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.

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