WMO observation requirements, compared to several thousand each in Europe, North America, and parts of Asia.

The Weather Info for All initiative is aimed at adding 5000 weather stations across Africa. Zain has got the ball rolling by providing access to tower sites in Kenya, Tanzania and Uganda.

Mobile network infrastructure provides an unrivaled wealth of support for weather stations - connectivity, power supply and security.

Ericsson, meanwhile, will develop mobile applications to help communicate weather information via mobile phones to the vulnerable communities whose lives can be wrecked by adverse conditions.

I know less about the levels of investment and commitment required of Zain with regard to the Weather for All Initiative than I do about the amount of hard work needed to roll out mobile financial services for the unbanked. Both initiatives, however, have in common a sense of being long term endeavours. Again, I ask whether all of this activity might suggest that the sale of Zain's African operations is rather unlikely.

Zain Africa Speculation Watch: Episode 6

South Africa, East Africa gear up for vastly improved capacity

Back in April, I wondered about the impact of the three undersea cables set to land in East Africa - SEACOM, EASSy and TEAMS. I explored the question of whether it really mattered which cable would land first. I also thought about whether the region's hitherto inadequate broadband supply means that there is room for all three. I was quite attracted to the line of argument that there is.

With a few related news items popping up this week, I thought it was high time I had another look at these questions.

SEACOM appears to be very close to completion, with the company's website currently indicating that the service will be fully operational in sixteen days' time. The company has also received warm words of support from a South African customer excited about a "shift towards a high speed, high capacity Internet connectivity environment".

Hillel Shrock, Business Solutions Director at ISP/telecoms service provider Internet Solutions, believes that "Seacom is an important milestone for the local telecommunications industry as it is the first time that South African service providers, other than Telkom, will be able to make a long term investment in the provisioning of high speed, high capacity international connectivity."

In Kenya, meanwhile, telecoms sector players are working out strategic partnerships designed to take full advantage of TEAMS becoming operational. Cedric Lumiti of East African Business Week, wrote this week about the deal struck between market-leading Kenya MNO Safaricom and Jamii Telecommunications, whereby the latter will become the cellco's preferred broadband infrastructure provider. Safaricom CEO Michael Joseph explains that his company has now formally migrated to the new technology-neutral unified licensing regime set out by the Communications Commission of Kenya and can therefore offer a broader spectrum of data services using any technology platform.

All very upbeat - in line with the positive noises I heard at April's East Africa Com conference in Nairobi. If my travels take my back to that part of the world once all the cables have landed and have brought vastly greater capacity online, I'll be interested to learn about how quickly this begins to stimulate economic activity. It will also be good to get a faster connection in my hotel. VPN access was just impossible last time - and there was a lamentable slowdown in Developing Telecoms Watch blogging activity.

South Africa, East Africa gear up for vastly improved capacity

Zain Africa Speculation Watch: Episode 5 - the Indian Connection

Here's an exciting new bump in the roller coaster rumour ride that is Zain Africa Speculation Watch the mini-series: today's Economic Times chucks Indian cellcos Bharti Airtel and Reliance Communications into the mix, citing a scoop from South African publication Business Day.

Of these two companies, my feeling is that it would be a major surprise if the former really is in contention when it comes to acquiring Zain's African business - not least because my understanding is that Bharti Airtel's mooted (and much discussed) link up with pan-African mobile group MTN exludes the possibility of either company approaching alternative partners/acquistion targets for some time yet.

What about Reliance Communications, then? The cellco, which operates both a CDMA network and a newer GSM network in India, is part of the Reliance-Anil Dhirubhai Ambani Group, which includes companies in the energy and financial services sectors. I'm not aware of this operator having previously made attempts to look beyond India for growth opportunities, but I've written here before about how intense competitive pressures at home might drive Indian MNOs to consider foreign adventures more seriously than in the past. Bharti Airtel aside, however, I'd only heard about the possibility of state-owned BSNL considering (and then dropping out of) plans to bid for a telecoms licence in Tunisia. If Reliance Communications were to expand its business into emerging markets/developing countries beyond the subcontinent, I would certainly understand the logic of it. Whether such a move would be on the scale of bidding for Zain's African operations, however, is something about which I could only make a guess.

Zain Africa Speculation Watch: Episode 5 - the Indian Connection

CDMA-alive-and-well Watch: good news from India?

For the last month or so, media, analysts and bloggers have offered comment about the news that India has overtaken China to become the world's largest CDMA market. This was announced last month by the CDMA Development Group (CDG), the trade association whose role is to foster the worldwide development, implementation and use of CDMA2000 technologies.

According to the CDG, "there are now more than 100 million CDMA subscribers in India". This figure, however, is some distance from the number provided by the Informa Telecoms & Media World Cellular Information Service, according to which there were 77.1 million Indian CDMA subs by the end of March. According to WCIS figure, this rose from 72.6 million as of December 2008 and 66.6 million as of September 2008 - fairly consistent growth of about 5 million subs per quarter. If the WCIS figure are accurate, it's hard to imagine a sudden leap to 100 million subs by late May.

As well as impressive-sounding subcription numbers, the CDG press release also featured warmly supportive quotes from India's two leading CDMA operators:

"CDMA is a technology that allows a rich telecom experience, especially on the data side, and we are confident that in the years to come that experience will only get better, especially as 3G arrives and we are able to unleash the full potential of applications and services," said Mr. Anil Sardana, Managing Director of Tata Teleservices.

"We remain committed to further grow and serve our ever-increasing CDMA customer base through innovative applications, superior network quality and service and attractive value-propositions," said Mr. S.P. Shukla, President, Wireless of Reliance Communications.

The latter quote is interesting in light of an assertion by Informa Telecoms & Media that "India’s Reliance has also been looking to sideline CDMA for GSM/WCDMA" - a comment made in the analyst firm's Asia Pacific Mobile Market Analysis and Forecasts report, which was released this month.

That phenomenon of CDMA operators favouring the W-CDMA/HSPA flavour of mobile broadband over the CDMA family EV-DO route is, of course, not unique. The Informa report asserts that South Korea's "CDMA stalwarts" SK Telecom and KT "are vigorously pursuing HSDPA." The report contends that this will further the degree to which CDMA operators face disadvantages when competing with GSM/W-CDMA rivals, stating that "as Asia Pacific operators jump on the HSDPA bandwagon, handset pricing will continue to fall, meaning that EV-DOrA operators will struggle to compete on handset price. The same argument applies to EV-DOrA network prices."

Whichever set of numbers you choose to work with, then, (the CDG's 100 million vs. Informa's 77 million), it will be interesting to observe for how much longer India's CDMA subs growth continues and is cited as evidence for CDMA technology being in rude health.

CDMA-alive-and-well Watch: good news from India?

Reaching rural communities in Mongolia

According to a Cellular News report this week, Chinese telecoms equipment vendor ZTE has announced the world's first overlay of a W-CDMA network on an existing CDMA service to realise UMTS/CDMA convergence at the core network level.

The customer is Mongolian CDMA MNO Skytel, a joint venture company established by Mongolian and South Korean investors in 1999, the latter including SK Telecom. While this is a global first in terms of the UMTS/CDMA convergence feature, market-leading GSM MNO MobiCom has already launched 3G services, having launched the country's first high-speed mobile broadband network in the country in April, powered by HSPA technology from Ericsson.

Skytel, which has gone on to carve out a 20.08% share of the Mongolian mobile market (by March 2009, according to WCIS), also competes with Unitel (GSM standard) which has rapidly built a 22.01% market share since commencing operations in June 2006. In terms of eroding the market share of its longer-established competitors, the entry of Unitel has made a much bigger impact on MobiCom than on Skytel.

One more operator makes up the quartet of mobile service providers in Mongolia - G-Mobile, which won a Government tender in 2006 specifically to establish a CDMA service to connect rural Mongolians with the country’s main telephone grid. G-Mobile has since established a market share of just 6.25%.

Although Mongolia has become increasingly urbanised in recent years, with about 40% of the population living in the capital city, and a further 23% living in other towns, a significant minority continue to live in extremely small, remote settlements and on a semi-nomadic basis. As demonstrated by the G-Mobile tender, extending communications services to these people is important for the country's telecoms sector as a whole.

With this in mind, MobiCom signed a three-year managed services contract last year with Altobridge, an Irish company which has developed technology designed to minimise backhaul bandwidth utilisation, thereby making the delivery of mobile communications to small, remote communities a more compelling proposition for MNOs. This deployment won an award earlier this year from the country's leading tech publication and the national Information Communication Technology Authority, who wanted to recognise the positive impact the Altobridge solution is having on communities and enterprises in remote parts of Mongolia. The Altobridge CEO Mike Fitzgerald said at the time of the award that he was delighted that MobiCom had received praise for connecting people still cut off from the benefits of mobile communications. He stressed that this was consistent with a for-profit motive for the operator.

I am always encouraged to read of telecoms solutions improving lives in developing countries. Having met a handful of friendly people from Mongolia's operators at conferences, I'll be interested to see what impact Skytel and MobiCom's recently commenced 3G services have - I'm not yet clear if these services will be aimed purely at higher margin urban customer segments or whether a rural 3G services business case has been calculated.

Reaching rural communities in Mongolia

Zain Africa Speculation Watch: Episode 4

Much of the commentary on the Zain-quitting-Africa rumours has focused on how such a move seems at odds with the Kuwaiti group's recently stated ambition to be a top 10 global mobile operator by 2011. I thought I'd also like to have a dig around for any recent evidence to suggest that Africa, specifically, continues to be of strategic importance to the company.

I found one piece of such evidence contained within the Q4 2008 Zain update by Gavin Patterson of Informa Telecoms & Media. I'm not 100% sure when this was written (as opposed to published). It refers heavily to Zain's Q4 2008 results announcement, which was made in March and contains references to events which took place in May - but the Informa piece itself is dated 16th June. If Patterson's article was written just this week, I wonder why there is no reference to the current speculation about the group's African assets. Whatever the timing, I find one particular statement from Zain's March announcement to be very interesting in the context of this week's rumours:

"[Zain CEO Saad] Al Barrak said the financial crisis was an opportunity to make more acquisitions in Africa and indicated that the group was "actively" pursuing a number of prospects. He said Zain would adapt its strategy – where it made commercial sense and where it was economically viable – to pursue opportunities involving share swaps and acquiring minority stakes in other telecoms operations."

Specifically in the African context, then, if recent rumours are to be believed, Zain has moved from acquisition mode to selling in just three months.

Share swapping would not be a new experience for Zain. Last month, the group announced a deal of this type with Paltel, owner of the only mobile network so far operating with dedicated coverage of the Palestinian Territories (although this monopoly is set to be broken this year by the entry of Wataniya Palestine, assuming issues around Israel releasing spectrum do not prove insurmountable).

In the context of discussions around Zain getting out of Africa, it's really interesting to see Gavin Patterson's article going into some detail about where in the continent the group might be looking to expand. He writes that "Zain has also made public its interest in South Africa and Mali and was disappointed not to win Rwanda's third mobile license at the end of last year, which went to Millicom International Cellular. According to Patterson, Zain plans to make "three or four" acquisitions in Africa this year.

Expansion of this kind - rather than the recently rumoured shrinking of the group - seems in line with the group's plans to have a subscription base of 150 million by 2011. To reach that figure, however, Informa Telecoms & Media's number crunchers feel that Zain would need to be even more aggressive in terms of acquisitions because, as Gavin Patterson writes, based on its current operations, his company forecasts that the group will fall well shy of that 150 million subs mark, with 83.4 million subs by the end of 2011.

Zain Africa Speculation Watch: Episode 4

Zain Africa Speculation Watch: Episode 3

Zain-branded retail store in Uganda: needing a new paint job soon?

(image from Honeysun blog)

Telecoms media news sources, analysts and bloggers continue to be divided on the issue of whether there is much substance to the rumours about Zain looking to sell its African assets. Some commentary about this story, which, for me at least, popped up seemingly out of nowhere last week, continues to express a high degree of skepticism. The tone of some writing, meanwhile, seems to present Zain's desire to offload the former Celtel International operations pretty much as a given, focusing on quite detailed analysis of particular challenges that will have to be faced during the process.

Zambian journalist Michael Malakata, for example, writes in terms of how "Zain's efforts to sell its African operations" are likely to be hampered by problems such as a move by Econet Wireless Group to block the Nigerian element of the deal. Just as Malakata's article seems built on the assumption that Zain's exit from the African scene is actually going to happen, he also seems very sure that Orange/France Telecom is set to acquire the sixteen mobile operators supposedly up for sale - rather than Vivendi, whose name has been bandied about very freely these last few days.

Adam Durchslag of Reuters, conversely, seems more interested in examining the case for Vivendi being involved and gets a big thumbs up from me for making a pun of the word za(i)ny in the title of the blog post he wrote yesterday. I avoided the temptation to do so myself, but only just.

In his article, Durchslag picks up on widespread bemusement about how getting out of Africa would make sense in the context of Zain CEO Saad al-Barrak's recently stated ambition for the business to a top-ten global mobile operators by 2011.

With this in mind, Lesley Stones of South Africa's Business Day offers some useful thoughts on what could drive any sale, asserting that while Zain’s African operations accounted for 65% of its subscribers and 56% of revenue in 2008, "they absorb more than 75% of its capital expenditure, yet only account for 15% of net income." Stones states that "while Zain’s net income rose just 6% last year, if Africa had been excluded it would have been up 34%."

Adam Durchslag, meanwhile, considers the idea of a rather different kind of Zain-Vivendi tie-up potentially being on the cards, such as Zain taking a minority stake in the larger French group. If there is any substance to rumours of these two companies being in talks, perhaps that scenario is more likely than Vivendi simply buying operations from Zain. As Durchslag notes, it is worth considering Vivendi's ability to afford a USD 12 billion transaction. He points out that the French group has about EUR 8.3 billion of net debt and, "according to some analysts, has only EUR 1 billion for manoeuvre without jeopardising its investment grade BBB credit rating."

Durchslag then considers another possibility - that of Vivendi, through its Maroc Telecom subsidiary (which owns telcos in Mauritania, Burkina Faso and Gabon) buying only some of Zain’s African operations.

This raises of the question of whether Zain could conceivably be open to the possibility of breaking up its African operation and selling assets piecemeal to groups looking to fill gaps in their pan-African footprints - rather than a single transaction in which the whole lot are sold to a single buyer. Kenyan newspaper the Daily Nation carried rumours on Tuesday that Zain's Kenyan outfit "could end up in the hands of MTN Group, the powerful South African transnational." The article asserts that "MTN has for years been known to covet the Kenyan market", having previously tried and failed to buy the operation now known as Zain Kenya.

Writing for another Kenyan newspaper, Macharia Kamau considers MTN as a possible suitor, but spends more time considering the Vivendi option. In the spirit of Alanis Morisette, Kamau feels that if Vivendi succeeds, this would mark an "ironical" return of the company to the Kenyan market. Kamau reminds us that Vivendi sold a 60% stake in KenCell (the predecessor of today's Zain Kenya) in 2005. Any loyal Kenyan subscribers of this operator's services, therefore, are already on third brand name in a four year period. A further transaction could mean four brands in four years - that's almost as confusing as the regularity with which my favourite football club hires and fires managers.

Even this high degree of brand name turnover, however, would be trumped in Nigeria. Writing for that country's Vanguard newspaper, Prince Osuagwu, notes that if "Zain Group finally agrees to sell its Celtel Africa unit to a bidding French media conglomerate, Vivendi SA this week, the Nigerian operation of the company may be heading for the 6th... name change."

Osuagwu spoke with Zain Nigeria subscribers and reports some discontent at the prospect of yet another rebranding, feeling that some might switch to rival service providers because of "fears that the network might not catch up with competition after going through [the] image crisis that may possibly follow."

Thanks for bearing with me on another long-ish ramble through the Zain empire as I try to figure out whether this is a hot story, a non-story or something in between. There's bound to be a least one more episode in this mini-series. Don't touch that dial. No flipping.

Zain Africa Speculation Watch: Episode 3

Ecuador's struggling CDMA MNO set to be rescued by a strategic partner?

Back in late January, I wrote (on my former blog, since handed over to a former colleague) about how Ecuador's struggling state-owned CDMA mobile operator Alegro PCS was the subject of reported offers for prospective strategic partnerships from Uruguay's Antel, and Venezuela's Movilnet, both of which are also owned by the Governments of their respective countries. I noted then that these offers both came from countries which, like Ecuador, have left-of-centre governments. This prompted me to mull over the subject of the possible telecoms sector links between politically sympathetic Latin American countries which I'd learned something about on my own travels in that part of the world. It's a topic I personally find quite interesting, so I took the opportunity to expand on this theme here in March.

Today, thanks to TeleGeography, I received an update on the news item which set this train of thought in motion - the state of play at the ailing Ecuadorean cellco. In January, I'd reported news that Alegro PCS was said to be 60 to 90 days away from reaching an agreement with a foreign strategic investment partner. This has clearly taken a bit longer than anticipated to play out. Today's news from TeleGeography suggests that the cellco is now still "approximately two months away from reaching an agreement" with a partner. The article does not clarify which company this partner is likely to be, simply repeating the ones mentioned at the start of the year, which included Telekomunikasi Indonesia (Telkom) as well as the Venezuelan and Uruguayan parties. The fact that this back on the news wires, however, might suggest that some progress is being made.

If a deal of this sort is not reached, it looks as though the Ecuadorean Government will force the sale of Alegro PCS, according to the country's President, as quoted in the TeleGeograpy article, which also notes that the CDMA operator has had to delay a plan to roll out GSM infrastructure due to a lack of capital and is instead currently using wholesale GSM capacity from larger rival Movistar Ecuador. This move has yet to make a significant impact on the operator's feeble market share. When I first visited this story in January, Alegro PCS had just 1.31% of the country's mobile subscriptions according to December 2008 figures from WCIS. That figure had improved only very slightly to 1.34% by March this year.

With high reported debts and such a tiny share of the market in a country of just 14 million people, I wonder how attractive Alegro PCS is going to look to any prospective buyer if a sale does become necessary in the view of the Government. The toughness of the competitive environment is compounded by the fact that in addition to Telefónica-backed Movistar, the Ecuadorean market is home to an MNO which is part of the powerful América Móvil group, a venture of Mexican multi-billonaire Carlos Slim Helú. It gets worse. The country's 87.15% mobile penetration rate does not leave boundless room for growth, even for the two powerhouse-backed operators currently splitting the bulk of the market between them.

So it remains to be seen what the future holds for struggling Alegro PCS. I can't decide if rescue from a telco owned by the state agencies of some politically sympathetic government will ensure the long term survival of the MNO or just delay, at some cost to the friendly partner, the eventual demise of a company caught between the vastly superior resources of two powerful competitors. I'll have to have a look some time to see if there's a precedent anywhere else in Latin America for a cello successfully competing with both of the region's two dominant telecoms groups in a relatively small market. It sounds like a tough position to be in.

Ecuador's struggling CDMA MNO set to be rescued by a strategic partner?

Azerbaijan: as the Ministry pushes 3G licences, the market is eyed by giant Russian cellco

It's time to take a break from writing about the rumoured sales of Zain's African assets to Vivendi (or whichever potential buyer is the flavour of the day), although I daresay there will be cause to return to that theme before too long.

Instead, I wanted to take the opportunity to take a look at a part of the world about which I got to learn a little while producing three annual iterations of a conference for telecoms execs from the former Soviet Republics of Central Asia and the Caspian region. One of these countries, Azerbaijan, is, according to recent local reports, moving closer to making 3G mobile licence awards, with the the Ministry of Communications and Information Technologies planning to distribute spectrum by the end of this year.

This is apparently not the Ministry's first attempt to bring 3G services to Azeris. According to a brief TeleGeography report, the MCIT submitted a 3G frequency use proposal to the country's cellcos in July 2008, "but few developments have emerged since."

Now, according the the Minister, Ali Abbasov, all the three of the country's GSM operators have already applied to the Ministry for 3G licences. These three operators are: Azercell, Bakcell and AzerFon (brand name: Nar Mobile), with market shares of 58.66%, 22.29% and 18.00% respectively as of March 2009, according to WCIS. A fourth player, CDMA operator CATEL/FONEX has just over one per cent of the country's mobile subs.

Given that oil-rich Azerbaijan is potentially quite an attractive market, it is striking that only one of these operators is associated with a significant multi-country group - market-leading Azercell is controlled by Fintur Holdings, a joint venture between giant Scandinavian telco TeliaSonera and Turkey's Turkcell. Fintur Holdings, via a mix of majority stakes and management control arrangements, is also active in Kazakhstan, Moldova, Georgia, Uzbekistan, Tajikistan, Cambodia and Nepal.

Strikingly absent from the Azeri market are big Russian cellcos, two of which, Vimpelcom and MTS, have each built a multi-country footprint across other parts of the former Soviet Union. This may be set to change, if recent comments from the latter company's CEO are interpreted as representing a firm commitment to further international expansion.

Speaking to Reuters on the sidelines of the of the St Petersburg Economic Forum earlier this month, MTS CEO Mikhail Shamolin said "there are two countries (where) we are not present yet and I believe we should be present... Kazakhstan and Azerbaijan."

Shamolin added that MTS is not thinking in terms of start-up operations in either country, which seems sensible given that mobile penetration in Azerbaijan and Kazakhstan stand at 71.11% and 93.81% respectively according to WCIS. "We are looking at acquisition opportunities there," said Shamolin. "We are waiting until the right time comes. When this opportunity shows up then we will consider it carefully." He added that the company was not holding specific talks with any Kazakh or Azeri firms.

In Azerbaijan, you would have to guess that TeliaSonera and Turkcell will look to hold on to their market-leading MNO. So let's see which of Bakcell or Nar Mobile might be targeted for an MTS takeover.

Azerbaijan: as the Ministry pushes 3G licences, the market is eyed by giant Russian cellco

Zain Africa Speculation Watch: Episode 2

My reporting of last week's speculation about Zain selling its entire African portfolio certainly generated a decent number of hits for this blog. I daresay anyone else who blogged about it saw a spike in visitor numbers.

The chitchat on this topic continues this week, with Cellular News feeling around for an explanation for why Vivendi might have been named as a possible buyer, while conceding that we still only seem to have a single report from a Nigerian newspaper as a source for this (non?) story. Undeterred by this, the Cellular News folks wonder whether a Vivendi bid might have something to do with Vodafone eyeing Zain's African assets. The reasoning for this is as follows:

"Vivendi currently owns a 56% stake in French mobile network, SFR - with Vodafone holding the remainder. The joint shareholding in SFR will raise speculation that Vodafone is involved in the talks through its South African Vodacom subsidiary."

Last week, when reports began to surface of a "French company" being involved in all of this crazy hullabaloo, Vivendi was not the first name that sprang to my lips. Instead, I quickly voiced the thought: it has to be Orange. Several days later, with the scribes at Cellular News trying to find reasons for why Vodafone might be the real stalking horse, I am, frankly, none the wiser.

So I looked to my former employers for some inspiration, noting that the good people at telecoms.com have had the time to do a bit of asking around. None of this, however, visits the issue of who might be in the mix to pick up Zain's African operations. Instead the focus is on, why the hell the Kuwait-headquartered would be looking to get out of Africa, a move which the telecoms.com editoral team describe as going "against pretty much every noise the firm has ever made about its strategic ambitions", which is pretty much in line with the thoughts I articulated myself here last week.

The telecoms.com guys asked one of their Informa Telecoms & Media colleagues for her view, quizzing Thecla Mbongue, the firm's senior analyst covering Africa. Thecla was reported to be "bemused" but did reveal that she had picked up on some grumbling from Zain executives about governance problems in certain African countries. This was communicated to Thecla at a "recent ITM event". I guess that must have been the East Africa Com conference in Nairobi back in April, which I attended myself and where I bumped into Thecla and other ITM market watchers. I always seem to miss the real intrigue at these get-togethers. While Thecla was getting useful inside info from Zain-ites, I was merely walking the halls trying to sell my wares.

In last week's chat with telecoms.com, Thecla also suggested "that perhaps the firm is struggling with the low margins on offer in many of its African markets."

Other analysts, according to the telecoms.com article, are divided. One unnamed source claimed that some kind of sale is "extremely probable" because "Zain is highly leveraged and financially constrained"; Angel Dobardziev of Ovum, meanwhile, told telecoms.com that any sale is unlikely because "Africa is very strategic to Zain" and "it doesn’t look like it needs to make the sale" because although "Zain does have a high level of debt... it also has a lot of cash and, if you look at current asset prices, this is not a great time for a seller."

The plot (if there is a plot) thickens. Or this is something we'll have all forgotten about in a few days' time. Take your pick.

Zain Africa Speculation Watch: Episode 2