News, views and commentary from the telecoms sector across emerging markets and developing countries worldwide

Tuesday, 28 July 2009

Millicom's withdrawal from Asia to prompt (much-needed?) market consolidations?

Russia's Beeline brand comes to Cambodia - and set to drive consolidation in the wake of Millicom's withdrawl? Picture (C) Roger Barlow.

Millicom International Cellular, the Luxembourg-based company which provides cellular telephony services to more than 30 million customers in across Latin America, Africa and Asia recently announced that its assets in the latter of these three regions are up for sale. The company's announcement mentioned that during Q1 2009, these Asian operations and joint ventures generated UDS 68 million in revenues and USD 4 million net profit for the group.

Even more recently - on Tuesday last week - the company announced its 2Q 2009 results, encouraging highlights of which were:
  • mobile subscribers up 25% vs. 2Q 2008 - bringing total subscribers up to 30.8 million
  • reported revenues up 5% to USD 814 million (2Q 2008: USD 774 million)
  • EBIDTA up 14% to USD 371 million (2Q 2008: USD 326 million) - this beat the USD 361 million forecast in a Reuters poll of twelve analysts
  • EBIDTA margin of 45.6% (+340 basis points vs. 2Q 2008)
These results excluded "discontinued operations" - this means Tigo Sierra Leone and the three Asian operators. This, then, certainly leaves little doubt that the group is committed to its exit from Asia. The three Asian operations concerned are in Cambodia, Laos and Sri Lanka.

Why is Millicom looking to get out of these markets? Zacks Investment Research offers the following explanation: "The major concerns in these markets for Millicom are increased competition and an extremely tight credit market." According to Zacks, the Asian region contributed just 8% of the company’s total revenue and its EBITDA contribution was even lower at 6% of the total. The Zacks commentary also notes that overall ARPU in Asia was just USD 6.2 in the first quarter of 2009, compared to USD 6.6 in the previous quarter and "a massive" USD 8.7 in 1Q 2008.

According to Millicom CEO Mikael Grahne, increased competition certainly does seem to have affected the profitability of Cellcard, the Cambodian cellco in which Millicom has a 58.4% stake. Steve Finch, writing on Friday in the Phnom Penh Post, observed that Millicom's Grahne appears very critical of the "disruptive market-entry strategies" of new entrants into Cambodia's increasingly crowded mobile sector. On the other hand, Finch also observes that another major shareholder in Cellcard does not agree with Millicom's assertion that this is negatively impacting profitability: "[There are] no concerns on profitability from our side," said Mark Hanna, CFO of Royal Group, which owns a 38.5% stake in the cellco, denying that margins had become tighter. As well as investments in property development and the media sector, Royal Group is very active in Cambodia's telecoms sector. In addition to its stake in Cellcard, the group has shares in Royal Telecam International (the second licenced international gateway in the Kingdom; also a joint venture with Millicom) and teleSurf, a broadband service provider.

Whichever side of this argument is the more valid, it seems undeniable to me that Cambodia is currently supporting an incredibly large number of cellcos. Millicom-backed Cellcard, which is by some margin the market leader (43.65% of subs according to WCIS) is one of three well-established players, the others being Hello (an Axiata company with 13.28% of subs) and Mfone (19.84% of subs). From 2007 onwards, a number of further entrants have piled into the market. The most recent of these is Beeline Cambodia, owned by Vimpelcom, one of Russia's big three cellcos. The arrival of this new operator, whose services were launched very recently and whose subs are not yet recorded by WCIS, brings the grand total to nine MNOs vying for business in a country of just 14.2 million people.

To me, this feels like a vastly excessive number, particularly in light of the fact that mobile market consolidation has been a recurrent theme here at DevelopingTelecomsWatch this year - we've discussed whether even a relatively large African market such as Tanzania can possibly sustain the numbers of licensed mobile operators currently competing there - and have asked the same question about much smaller markets such as Burundi and Gabon. Moreover, we have discussed this issue in broader terms, i.e. whether/when we should expect a wave of market consolidations across Africa, prompted to do so by the stated belief of MTN CEO Phuthuma Nhleko that this is set to happen.

Mobile penetration in Cambodia currently stands at 34.41%, according to WCIS. So there is room for growth. How many of this large number of cellcos, though, will be equipped to take full advantage of that opportunity? I suppose that will partly depend on their resources and the quality of their management teams - but even very solid companies could struggle if there is any truth in the Millicom allegation about the effects of new players' disruptive market entry strategies. As Steve Finch of the Phnom Penh Post explained, these strategies involve the distribution of free SIM cards and airtime - very nice for quickly building a subscriber base, but taken to its logical conclusion this can seriously erode overall market value for all players.

Has this kind of strategy worked for any of the new players in terms of rapidly building market share? The answer seems to be a resounding 'yes' in the case of one particular new entrant, Metfone, which is the Cambodian subsidiary of Vietnamese MNO Viettel. According to WCIS, Metfone has quickly carved out an incredible 17.47% of the market since its launch late last year. The current WCIS estimate for Metfone subsriber numbers is 900,000. There may be precedents elsewhere in the world for an operator arriving in an already fragmented market and amassing subscribers at something like that rate - but none spring immediately to mind for me.

How is Viettel able to do this? The answer might be that the company is simply not working to the same commercial logic as its rivals in the Cambodian mobile market. Viettel itself is owned by the army of Vietnam, a state officially committed to the creed of socialism and where all organs of government are controlled by the country's Communist Party. In a March essay here on the global links between the telecoms organisations of countries with left-leaning regimes, Metfone got a mention. That piece referenced a Saigon Times article on Viettel's foray into neighbouring Cambodia, which indicated that the new cellco would target low-income subscribers with a wide range of low-priced services and packages. Viettel Deputy General Director Nguyen Manh Hung was quoted as saying that this approach is not only about customer acquisition but is also intended to "contribute to society". Perhaps we should take that to imply a quite different interpretation of the for-profit motive than the one most of us in market economies have to live with in our jobs and lives.

Have any of Metfone's fellow recent market entrants been able to build a subscriber base at anything like the same speed? There answer here appears to be a resounding 'no'.

In terms of market share and subs, the other newcomers have fared as follows:

  • Star-Cell (GSM) - 3.27%, 168,400 subs; part of the TeliaSonera group; commercial launch in 2007
  • qb (W-CDMA) - 1.20%, 62,000 subs; commercial launch in 2008
  • Latelz (GSM) -0.97% 50,000 subs; launched in 2009; owned by Time Turns Telecom, which is also an investor in telecoms operators in Burundi, Tanzania, Nepal and Sierra Leone
  • Excell (CDMA) - 0.31%, 16,000 subs; launched in 2009
In September last year, Morten Eriksen, the CEO of the second operator in the above list was interviewed by AsiaLife Guide Phnom Penh, a monthly lifestyle magazine for expatriates living in Cambodia. Eriksen, who also explained that qb is funded by international venture capitalists and local Cambodian partners, expressed the belief that there is a good opportunity created by the country's very limited fixed line telecom infrastructure and the eagerness of its people of "to experience new technologies." He also asserted that rather than focusing on competing, the company is focusing on the people of Cambodia and how it can provide the best benefit to them. Specifically, Eriksen expressed his company's commitment to serving the youth segment with "packages and services to help students in the pursuit of education as they are Cambodia’s future." In an earlier interview - with the Bangkok Post in June 2008 - Eriksen reported that when he was first invited to get involved a 3G project in Cambodia, his initial reaction was that "they must be crazy". He explained that only after reluctantly travelling to Cambodia did he see the potential in a market with three incumbents providing bad, expensive service and where a 256Kbps ADSL line cost over USD 600 a month. The article indicates that the project formally started in 2004, with the company getting a licence in 2006 and then signing a turnkey network agreement with Ericsson in June 2007. Groundwork started in October 2007 and the first test call was made a month later. Finally on March 15 2008, qb was launched "with over 57,000 subscribers signing up on launch day courtesy of a huge concert and free SIM packages."

If that figure of 57,000 initial subs is accurate (and WCIS does reflect this), then further growth has certainly been very slow indeed.

Of the late entrant mobile operators, it would seem, then, that only Viettel's Metfone operation has really made a major impact on the Cambodian market.

So, if Millicom, as market leader, is going to withdraw from this market, which telecoms groups have looked at this seemingly very challenging competitive environment and expressed an interest in acquiring Cellcard? Two names which have surfaced in recent weeks are ones already competing in Cambodia. Consolidation, then, would appear to be on the cards already, even ahead of any of the smaller players potentially having to withdraw.

The first interested party, according to a TeleGeography article earlier this month, is Axiata, the Malaysian-owned mobile group formerly known as TM International. Axiata is said to be considering offering a total of USD 700 million for both Cellcard of Cambodia and Millicom's Sri Lankan operation. Were this bid to be made and accepted, Sri Lanka would also see market consolidation - Axiata owns the island's market-leading cellco Dialog Telekom. According to the TeleGeography article, Axiata has declined to confirm or deny the talks, but said "in-country consolidation is of strategic importance in some of our markets." This does seem to be something of a trend in Asia - and for Axiata - of late. Cellular News reported last month that Aktel, the Axiata/NTT DoCoMo joint venture in Bangladesh is rumoured to be in merger talks with rival Banglalink, which is owned by Egypt's Orascom Telecom. Banglalink CEO Ahmed Abou Doma explained in a statement that apart from the market leader (Grameenphone), "others are continually posting losses" and that "in order to sustain in this fiercely competitive market, and in line with [Orascom's] growth ambitions", his company is "considering many strategies of which consolidation is an option."

In Cambodia, the other potential bidder for Millicom's Cellcard operation seems to be Russia's Vimpelcom. Again, this is another existing competitor, albeit one whose Cambodian launch was very recent. According to a Reuters report earlier this month, Vimpelcom spokeswoman Yelena Prokrova was conceded that potentially the Asian assets of Millicom could be interesting for for the Russian telco because they are located in the region which the company views as strategic in its international expansion. The report notes that Vimpelcom would also be interested in Millicom's operation in Laos.

My sense is that, as we have seen here, Cambodia is one of a number of Asian markets in which mobile sector consolidation seems very likely. I am wary of the notion that low penetration rates alone mean that any given emerging market or developing country offers telecoms groups a licence to print easy money. The low ARPU inherent in serving relatively poor people and the challenges of rolling out infrastructure to under-developed regions, often in challenging physical environments, can make for unattractively thin margins. If destructive levels of price competition are thrown into the mix, it surely becomes difficult for large numbers of competing operators to survive in all but the largest markets. The withdrawal of Millicom International Cellualar from Asia, then, may stimulate much-needed market consolidations in at least two of its three existing Asian territories. Rumours from Bangladesh also suggest that similar developments may be in the offing elsewhere across the continent.

Thursday, 23 July 2009

Pakistan: 5 (really 6 [or 7?]) becomes 4 (or 5 or 6?)?

China Mobile: keen to drive consolidation of Pakistan's mobile market?

With a population of around 173 million and a mobile penetration rate of just 55.01% (according to WCIS), Pakistan would appear to be an attractive place to be for multinational telecoms groups. Some very significant individuals, however, have recently expressed the belief that market conditions are too tough to support the current number of mobile operators competing in the country. A specific suggestion about a possible merger between operators has also surfaced in the last few days.

According to Pakistani news portal, Telenor is considering selling its operation in Pakistan to China Mobile, which already has a presence in the market in the form of the MNO Zong. The article contends that the Norway-headquartered international telcoms group has been deliberating a withdrawal from Pakistan for some time because of "security issues".

Shortly after this report surfaced, Reuters was carrying a 'no comment'/denial from Telenor. The Reuters snippet notes that ARPU at Telenor Pakistan was the lowest of all its operations around Europe and Asia but that the number of subscribers grew by nearly 20% year-on-year. Why, then, would the Norwegian group consider this move?

Let me put forward a possibly outlandish theory, which also relates to security concerns - but security concerns in India rather than in neighbouring Pakistan.

A few days ago, the Economic Times ran an article about how the Indian Government has withdrawn approval for ByCell, a company "promoted by Russian businessmen", to offer telecoms services in the country. The company had planned to set up as a GSM mobile operator in areas including Assam, Bihar, Orissa and West Bengal, but seems to have endured a long struggle to get the green light to do so. As far as I can make out from this and other articles, the Indian Foreign Investment Permission Board (FIPB) has been concerned by the security implications of ByCell's ownership structure and its sources of funding for some time.

The same Economic Times piece also indicates that the FIPB is uncomfortable with the idea of Telenor increasing its stake (currently 49%) in cellco Unitech Wireless. Again, "security concerns" are the cause of the problem - in this case to do with the fact that Telenor operates in Pakistan, with which India has long had an uneasy relationship.

This, then, is my possibly highly simplistic and implausible theory: Telenor sees India as a far richer prize than Pakistan and therefore considers selling its Pakistani operation to China Mobile in order to pave the way for establishing a full controlling stake in Unitech Wireless. Crazy? Maybe. Or maybe I'm onto something. This is just a wild stab in the dark, so who knows?

Either way, China Mobile certainly seems keen to accelerate the growth of its share of Pakistan's mobile subs (currently estimated at 7.20% by WCIS) by acquiring a rival player and consolidating the market. Well, certainly if the article is to be believed. This contends that "before the merger talks with the Telenor group... China Mobile had offered to buy the management shares of Warid Telecom Pakistan" but could not settle on an acceptable price.

The article also claims that Pakistan's five leading mobile operators - Mobilink, Telenor Pakistan, Ufone, Warid Telecom and China Mobile's Zong - have reportedly all told the Pakistan Telecommunication Authority (PTA) that there is room for only four players. The further claim is made that a PTA official has said that by 2010 the country may indeed have just four mobile operators.

I have no idea of the source of this assertion, but it does now seem clear that Telenor Pakistan, at least, feels that the market is currently split too many ways. According to Mehtab Haider of the Pakistani newspaper the News, writing today, the cellco's CEO Jon Eddy Abdullah predicts market consolidation. In an interview with the News, Abdullah said Pakistan had the lowest call rates in the world and a continuous reduction in charges, as seen in the past, to attract customers was no longer viable. "This means that in the long term, having five operators in a market with intense competition and low prices may not remain feasible anymore," said Abdullah. "This can result in anything from mergers and acquisitions to [players] dropping out of the market," he added.

Abdullah mentioned two other significant challenges faced by operators in Pakistan - double-digit inflation affecting consumers' ability to afford services and the "overall law and order situation" limiting network expansion, restricting maintenance activity, increasing security-related expenses and dampening investor confidence.

The security situation in the country certainly does seem to present challenges for cellcos. Orascom Telecom-owned Mobilink, for example, has suffered damage to its network due the military opetation in Swat and Buner, where the army has been fighting with militant insurgents.

The Telenor Pakistan CEO was a little more upbeat about recent tax measures made by the country's Government - lower General Sales Tax; SIM activation tax slashed by 50%; the elimination of regulatory duty on handsets; lower customs duty on imported handsets.

"Although we consider these tax measures positive," said Abdullah, "we feel that there is more to be done. We are all aware of the impact of high tax rates on the industry, which depress growth in subscriber numbers, divert investments and ultimately discourage mobile usage."

"We also understand that when this industry flourishes," he continued, "it helps the economy by attracting foreign direct investment, contributing heavily to the national exchequer, generating employment and increasing productivity of almost every sector. Therefore, it is imperative that the taxation structure for the mobile industry is rationalised further."

Another telecoms industry leader seeminly keen to see cellular sector consolidation is Walid Irshaid, President and CEO of PTCL, Pakistan's incumbent wireline operator, in which the UAE's Etisalat owns a minority stake (but with management control), and of which MNO Ufone is a wholly owned subsidiary.

Farhan Sharif of Bloomberg, writing late last month, states that PTCL is in talks with several domestic companies to make acquisitions this year. "We’re already in discussions with various carriers and operators," Walid Irshaid said in an interview with Bloomberg News on June 16th during the CommunicAsia 2009 conference in Singapore. "The market must surely consolidate", continued Irsaid because he feels that Pakistan doesn’t need more than three GSM operators. He declined to name the companies with which he is in talks.

Between the Zong-Telenor takeover rumour and the comments of the CEOs quoted here, there does seem to be a body of evidence to suggest Pakistan's mobile market is set for consolidation.

So, how many cellcos would that leave? Thus far, this article has mentioned five currently in operation. There is, however, at least one more doing business in the country (which is why this article has a title that looks like a confusing equation).

One of these is rather unusual - the Special Communication Organisation (SCO), set up by the Government of Pakistan to provide services in Pakistan-occupied Kashmir and Northern Areas. According to one article I found, Pakistani army officers, both serving and retired, hold critical positions in the SCO.

One other cellco confuses me. Instaphone, a US TDMA network operator, was once part-owned by Millicom International Cellular (as was Paktel - sold to China Mobile and rebranded Zong). A slew of articles going back at least as far as January 2008 suggest the MNO had its licence terminated some time ago by the PTA for failing to make outstanding payments. However, the operator's website remains live and it still seemed to be fighting the PTA as recently as April this year. According to WCIS, the US TDMA operator currently has around 50,000 subs on its network - a market share of just 0.05%.

Wednesday, 22 July 2009

Zain (Africa) Speculation Watch: Episode 11 - Enter Etisalat?

Etisalat's Jamal al-Jarwan: "We are interested in Zain."

Episodes of the Zain Africa Speculation Watch mini-series are not usually aired on consecutive days. A highly relevant news item yesterday from John Irish of Reuters, however, could not pass without comment here.

Irish reports that Jamal al-Jarwan, CEO of International Investments at the UAE's Etisalat has told the news agency that his firm is interested in buying a 51% stake in Kuwait's Zain group. The Etisalat man, however, declined to comment on whether the Abu Dhabi-headquartered group was already talking to Zain about the possibility of taking a stake. Reuters was also quick to pick up a 'no comment' response from Zain spokesman Ibrahim Adel.

Intriguing stuff, then. Given that in the African context, the Zain and Etisalat footprints only overlap in Nigeria, and given that Jamal al-Jarwan has said his company is interested in Zain "as a whole", I suppose we must assume that the UAE telco is equally keen on the Kuwaiti firm's African and Middle Eastern assets. This opens up the possibility of a rather different scenario than the one discussed at length here and elsewhere in recent weeks, i.e. the prospect of a Europe-based group such as Vivendi acquiring just Zain's African operations.

How likely, then, is a deal of this kind? I can't even begin a detailed analysis here today, but perhaps it's worth observing that Etisalat's 2Q results suggest the company is in better health than some might have expected. While the UAE telco's 2Q net profit of USD 656.1 million was down 19% percent from a year earlier, this beat forecasts from analysts surveyed by Reuters earlier this month. The news agency's Firouz Sedarat reported that Etisalat is confident its growth in revenues achieved will help the telco to expand and develop its national and international business units. The company reports reduced operational expenditure in the first half of this year and a strategy of being more selective than before in choosing its international investments. Sedarat writes that Etisalat has been expanding overseas as it faces stiffer competition in its home market, where some analysts have predicted that job cuts could reduce the population, thereby impacting on the company's profits and those of rival telco du.

Acquiring a controlling interest in Zain would certainly be an aggressive continuation of this international expansion strategy.

A more modest - but nevertheless significant - move would be the purchase of a unified fixed/mobile licence in Libya. The availability of this concession was discussed here just a few days ago. At the time, I focused a bit more on the interest that Turkcell is said to have expressed in this opportunity. Now, though, we have more information about Etisalat's potential bid, thanks once again to John Irish of Reuters, who wrote yesterday that the UAE telco would invest at least USD 500 million in the network if it won the competition.

Dubai-based journalist Peter Cooper agrees that geographical diversification into emerging markets could be a powerful counterbalance to the numerous challenges Etisalat faces at home in the UAE. However, Cooper feels there exists the possibility that overseas investments "may not shine or [may] even prove disappointing" and that growth for the company may be difficult to achieve. Cooper reckons "a fair assessment might be that Etisalat is entering a period of stagnation or modest decline" and that the only strategy for safeguarding or raising profits, therefore, is to cut the cost-base. He notes that many large corporations around the world are currently going through this painful process, and after a long period of high growth it would be surprising if useful economies could not be found in any company. Staffing levels are the most obvious focal point for any strategic review at Etisalat, Cooper believes, along with a review of operational efficiency.

Peter Cooper's article was written ahead of the announcement of Etisalat's interest in acquiring a controlling interest in Zain. I wonder how far this development will cause him and others to revise their view of the UAE group's prospects?

Tuesday, 21 July 2009

Zain Africa Speculation Watch: Episode 10 - Who's rejecting whom?

Today seems to be merger/takeover/tie-up-on-hold-day at DevelopingTelecomsWatch.

We begin with a brief visit to India for a peek at that country's most current mooted-marriage-gone-bad story before turning the gaze of DTW once again on the main subject of our fascination - the future of Zain's assets in Africa.

The deal which has stalled in India is a proposed merger of two state-owned telcos, BSNL and MTNL, which, according to an Economic Times story yesterday, has been put on hold for the time being because, in the words of IT and Communications Minister Gurudas Kamat, "the enabling conditions for the suggested options are not appropriate enough to lead to a successful merger."

OK. Back to Zain Africa Speculation Watch, the mini-series. Now running to ten episodes, is this still a mini-series though? I'd hate to think I'll be visiting this ad nauseum. I hadn't planned for this to run seemingly forever like Cheers, Friends or Seinfeld.

Writing this particular episode, however, could hardly be avoided - yesterday I gave up counting how many news services were carrying the announcement by French telecoms and media conglomerate Vivendi that it was "interrupting" talks about acquiring a majority stake in the African assets of Zain. As Cellular News observed, no reason was given for the break-off of the talks and no hint given about whether they would resume at some stage. The Cellular News article, however, reminded us that when the talks were confirmed earlier in the month, Vivendi said that it "attaches the utmost importance to keeping its credit rating and its dividend at their current levels and will continue to work in the interests of its shareholders." The article speculates whether recent comments from debt ratings agency, Standard & Poor's may have caused Vivendi to back off - the comments amounted to a warning that the company's credit rating could face a downgrade following any investment in Zain.

Staying with this theme for a moment, I'd like to recommend a rather amusing treatment of how Vivendi's credit rating might be affected - rough calculations and quick analysis by 'Somze', whose Telecommunication in Nigeria blog is well worth a read.

Andrew Parker of the Financial Times, meanwhile, asserts that while Vivendi has not ruled out restarting talks with Zain, much could depend on the level of interest from other companies. Parker suggests that France Telecom and Vodafone will be tempted to take a look at Zain's African operations because both have stakes in mobile businesses across the continent.

Elizabeth Judge of the Times, however, seems much more confident that Vivendi will resume discussions with Zain, writing that "people with knowledge of the talks, which would create a combined business with more than 62 million subscribers, indicated it was a temporary breakdown and that negotiations were likely to resume at a later stage."

These reports, then, don't really make any suggestions about what might have gone wrong. Thanks, then, to the good people at Gulf News, for translating into English a much more juicy story (from Kuwaiti daily newspaper Al Qabas), which gets straight to the point with the allegation that Zain has rejected a Vivendi offer mainly on the basis of not liking the terms and conditions of payment. This story also contends that Zain feels its financial position is strong enough to accept only the most beneficial offers.

One person emphatically not attracted to the truth of this is Kuwaiti blogger 'Alpha Dinar', who asks whether Zain rejected Vivendi or Vivendi walked away. 'Alpha' feels the latter is probably correct.

So, it feels like we are still some way from knowing how this saga is going to play out. I daresay what was once a mini-series will indeed run for a few more episodes.

Perhaps, though, we can be a tad more confident about developments in one outpost of Zain's African empire where the group does appear keen to cash in some of its assets. According to George Obulutsa of Reuters, the Kuwaiti group plans to give up its 35% stake in state-run Tanzania Telecommunications Company (TTCL), the largest fixed-line operator in the East African country and the owner of a struggling CDMA mobile service with just 115,000 subscribers, according to an estimate by the World Cellular Information Service from Informa Telecoms & Media. Zain also has its own GSM operator in the country, with an estimated 4.47 million subscriptions, which gives it a market share of 32.27%.

The Reuters article does not state why Zain wishes to end its involvement in TTCL, but I daresay this is not unconnected to the generally shaky state of the Tanzanian telco which has, since the early part of this decade, been in a number of joint management arrangements necessitated by its financial instability. The latest of these came unravelled very recently, with Canadian firm SaskTel International pulling out of a management contract covering the operation, maintenance and expansion of the incumbent’s network to improve its financial, commercial and technical performance. This was meant to run until July 2010.

So, while it seems pretty clear what's going on in that one particular corner of the Zain footprint, the bigger picture remains worth watching. Don't touch that dial. No flipping - etc. etc.

Saturday, 18 July 2009

Opportunities and challenges for mobile players in Iraq and Libya

A number of telecoms news services this week picked up a story from Waleed Ibrahim of Reuters, who writes that Iraq's Finance Minister Bayan Jabor has announced the approval of two new mobile phone licenses for auction soon, one of them for a 3G network.

So, which telecoms groups might fancy setting up shop in what is the world's sixth most unstable country according to the 2009 Failed States Index produced by Foreign Policy magazine and the Fund for Peace?

A Cellular News piece, reporting the same item, states that Etisalat and Turkcell would be interested in bidding for a mobile license in the country. The Turkish cellco certainly seems to have a taste for adventure, having established an operation in Belarus, a country which under the leadership of President Alexander Lukashenko has been barred since 1997 from membership of the Council of Europe for election irregularities, and which has also attracted criticism for its record on human rights and freedom of the media.

Turkcell, then, is not shy of a challenging environment, something which is also evidenced by the operator's thwarted attempt to enter the Iranian market in 2004-2005. Earlier this month, DevelopingTelecomsWatch visited the issue of whether involvement in the Iranian market - and in the Syrian market - could derail South African telco MTN's mooted merger with giant Indian cellco Bharti Airtel. This is because banks involved in the transaction might fall foul of restrictions on dealing with these two countries which are set by the U.S. Treasury's Office of Foreign Assets Control (OFAC).

One country which might have proved problematic in these terms until quite recently is Libya. Now, however, relations between the USA and the North African country have improved to the point where such concerns should not be an obstacle to companies seeking to invest in Libya - and it seems Turkcell are keen to take advantage of this improved investment climate. According to a recent TelecomPaper story, the operator plans to bid for a licence to provide fixed and mobile phone services in Libya, announcing that the country's stable economy and per-capita income indicates the domestic telecoms market has high growth potential.

In February, the Global Mobile Daily service from Informa Telecoms & Media reported on the availability of this new licence, noting that the General Telecommunication Authority (GTA) of Libya had launched an international tender for a mobile and fixed-line concession in the country. As this report indicated, the Libyan telcoms market is currently monopolised by state-owned incumbent fixed-line operator General Posts and Telecommunications Company (GPTC), which owns 100% of mobile operators Libyana and Al-Madar. According to the GMD report, the GTA hopes the entrance of a new player will stimulate the country's telecoms market. That said, the status quo does not seem to have discouraged Libyans from embracing mobile technology and it should be stressed that the country is not under-penetrated. According to the World Cellular Information Service, Libya's mobile penetration rate is currently a hefty 141.58%. I am therefore a little uncertain what Turkcell might mean when it refers to the country's high growth potential. Perhaps the relatively low take-up of 3G services to date offers a nice opportunity. Or perhaps Turkcell is most excited about the chance to challenge the incumbent telco in the fixed-line voice and broadband space.

The Iraqi mobile market would appear to offer a lot more room for growth for Turkcell and any other companies keen to pick up one of the two new licences. Mobile penetration there stands at 67.47% according to WCIS.

However, aside from the general instability of the country mentioned at the top of this article, Iraq offers a challenging environment for mobile operators in some other ways. The imposition of fines by the authorities, for example, seems to happen on a fairly regular basis. Global Mobile Daily reported on 28th May that all three of the country's mobile operators had been fined for poor service, with Zain Iraq, facing the heftiest fine (USD 18.6 million) and Asiacell and Korek Telecom each being fined a little more than USD 1 million. The report notes that this is not the first such penalty for Zain, which had previously been fined USD 9 million.

This, however, does not appear to have prompted Zain to consider withdrawing from Iraq. A Reuters article last month quotes the group's CEO Saad al Barrak as saying the company will continue to operate in Iraq: "It's not a crisis at all. It's normal... to get some penalties here and there," Barrak said. According to Zain, the poor quality of service which caused the imposition of the fine is due to jamming by U.S. forces trying to prevent insurgents from setting off bombs.

Asked by Reuters whether Zain planned to halt its operations in Iraq in response to the fine, Barrak replied: "never."

This is not to suggest, however, that we can expect Zain Iraq's management to accept Government criticism and intervention in meek silence. A week before his group CEO's comments, Ali al-Dahwi, who heads up the operation in Iraq, used strong language to protest how his company is treated by the Iraqi authorities. "We kept our mouths shut for a long, long time from speaking the truth because this has something to do with the safety of the Iraqi people. One hundred percent we are sure (it is) interference and jamming," he told Reuters.

Dahwi said Zain Iraq tried to talk to the Government to explain why the service was suffering but met "deaf ears." He claims that the decision to impose the fine was based on "hearsay," rather than scientific proof. "The more we played Mr. Nice Guy, the more we were abused," he said. "It seems to me there are many members of this government who talk the talk about encouraging investment but when it comes to walking the walk, the only thing they care about is their political position, not Iraq, how to get reelected."

Iraq, then, is a market not without challenges for those courageous enough to invest there. I will be interested to see if Turkcell, a company I've followed closely for some time, will indeed make this move - and make the move into Libya, where it's less obvious to me that there is good room for growth.

Friday, 17 July 2009

DevelopingTelecomsWatch: media partner of the Com World Series

I am delighted to announce that DevelopingTelecomsWatch is now an official media partner of the Com World Series, the suite of conference/exhibition/networking events hosted in high growth markets worldwide by Informa Telecoms & Media.

Each event involves:
  • a conference featuring speakers from the operators and regulatory agencies of the region it covers - with operator speakers up to CEO level
  • a conference agenda designed to give speakers and delegates the opportunity to discuss the most pressing issues facing the telecoms sector in the region concerned
  • a wealth of networking opportunities
  • a business model which enables the organisers to offer delegate passes free of charge to operators and regulators
  • an exhibition supported by telecoms technology vendots, carriers' carriers etc.
Com World Series events take place throughout the year in locations including Cape Town, Cairo, Nairobi, Abuja, Istanbul, Dubai and Rio de Janeiro. Delegate numbers at the larger events are typically around the 3000 mark.

DevelopingTelecomsWatch will preview each event with a review of developments in the region concerned and rounding up news items about the participating companies.

Mobile Merger Mania Mystery Tour 2: No Turkish Delight for T-Mobile?

Richard Moat: What's in store for the recently-appointed MD of T-Mobile UK?

We're going a bit off the usual 'emerging markets/developing countries' beat again today, I'm afraid. Bear with me. For a few reasons, this is a story I care about.

Having worried a little, however, about the possible effects of a Vodafone UK-T-Mobile UK merger on the area where I live (the northern bit of London's commuter belt), it now looks as if my fears are not to be realised.

Well, that's if I choose to believe my former colleagues at Informa Telecoms & Media. Informa's news site ran an article on Monday that seems to suggest any buyout of T-Mobile UK now looks unlikely. The article mentions a recent announcement by UK telecoms and media watchdog Ofcom which indicates that the regulator is satisfied with the level of competition in the country's mobile sector. According to analysts, the article contends, this means that the change caused to the UK mobile market by any consolidation would risk drawing regulator attention. One such analyst, Michael Kovacocy, of Daiwa Securities, is quoted: "Assuming rational operator behaviour, we would be inclined to believe that an already weak case for buying T-Mobile has been made weaker for the big three UK mobile players," says Kovacocy.

Although he also features a simular quote from Michael Kovacocy, the tone of an article written on the same day by Dominic White of Mobile News, however, is quite different. Two months ago, White asked whether recently appointed Richard Moat was about to become the shortest-serving MD ever of T-Mobile's UK operation. White feels now that this possibility "seems more likely after it emerged that Deutsche Telekom has hired investment bankers at JP Morgan to explore so-called 'strategic options' for the group." White argues that more often than not, language of this sort is code for putting the business up for sale.

As well as my fears for how a sale of T-Mobile UK might affect my local area (where the cellco has its HQ), I'd also be disappointed to learn of Richard Moat not being given the chance to get stuck into his new job, not least because I found him to be a friendly and helpful contact when I was working more actively in Europe than I am now.

For a long time, I took advantage of my familiarity with Central and Eastern Europe (having lived and worked there in the early-mid 1990s) to organise and host telco sector conferences and networking events in locations such as Prague, Budapest and Bucharest. In the latter, I met Richard Moat for the first time. Richard was then heading up Orange Romania, where, during his four year stint at the helm, revenues grew from from EUR 624 million in 2004 to EUR 1.31 billion in 2008. The cellco also retained its market-leading position, keeping just ahead of Vodafone Romania and dealing with a trading environment made more competitive by the arrival of new entrant in the mobile space RCS&RDS.

While speaking at the 2006 version of the Informa Telecoms & Media CEE region conference in Bucharest did not demand a major time commitment from Richard, I found he was happy to jump on a plane and take a day out of the office when the event moved to Prague the following year. As well as making a great presentation in Prague, Richard made himself available for a chat, during which he shared useful insights about the telecoms sector in Romania and the wider region. My impression is that Richard is the kind of CEO really appreciated by analysts and journalists as well as conference organisers because he is keen to find the time to share his views and contribute to discussions around issues facing the industry. During his stint in Romania, Richard seems to have been similarly generous with his time when talking to local telecoms sector magazine/news portal Comunicatii (which, by the way was always a useful media partner for my events). This interview with Comunicatii's Ion Vaciu, recorded in February, is an example of that:

Of course, Richard Moat - and Deutsche Telekom - may be able to stick rather than twist. As Dominic White of Mobile News notes, Germany's incumbent telco could hold onto its UK mobile business, but he contends that "what is known is that Vodafone has had a peek at the business and is considering making a bid that would prompt a massive shake-up of the UK mobile sector."

White discusses an issue previously raised here at DevelopingTelecomsWatch - that if Vodafone were to try and buy T-Mobile UK, or to merge their UK businesses into a 50:50 joint venture, it would command more than 40% of the UK market, which would be more than enough to attract the attention of the Competition Commission, which typically investigates any deal that gives a company more than 30% of a particular market. White notes, however, that analysts think a deal might get through the hoops, pointing out that in markets such as France and Germany there are operators with more than 40% market share. White also reminds us that the UK is the only major European market with five mobile networks, a throwback to the turn of the millennium when the government raised GBP 22.5 billion selling 3G licences, including one to the new entrant 3, which was mentioned by the article as the only contender for a deal with T-Mobile UK which would not attract a response from the regulators. This point is made, I assume, because of the late entrant having a significantly smaller share of UK mobile subs than any of the other four network operators.

According to WCIS, the UK mobile market is currently split as follows in terms of market share:

  1. O2 - 29.27%
  2. Vodafone - 21.38%
  3. Orange - 21.35%
  4. T-Mobile - 21.31%
  5. 3 - 6.69%
My feeling is that if 3 UK were somehow to tie-up with T-Mobile UK, it would surely be a case of the latter purchasing the former. I say this because of how much I've read lately about 3's parent company Hutchison Whampoa looking to raise cash rather than spend it. For example, the group has confirmed it is in talks to sell its stake in the Orange-branded Israeli MNO Partner. The group may also sell a stake in 3 Italia to investors from the Middle East, according to a Cellular News story earlier this month.

Dominic White believes that the UK 3G auction held earlier this decade, "and the way it was rigged to generate maximum value for the government" has hamstrung the mobile industry in this country ever since - too many networks and tremendous pressure on each player's profit margins. He notes that Deustche Telekom has already written down the value of T-Mobile UK after a year in which it underperformed the rest of the industry. According to White, Vodafone is considering a bid within the range of GBP 2.5-3.4 billion.

For Michael Kovacocy, these numbers do not look right. In the article, he warns any purchaser against overpaying and argues that only "a bargain basement price" of GBP 1-2 billion makes any sense.

Terry Sinclair of Citigroup, however, likes the idea of Vodafone picking up T-Mobile UK. In Dominic White's article, Sinclair is quoted as saying that the combination could boost Vodafone’s earnings by GBP 200-300 million within three to five years. Needless to say, continues White, that would mean a lot of cost cutting, which is the main reason for the tie-up: "if your revenues aren't growing enough the only way to boost profits is to squeeze your cost base." He feels that Vodafone would also be able to put more customers over one network and would have extra buying power and a greater footprint to roll out new products and services.

If it really is as hard for mobile operators to make good margins in the UK as has been suggested here today, this could provide a rationale for Deutsche Telekom seeking to get out of Britain and into somewhere which offers better prospects and/or a neater complement to the German telco's many operations in Central and Eastern Europe. DTW has previously noted suggestions that a favoured option could be some form of asset swap with Vodafone, whereby Deutsche Telekom would get its hands on Big Red's Turkish operation, which has struggled to compete effectively with market-leading Turkcell.

A fairly wide range of opinions, then, on whether the UK mobile market is about to consolidate. So it remains worth watching.

Thursday, 16 July 2009

Bridging the digital divide between the provinces and regions of Pakistan

Pakistan is the world's sixth most populous country. It is also one which features regularly in TV news broadcasts that remind us of the country's strategic importance - as a state armed with nuclear weapons; as a country whose long history of troubled relations with neighbouring India took a new turn after the Mumbai terrorist attacks of November 2008; as a country with a porous border with troubled Afghanistan.

The country, however, has not featured very heavily here at DevelopingTelecomsWatch - before today, just five of the our first 100 stories even mention Pakistan. Today's short essay will, I hope, go some way towards making up for that glaring omission.

That I was able to round up a few interesting recent stories from the country is due mainly to my knowing of a very useful blog/news site -, set up and maintained by Babar Bhatti, a a senior IT professional now based in Dallas, Texas. Most of the news items, articles and reports referenced here today came to my attention via Babar's site and his tweets.

One item I found interesting was written by Babar himself, and concerns how the takeup of mobile telephony in Pakistan has been very uneven across the country's different provinces and regions. Mobile penetration in Pakistan currently stands at 54.11%, according to the World Cellular Information Service from Informa Telecoms & Media. Babar cites figures from the country's telecoms regulatory agency, which indicate a wide variety of cellular penetration rates in the four provinces:
Sindh, in the southeast of the country, is a major centre of diversified economic activity - heavy industry, finance and agriculture. The second best performer in terms of mobile penetration, Punjab, is the county's most populous region and its most industrialised. The two other provinces, where mobile penetration is well below the 50% mark, are places whose share of the national economy is much smaller.

Babar writes Balochistan's low cellular penetration rate is most likely attributable to the province having few urban areas and, as a result, high costs for the roll out of telecoms infrastructure. He feels, however, that recent Universal Service Fund (USF) projects may improve the situation in the provinces. I assume these include the three contracts recently signed by the USF and the country's incumbent fixed line and broadband provider Pakistan Telecommunication Company Ltd (PTCL), as reported on 3rd July by TeleGeography. These include arrangements to bring fibre-optic connectivity to all tehsils (administrative divisions) in southern Balochistan, involving the installation of 1166km of fibre-optic cable in the region.

Much of Pakistan's population is denied access to the range and quality of vital services taken for granted in highly developed countries. Two obvious examples are the provision of health care and education services. Canada-based technology journalist Jerry Blackwell, a regulator contributor to Wi-Fi Planet, wrote an interesting article earlier this month about how communications technology is making an impact with regard to the first of these.

Blackwell's article quotes Phil Cruver, President of KZO Education, an American company that develops content and technology for online interactive learning, who points out that "the literacy rate in Pakistan is only about 50%, and for girls, it’s lower. The country has about 1.3 million teachers now, but it needs double that number in order to meet the standards [in education] that are needed."

The article is part of a series which examines the state of the worldwide WiMAX industry in 2009. According to Phil Cruver, WiMAX will be "absolutely critical" in ongoing efforts to pull Pakistan's public education system up by the bootstraps. Cruver's plan is to deliver interactive streaming video-based learning over WiMAX networks and KZO has already launched pilot projects in Islamabad. This has involved connecting two schools to a WiMAX network operated by Wateen Telecom, a provider of telephony, broadband and multimedia services that is part of the Abu Dhabi Group, which also owns Pakistani mobile operator Warid Telecom.

Comments about technical issues and allegedly poor service for Wateen Telecom WiMAX customers were aired by Chris Cork, a British social worker settled in Pakistan, in September last year. Writing in Pakistani newspaper the News, Cork provided a personal history of the frustrations of getting a reliable Internet connection in the country during his time working there. This concludes with a none-too-complimentary account of dealing with a company whose "name begins with a 'W' and ends with 'n'" when he asked for an externally-mounted receiver to get full benefit of their service.

One Pakistani blogger, writing in December, also reported that the Wateen Telecom WiMAX service, the first such offering for consumers in the country, was facing bad press and suffering reliability problems. That writer's feeling seemed to be that this created opportunities for the providers of two other WiMAX-based services. One of these is Infinity from Orascom Telecom-owned mobile operator Mobilink, the market leader in the cellular space with an estimated market share of 29.74% according to WCIS. The other is wi-tribe Pakistan, part of an international collection of wireless broadband operations owned jointly by Qatari incumbent telco QTel and Saudi firm A.A. Tukri Group of Companies (ATCO). According to TeleGeography, wi-tribe Pakistan began commercial operations earlier this month.

Gerry Blackwell writes that according to the WiMAX Forum, at least two other operators, including Supernet (owned by Telecard, a fixed wireless operator known for its CDMA service) and Burraq Telecom, also plan to launch WiMAX services in Pakistan. The Supernet/Telecard offering, however, may be in doubt if nothing has changed since Babar Bhatti wrote in March about a dispute between wi-tribe and Augere, a European company that was planning to offer WiMAX services in Pakistan via the acquisition of spectrum in the 3.5Ghz band from Telecard.

Although some have raised concerns about Wateen Telecom's WiMAX service, Blackwell reports that Phil Cruver of KZO Education has no complaints: "It was so quick to get service," says Cruver. "We paid for it, and it was up and running within 24 hours."

Blackwell writes that when KZO first got involved in Pakistan, WiMAX wasn't on its radar. "To be very honest, we didn't know there was a WiMAX," Cruver says. "It's just serendipity that Pakistan has the first nationwide WiMAX network."

Cruver's last comment might not be accurate. Gerry Blackwell writes that Pakistan is really just "on its way to having a nationwide network", with service is only available in major population centers, and coverage spotty outside city centres.

As discussed, the second area of vital services in which WiMAX could potentially make a very valuable contribution in Pakistan (and other developing countries) is healthcare.

Earlier this year, Monica Paolini of Senza Fili Consulting (from whom I once sought advice about the agenda content for a Fixed-Mobile Convergence themed conference I hosted in Miami many moons ago) wrote a paper on the theme of expanding the reach of healthcare in developing nations with WiMAX. Sponsored by Intel and Cisco, this paper notes that today, in developing nations, patients have to travel to their nearest clinics or hospitals to receive even basic treatment and to more distant institutions for specialised or emergency care. Monica argues that this model does not provide comprehensive and efficient access to healthcare and suggests that reliable, always-on broadband wireless connectivity makes a new healthcare model possible -medical professionals reaching out to patients where they live and when they need care, bringing access to a range of medical resources through voice, data and video applications.

In her paper, Monica discusses an example from Pakistan - a Cisco trial combining satellite and WiMAX connectivity to mobile units that provide early oncological screening for patients in rural areas.

Overall, Monica uses her paper to make a case for why WiMAX stands out as an ideal technology to support telemedicine initiatives. Rather than focus on the capabilities of the technology, however, I'd like to consider the business models needed to make such initiatives a success.

Monica quotes Debra Sloane, Global Healthcare Solutions Partner Manager at Cisco, who says that "extensive cooperation among public agencies, health care providers and [telecoms] operators is necessary for the creation of new business models that can address the specific
needs of communities."

Just as we have noted that WiMAX networks in Pakistan are currently confined to urban centres, Monica notes that wireless networks tend to be initially deployed in high population-density areas and suburban business districts where the highest-paying subscribers can be found. Monica argues, therefore, that governments, health care agencies, and NGOs need to work together with network operators to ensure that operators see a business opportunity in under-served urban and rural areas. Perhaps Pakistan's Universal Service Fund could be used to intervene in this way. As far as I can tell, however, the USF's activties do not yet include any such initiative.

To conclude, while it seems that a number of worthy initiatives are improving the currently uneven access to telecoms and Internet services and to other vital services, Pakistan continues to be notable for a marked digital divide between its various regions.

Monday, 13 July 2009

Zain Africa Speculation Watch: Episode 9 - Can Vivendi do it?

Zain CEO Saad al Barrak:
thumbs up to the sale of Zain's African operations? You'd have to ask the shareholders...

celebrates its 100th blog post with another episode of Zain Africa Speculation Watch. Will that turn out to have been a future-proof title for this mini-series? Maybe not, because for the first time since DTW started visiting this theme, one of the companies rumoured to be interested in acquiring the African assets of the Kuwaiti telecoms group has actually confirmed that interest. It seems, therefore, that we are now moving beyond the speculation stage.

That said, perhaps for now we can stick with the term 'speculation' in the title of these musings. The speculation today, however, will move from wondering which prospective suitor looks the most plausible to wondering whether one particular suitor really has the wherewithal to do the deal.

That suitor is one whose name seems to have been in the mix since day one - Vivendi, the French international media conglomerate which is active in music, TV, movies, publishing, video games and telecoms.

Last Thursday, the group confirmed that there is indeed some interest in acquiring Zain's African operations. James Middleton of, reporting the story the next day, concluded his article with the caveat that the French firm has cautioned that at this stage there is no certainty that the discussions will lead to an acquisition.

This last point is echoed by a Financial Times article written the same day, which notes that Vivendi Chairman & CEO Jean-Bermard Lévy has "a track record of walking away from deals he regards as too expensive", something that has provided "some reassurance to analysts that the company will not over-pay."

The last time we looked at this story here, sums of USD 10 billion and USD 12 billion were mentioned as possible prices for Zain's collection of African MNOs. This is not far off the money from a Vivendi perspective according to the FT article, which cites "people familiar with the matter" who apparently say that the French group values Zain's African unit at USD 10-11 billion. A big concern for Vivendi, however, according to the company's statement of July 9th, is "keeping its credit rating and its dividend at their current levels".

This last point was mentioned in Episode 3 of Zain Africa Speculation Watch, when I noted that Reuters writer Adam Durchslag had expressed doubts about how Vivendi, with net debt of around EUR 8.3 billion, would be able to afford such a significant acquisition without putting that all-important investment grade BBB credit rating in jeopardy.

This concern about maintaining the group's credit rating notwithstanding, were this purchase to go ahead, it would, as the FT article notes, be Mr Lévy's fifth large acquisition in less than four years. The same article reports the opinion that the purchase of Zain Africa makes good strategic sense, giving Vivendi wider exposure to fast-growing markets at a time when its domestic telecoms and pay-TV businesses are facing stronger competition and its music business is in decline.

While it is pretty clear that Vivendi has pretty compelling reasons to consider a purchase of this size and nature, it is worth asking once again why Zain might be prepared to make the sale. According to the FT, Zain CEO Dr Saad al Barrak simply felt obliged to alert the Kuwaiti group's shareholders to the approach by Vivendi.

"If we are approached by big players with clear value creation we have to pass this to our shareholders. This is not a decision for us on the management level. It is all up to the shareholders to decide," the Zain CEO told the FT. He also revealed that only Vivendi has made an offer for the African assets.

Those shareholders have already felt the effects of the speculation. Matt Smith of Reuters reported yesterday that Zain's shares jumped 9.8% after news broke of Vivendi's confirmed offer for the company's African unit. Sounds good? Sure, but the very day that Vivendi was confirming its offer, Saad al Barrak had denied a deal was on, causing a fall of almost 9% in Zain shares, according to another Reuters article.

It remains to be seen whether that means that no other groups are likely to come forward to trump any offer from the French group - if such an offer does ever happen. Doubts are likely to remain for now. As Cyril Altmeyer of Reuters wrote late last week, analysts have expressed the view that it would be possible for Vivendi to take full control of Zain's African operations without endangering its BBB rating. Altmeyer's article quotes an unnamed banker who contends that with Vivendi having put something on the table, Zain and its advisers are probably figuring out whether to have targeted discussions with other interested parties." The same banker feels that potentially interested parties would be France Telecom, China Mobile and Vodafone.

This article also states that one way for Vivendi to make the Zain Africa acquisition without risky capital raising at group level would be to make the approach though Maroc Telecom, which is not in debt and in which the French group holds a 53% stake.

More twists and turns, then. Keep watching.

Thursday, 9 July 2009

Mobile Merger Mania Mystery Tour: calling in Africa, Turkey, the UK and points worldwide

T-Mobile UK campus, Hatfield, Hertfordshire: uncomfortably close to DTW HQ

Late last month, I turned the gaze of DevelopingTelecomsWatch away from the world's developing countries and emerging markets and focused my attention much closer to home.

Getting all self-indulgent, I described the possible effects of a rumoured T-Mobile UK-Vodafone UK merger on the area where I live. This is because I am personally acquainted with a few people who make the pleasantly short commute from here in St Albans to the T-Mobile campus in nearby Hatfield. Without any real numbers to hand, my sense, then, is that the Deutsche Telekom-owned cellco is a pretty significant employer in this part of the world. So, in a town where the unemployment figure has recently surged upwards, albeit from a very low base, a true merger of the two MNOs is unlikely to be warmly received. I think this is the first telecoms story that I've ever heard being discussed by parents waiting for their kids outside my son's nursery school.

Perhaps a more predictable setting for talk of telecoms M&A activity is Investor's Business Daily, whose writer Reinhardt Krause believes that "after slowing to a crawl in the first half of 2009, deal-making among phone companies is bouncing back, a shift that's playing out in developed and fast-growing emerging markets alike." Krause quotes a former colleague of mine, Thomas Wehmeier, an analyst at Informa Telecoms & Media, who says that "the talking that has been continuously ongoing is finally bubbling up to the surface in the form of actual bids and deals."

Krause cites a number of prospective deals:
  • Hutchison Whampoa may seek a merger for some or all of its money-losing operations in Europe, including 3 UK
  • The merger talks between Bharti Airtel of India and South Africa's MEA mobile group MTN
  • China Mobile being "on the prowl for more deals in Asia"
  • The much-discussed notion of Zain selling its African operations
When asked about the last of these, Wehmeier expressed surprise, but conceded that "Zain is seeing that operating in the African environment is not simply a way to print money, not matter how impressive the rate of subscription growth."

Tom Elliott, an analyst at Strategy Analytics, meanwhile, says that Zain may be tempted by the huge "one-time gain" it would realise by selling its African assets. As Krause's article states, in 2005, Zain acquired Celtel International's African operations for USD 3.4 billion and, if the current rumours are to be believed, is now looking to sell these (plus some other acquired later) for around USD 10 billion. The even larger sum of USD 12 billion has also been mentioned - and for a very interesting discussion on how that a 12 billion dollar valuation could be calculated, I'd heartily recommend a nice article written by Carlos Valdecantos of Spain-based management consulting and advisory firm mmC Group.

The Zain story is certainly the one to which most time has been dedicated here at DTW but, as discussed, the T-Mobile-Vodafone issue is the one whose impact I'd be most likely to feel in day-to-day life here in London's commuter belt.

The last time I looked at this, I briefly raised reasons why such a deal might not be plausible. These included the idea that UK authorities might be concerned about the market power of the merged operation in a consolidated mobile market and the question of why Deutsche Telkom would offload such a significant asset at the bottom of the market.

Paul Rasmussen of FierceWirelessEurope, writing late last week, has an interesting take on these two concerns. Rasmussen has listened to sources who believe that DT may prefer an asset swap to a sale, favouring the acquisition of a "comparable mobile operator in central or eastern Europe" from a group interested in T-Mobile UK.

Rasmussen cites "insiders" who claim that DT's CEO, René Obermann, is keen to avoid a sale of its UK subsidiary, not least because this would create doubts about the company's ambitions to remain a global player. "Early speculation has placed Vodafone Turkey as a possible candidate", writes Rasmussen.

Vodafone's Turkish operation must count among Big Red's least satisfactory acquisitions. No dent, for example, has been made on Turkcell's leading share of the market, currently estimated at 56.40% by WCIS, which is actually slightly higher than it was at the same time last year.

In March, another Informa Telecoms & Media analyst, Dario Talmesio, profiled the performance of Turkcell and, when analysing the competitive environment in the company's home country, asserted that the cellco's achievements were "facilitated by the exceptionally weak state of Vodafone Turkey."

Talmesio wrote that "Turkcell continued to hold a competitive advantage against its British-owned rival... with Vodafone Turkey scoring particularly low compared with Turkcell in key areas, such as quality of network, commercial distribution and customer satisfaction".

On a personal note, I've travelled to Turkey on business a several times and have had the pleasure of making the acquaintance of people working with just about every significant telecoms operator there, as well as many more in the mobile VAS space and with various consultancy firms. There does seem to be a very strong feeling in Istanbul that Turkcell's dominant position is unlikely to be threatened any time soon. I've even heard the suggestion that Turkish consumers can be quite resistant to foreign brands competing with ones perceived to originate from their home country. Even this seemingly quite intangible advantage might weigh heavily in Turkcell's favour. Personally, I have a fairly strong aversion to slugs and snails - almost a phobia - so, Turkcell's use of the latter in its branding does not float my boat. It doesn't seem to put off the majority of Turkish cell phone users, however.

Turkcell's snail: not to my taste, but works just fine for Turkey's mobile users

One can see, then, why Vodafone might look to retreat gracefully from Turkey. Why, though, would Deutsche Telekom be keen to have a crack at all these problems which Vodafone has seemingly failed to handle? Well, as Paul Rasmussen writes, "such a move would nicely complement Greece's OTE", in which DT has been growing its stake since last year and which has a SE Europe footprint, with mobile operations in a number of Balkan countries.

If we're going to ask what is attractive about Vodafone Turkey, we might equally ask why Vodafone would be interested in T-Mobile UK. Beyond the opportunity to jump instantly to a 40% share of the UK mobile market and into a clear leadership position by market share, does the Deutsche Telekom-owned cellco not come with considerable baggage?

As Paul Rasmussen notes, analysts are beginning to question the value of what T-Mobile UK has to offer. He writes that "while the company has around 16 million customers, it is largely made up of an unstable base of prepaid consumers who can switch carriers easily to chase the cheapest or best value plans" and notes that "T-Mobile also generates around 45 per cent of its cash flow from its MNVO deal with Virgin Mobile, a deal that could easily evaporate if a new owner ruffled Virgin's sensitive feathers."

Bearing all of this in mind, you'd have to ask why media speculation abounds about the UK's two other leading mobile operator, O2 and Orange being interested in T-Mobile UK.

One suggestion raised by Paul Rasmussen is that this stems from each operator seeking to "spoil the ambitions of the others", leading to "the winner overpaying while the losers then complain bitterly to the regulator in an effort to confuse and delay the acquisition." Rasmussen argues that "The 'losers' could then attack the unsettled T-Mobile subscriber base with attractive offers and packages. Why so cynical, Paul?

Scary stuff.

Let's keep watching.