Zain Africa Speculation Watch: Episode 7

Dr Bahabri of HiTS Telecom: 'highly leveraged' Zain has been in talks with Vodafone, China Mobile - (photo from Comm.ae)

It's a matter of policy here at DevelopingTelecomsWatch not to write anything actively inflammatory. Controversy is not the watchword. There's no harm, however, in merely repeating contentious statements made by others. Is there?

One man seemingly unafraid of rattling cages is Dr Sultan A. Bahabri, Chairman of HiTS Telecom, the self-styled 'new opportunity communications company' that has invested in Brazil, Spain, Saudi Arabia and in several African markets.

Late last week, Bahabri spoke with the telecoms sector's very own man of mystery 'the Informer', offering his hard-hitting opinions on a range of issues. One of these was the recently much-discussed question of whether pan-MEA mobile player Zain is really going to flog its supposedly strategically vital African assets to some lucky punter.

Bahabri alleges that last year Zain was in serious talks with both Vodafone and China Mobile, claiming that the Kuwait/Bahrain-headquartered group is "highly leveraged and that leverage is going to be heavy on their shoulders for years to come."

The HiTS Telecom Chairman went on to make some fairly critical remarks about the manner in which Zain entered the Saudi Arabian market two years ago. The price paid for the country's third licence to operate was a whopping USD 6 billion, at a time when mobile market penetration was close to 80%. As Gavin Patterson of Informa Telecoms & Media wrote in his recently-penned Zain Group Q4 2008 update, mobile penetration in Saudi Arabia had passed the 100% mark by the time the third operator launched services. Patterson also saves us the bother of working out the cost of the licence per inhabitant of Saudi Arabia - USD 226: the world's most expensive on a per capita basis.

According to the Informer, Bahabri claims that his company also bid just over USD 4 billion in the Saudi Arabian auction, but that he could not have justified the bigger sum which Zain ended up spending.

Zain's management have not failed to notice sceptical remarks about their Saudi operation. In February last year, the firm's Chief Communications Officer Ibrahim Adel was interviewed by Mobile Communications International magazine, acknowledging that the move had been dismissed by some as one which that simply did not justify the expense. Adel noted that some observers had dubbed his firm's actions as a case of "crazy Kuwaitis, spending crazy money".

Adel argued, however, that the licence win was essential: "Saudi is a key strategic market for us. We couldn’t not be there."

Keep that word in mind: strategic - and fast-forward to the more recent critical remarks made by Dr Bahabri of HiTS Telecom. In last week's no-holds-barred chat with the Informer, Bahabri joked that "when you can’t think of a reason to justify that sort of spend, you just call it 'strategic'" - using the word as a barb, it seems to me. Many operators, he went on to add, have "a very dangerous combination of ego and cash. That leads to many mistakes."

Tough talk. Does it invite others to watch HiTS Telecoms closely and speak in similarly strong language should Dr Bahabri's organisation ever make moves which leave it open to criticism?

Returning to Dr Bahabri's suggestion that "highly leveraged" Zain was in talks with potential purchasers of parts of its business as far back as one year ago, fresh rumours were circulated yesterday that a sale of some sort is now on the cards - Bloomberg's Ambereen Choudhury writes that the telco has asked Swiss bank UBS AG to consider a possible sale of its African division, which it values at about USD 10 billion. The source? "Three people familiar with the plans."

These mysterious people told Choudhury that UBS "will oversee a review that may lead to a sale of all or part of the unit" and that "Zain is yet to decide on a sale, which would exclude its Sudanese operations."

In previous episodes of Zain Africa Speculation Watch we have considered the merits of various suitors that could step forward should Zain indeed decide that a sale is the best way forward. Of these, I noted that French telecoms and media conglomerate Vivendi has been dismissed by some analysts as being unlikely to be able to raise the necessary funds for an acquisition as significant as Zain's African unit.

Bloomberg's Choudhury, however, takes the time to consider a Vivendi bid and his unnamed sources allege that the company has actually approached Zain in recent months for exploratory talks about the latter's African division. According to Choudhury, Vivendi, which owns 53 percent of Maroc Telecom, has said it wants to revisit the idea of expanding its presence in emerging markets, having scrapped previous discussions about buying a stake in Dubai-based Oger Telecom in 2007.

Of the rumours feeding into Zain Africa Speculation Watch the mini-series, Ambereen Choudhury's are about the most specific. I have no idea, however, if they are the most reliable or credible. So, again I invite you to watch this space. Don't touch that dial. No flipping. etc. etc.

Zain Africa Speculation Watch: Episode 7