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

Tuesday, 29 September 2009

Bridging the digital divide that can exist in the world's most affluent countries: news from Kuujjuaq

The regions most often covered by this blog are Africa, South Asia and SE Asia - quite predictable given the remit of rounding up news about the strategies of telecoms companies in developing countries and emerging markets worldwide. Some of the most enjoyable articles to write have been those discussing to what degree and in which ways telecoms technology is able to alleviate poverty and improve lives in these part of the word.

I had not imagined, then, that I would ever write an article here about something happening in North America. That, however, is precisely what I feel compelled to do today, albeit with reference to a part of that continent obscure enough for me not to have heard of it before now.

Thanks to my fancy being tickled by the comic touch of a nicely opportunistic headline writer at TeleGeography, I now know just a little more about Nunavik, a vast territory (larger than California) which is located in the northernmost part of the Canadian province of Quebec. This huge area has fewer than 12,000 inhabitants, 90% of whom are indigenous Inuit people.

The wackily-titled TeleGeography piece tells us that the small population centres of Nunavik are set to be covered by a CDMA mobile network by the end of this year. Driving this project is Lynx Mobility, a communications enterprise whose core business is the delivery of cellular services to remote communities, with satellite backhaul deployed throughout. According to the Lynx Mobility website, the company's approach encourages local ownership of assets, with the communities controlling and branding their own cellular services. The aim is for this to create local employment, training and new skills.

I was struck at how closely this language resembles a lot of what its written about the benefits of mobile communications in developing countres, which I find interesting when I consider that Canada is among the world's wealthier nations, with a nominal GDP per capita which ranks 18th in the world.

The remote villages of Nunavik, it seems, do not enjoy the general level of prosperity for which Canada is known. Charlie Watt, a Senator representing the region, arguing that Nunavik residents pay excessively high sales taxes, believes that his constituents endure a state of relative poverty serious enough to create social problems and alienation. A recent article from Nunatsiaq News, a newspaper which serves Nunavik and the neighbouring Nunavut region, supports this view, stating that 30% of Nunavik households live in poverty - and that Nunavimmiut are up to three times more likely to live in poverty than people in southern Quebec. The sociologist from whose work this article is drawn concedes that similar levels of poverty can be found even in some neighbourhoods of Montreal, but he feels that "what is perhaps unique about Nunavik is the scope of certain conditions of poverty, such as the low level of education, the proportion of household budgets dedicated to food, the proportion of single-parent households, the high rate of unemployment [and] the statistically lower remuneration paid to Inuit compared with non-Inuit."

In numerous articles here and elsewhere can be found the argument that access to communications services improves the productivity and the living standards of poorer people in developing countries. To what extent this will be true for the people of snowy Nunavik is something I could only guess at. One thing that perhaps could be cause for optimism, however, is the community ownership business model of Lynx Mobility. I infer from the little I've read about this organisation that more emphasis is put on offering services to the previously under-connected than on generating significant profits. This ought to enable the provision of services at prices the region's poorer people will find genuinely affordable. This is all guesswork on my part, however. As ever, I invite any readers more familiar with the situation to contribute via the comment box.


Sunday, 27 September 2009

Cambodia continues to benefit from the growth of telecoms and Internet services - but is the growth truly sustainable?

The gimlet eye of DevelopingTelecomsWatch roves back to Cambodia today, where a mobile operator given a fair amount of coverage here for its impressive subscriber growth is also quickly carving out a huge slice of the country's ADSL market.

That cellco is one whose aggressive pricing has stimulated comment here more than once, most recently in an article about a bitter dispute over cutthroat tariffs between two of its rival MNOs. It is this brutally competitive nature of the rather crowded Cambodian mobile market which prompted global emerging markets player Millicom International Cellular to sell its stake in one of the players in this rather rough game.

The MNO doing well in the broadband space is Metfone, an offshoot of Viettel, an operator from neighbouring Vietnam which is owned by that county's military establishment. Viettel, as discussed in a March DTW article about telecoms organisations affiliated with the governments of socialist regimes, has built a strategy around delivering services to lower income population segments. Low prices are clearly an important component of that strategy. For Metfone, the aforementioned strong growth has yielded an estimated 15.06% market share (by end-August) according to WCIS. This has been achieved in just seven months, the operator having launched services in February of this year.

So, while the likes of Millicom balk at the notion of the razor-thin margins that very aggressive pricing must yield in an already lower-ARPU market, Metfone's Vietnamese owners are less squeamish. I have opined here more than once that the company's being rooted in the state of a socialist country must confer on its managers a quite different view of acceptable levels of profitability than the ones expected in more orthodox market economies.

This formula, however, undeniably produces strong consumer acceptance of communication services. Now, according to a recent TeleGeography article, which states that Metfone now commands 60% of Cambodia’s ADSL market and 50% of the country’s landline connections.

The affordability of broadband may soon receive another boost in the southeast Asian county. Nathan Green of the Phnom Penh Post writes that Cambodia's connection to a high-bandwidth fibre-optic cable linking Southeast Asia to the United States is expected to go live before the end of this year, and that services will be of a higher quality than those enabled by current connectivity in the county. This is apparently because connectivity is presently sourced from operators in Thailand and Vietnam that tend to provide the country only with their overflow capacity.

So telecoms and Internet services continue to penetrate Cambodian society, although this improved availability is in some cases being driven by pricing strategies which may not be sustainable if commercial logic (as most of us understand it) is applied.

Saturday, 26 September 2009

MTN-Bharti Airtel tie-up: yay or nay?

India's PM: supports Bharti Airtel-MTN tie-up

More than once I have warmly recommended articles written by Matthew Reed, the editor of the Informa Telecoms & Media Mobile Middle East & Africa Intelligence Centre. The latest interesting discussion from Matt, with whom I had the pleasure of working towards the end of my own stint as an Informa person, concerns confusion surrounding major telecoms M&A deals across the MEA region which he covers.

Anyone who watches these markets - or indeed who reads this blog on a regular basis - will not be surprised to learn which two potentially huge and seemingly stalled deals are the focus of Matt's article:
  • the prospective sale of a stake in MEA mobile group Zain, or perhaps just the sale of its African operations
  • the long-mooted cash and share-swap tie-up between giant Indian cellco Bharti Airtel and South Africa's multinational telecoms group MTN
I only propose to spend time on the latter here today.

Matt Reed notes that talks between Bharti Airtel and MTN, which began in May and have been extended twice, most recently to a deadline of end-September, seem to be heading toward the wire once again without resolution. Matt's article is dated 22nd September, so we are now four days closer to that wire.

So what's holding up the mooted mega-merger? A significant problem, reports Mary Lennighan, writing for Total Telecom yesterday, is the effect of a recent tightening of India's takeover rules. This move apparently means that MTN could be forced to make an open offer for an additional 20% of Bharti Airtel, which in turn would create financial and regulatory problems. The first of these is the business of finding a large quantity of cash to fund the open offer - Lennighan reports esitmates of up to USD 9.35 billion.

Secondly, the proposed deal would put Bharti Airtel well over India's 74% foreign direct investment cap - MTN would hold 25% of the Indian MNO directly, and its shareholders would have an additional 11%. The extra 20% stake would give the South African company a 56% chunk of its new partner. SingTel already hold 30.4% of Bharti Airtel - hence the FDI cap problem.

This is not the only potential legal problem faced by the deal makers. The other, writes Lennighan, concerns the insistence of the South African Government that the merged entity should be listed on both the Johannesburg and Bombay stock exchanges. Indian law prohibits Bharti Airtel from any such dual listing.

These problems may be surmountable, however, at least if the deal is supported at the highest levels, which does seem to be the case. According to an article in yesterday's Economic Times, Indian Prime Minister Manmohan Singh has admitted to discussing the merger at the G20 summit in Pittsburgh with South African president Jacob Zuma. Singh expressed support for the deal and also stated India's willingness to discuss any outstanding issues.

This looks encouraging for proponents of the deal, but should either party be approaching this marriage with caution? An editorial piece in South Africa's Financial Mail this week suggests that this might be the case for MTN and its many shareholders - the telecoms giant apparently appears in the portfolios of dozens of unit trusts, and many retirement funds have significant stakes, including the Public Investment Corp., which holds an 11.2% stake on behalf of members of Government pension funds. The opinion piece warns that shareholders will have to evaluate the proposals carefully, and ask whether the expected benefits will compensate for the risk. The article commends MTN for an exceptional international growth record, comparing this favourably with Bharti Airtel's more limited career as an international player. The writer also refers to the Indian cellco being part of the wider Bharti conglomerate, with its "different culture." Without saying much about what might go wrong, the Financial Mail opines that "institutional investors should be concerned that the huge value that has been created in MTN - and which may come in the future - is not frittered away by an unwise deal."

Matt Reed, writing about the 2008 failure of these two giant telecoms companies to come together, notes that reportedly, a factor in that failure was South Africa’s worry that control of MTN, which is perceived as a national champion, could pass into foreign hands. This, at least, is something that the Financial Mail does not consider as a legitimate reason for a 2009 deal hitting the rocks. Government should avoid taking decisions based on national pride, ideology or an aspiration to protect or create a national champion, says the editorial piece. "Those would be the wrong reasons, and could lead to poor judgments with bad results. There are no grounds so far for assuming jobs [in South Africa] would be at risk because of an MTN deal with Bharti Airtel."

There may be reasons, then, to believe that this deal will get done reasonably soon. Or will be be discussing deadline extensions throughout the next few months?

Saturday, 19 September 2009

M&A mystery tour: Zain, Tigo Sri Lanka, Vivendi's foray into Brazil

Zain Group: all operations up for grabs?

Over the (northern hemisphere) summer months, this blog became very preoccupied with whispers about a 'for sale' sign supposedly being slapped onto the African assets of Kuwait-headquartered mobile group Zain. So much so that an inelegant title (Zain Africa Speculation Watch) was cobbled together for what quickly became a series of articles. That series ran to no less than thirteen episodes, such was the number of conflicting rumours doing the rounds from June to August. Of late, though, this long-running tale has meandered in a new direction - towards the idea that a significant stake in the whole Zain group may be sold, not merely its operations in Africa.

A reading of media reports coming out this week suggests this is looking increasingly likely. One such comes from Tom Gara, writing for the UAE's English language newspaper, the National. Gara reports that the Kuwaiti group leading the sale has announced that it will sell its stake in Zain to a consortium of Indian and Malaysian investors. The Kharafi Group - whose other activities include construction, civil engineering and the manufacturing of consumer goods - officially owns about 10% of Zain, writes Gara, but is believed by analysts to control up to 25% of the telecoms firm through subsidiaries and associates.

Gara reports that on Tuesday this week, a Kharafi subsidiary ran an advertisement in Kuwaiti newspapers, inviting investors owning fewer than 300,000 Zain shares to participate in the sale. "We hope that this preserves the rights and interests of small shareholders and gives them priority," the advertisement said.

What of the prospective purchasers? Gara describes them as a consortium led by India’s Vavasi Group and backed by Malaysian billionaire Syed al Bukhary. This consortium has apparently indicated that a purchase price has yet to be confirmed.

Gara also states that "two large Indian state-owned telecommunications companies that were originally listed as members of the consortium have since denied making any decision on the deal." Regular readers will surely know that this refers to MTNL and BSNL. The latter, says Shauvik Ghosh of Indian business newspaper Mint, writing earlier this week, may not want to pick up a stake in Zain because of an urgent need to hold on to its cash to maintain interest earnings, to pay for 3G spectrum and to fund an ongoing restructuring programme critical for long-term profitability. The last point certainly chimes with the critical analyses of BSNL's performance reported here at DTW.

The Mint article also quotes analysts who are similarly critical of the state of BSNL. One of these, who remains anonymous, warns that the public sector telco would be advised to stay away from the Zain stake purchase. "BSNL has a lot of cash on its books but it lacks the ability to execute," he says. "Africa is not a market for an operator to just add some revenue to its balance sheet. They have to first show that they can execute in India with the opportunities already in front of them like broadband and 3G before they can venture into bigger game like Zain."

One foreign adventure which certainly seems not to be on the cards for BSNL is its mooted purchase of the Millicom International Cellular operation in Sri Lanka. On Wednesday, India's Economic Times carried the news that the state-owned firm had bid for the Tigo-branded cellco. By Friday, the Business Standard was reporting that this bid had been rejected. "They have not considered our bid", BSNL Chairman Kuldeep Goyal told a reporter. "We had quoted a value [that] we thought was appropriate but it has fallen short of their expectations."

This blog recently opined about the likely consolidation of the fiercely competitive Sri Lankan mobile market, with one possibility being that Bharti Airtel could purchase the Tigo-branded MNO - the giant Indian operator already has an operation in Sri Lanka. The recent Business Standard article also mentions rumours of Bharti Airtel's interest in the transaction - as well as interest from another prospective purchaser already present in the Sri Lankan market, Malaysia's Axiata. The only seemingly interested party still being mentioned whose presence in Sri Lanka would not lead to market consolidation is the UAE's Etisalat, which is also mentioned in the Business Standard story. Total Telecom reported on Monday that the Emirati firm has indeed submitted a bid.

Plenty of interest in Tigo Sri Lanka, then. Let's see who prevails.

What news, though, of erstwhile protagonists from the early episodes of the now-fizzled out Zain Africa Speculation Watch mini-series here at DTW? Regular readers may recall that the whole hoo-ha was initially set off by rumours of interest from French telecoms and media conglomerate Vivendi. Having heard nothing since about that the company's plans, I was interested this week to read a report from my former colleague at Informa Telecoms & Media, Mr James Middleton. While the Zain Africa business came to nothing, James writes that the French group seems to remain keen on increasing its footprint in emerging markets beyond Morocco, where it controls Maroc Telecom. Vivendi, perhaps best known by telecoms watchers for its controlling stake in French cellco and broadband player SFR, has now launched a EUR 2 billion offer for 100% of Brazilian fixed line carrier GVT, which offers VoIP telephony, corporate data, broadband, internet services and pay TV, writes James.

As of June 30, 2009, GVT had approximately 2.3 million customer lines in service, including voice, broadband, data and VoIP services. It is one of the smaller players competing against giants like Oi, América Móvil and Telefónica.

So, after wandering across Africa, South Asia and South America, here concludes another whistle-stop tour of telecoms M&A stories from emerging markets. Let's see which of these has further to run.


Friday, 18 September 2009

Millicom's Asian sell-off: two down, one to go

Vimpelcom's Beeline brand: next stop Laos

Back in late July, global emerging markets mobile group Millicom International Cellular announced that its Asian assets were up for sale. Since then, this blog has tracked other telecoms groups' interest in these operations.

The first confirmed transaction was the sale of Millicom's majority stake in Cambodian mobile operator Cellcard to another of the existing shareholders, the Royal Group. When Millicom first announced its intention to quit Cambodia, Mikael Grahne, the company's CEO, explained that this was partly due to the negative effect on profitability caused by the disruptive market-entrance strategies of the new players that have recently flocked to the Southeast Asian country's crowded mobile arena.

When DTW first covered this story, we saw that the Royal Group's CFO Mark Hanna was quick to dismiss any such concerns about profitability. We have also seen here, however, that in the months which have followed, Mr Hanna has himself felt the need to attack a new entrant for allegedly selling services below the cost of delivery. The apparently disruptive player in question is Beeline Cambodia, controlled by giant Russian mobile firm Vimpelcom.

As the dispute between mobile operators in Cambodia rumbles on acrimoniously, then, perhaps it is legitimate to wonder if a similar set of circumstances will unfold in neighbouring Laos, another country from which Millicom has been seeking to extract itself.

With a mobile penetration rate of just 27.14% (end of June, according to WCIS), Laos would appear to be quite attractive in terms of growth potential. WCIS estimates that Millicom's Tigo-branded operation has built a 17.01% share of current subscriptions since its own market debut back in 2003, when it became the third entrant.

The longest-established mobile offering in Laos is that of the country's incumbent fixed-line operator, Lao Telecom, in which the the Government of the Lao People’s Democratic Republic holds a 51% stake. Via a company named Shenington Investments, the other stakeholders are Thai communications satellite operator Thaicom, ST Telemedia, and Qatari telecoms group Qtel.

While the later entrants have, of course, eroded Lao Telecom's share of the mobile market, this share has only fallen as far as the 60% mark - still a dominant position. I will not pretend to know a lot about the telecoms market of Laos, but I note that the country profile available from Australian research firm Buddecomm mentions that "the rate of regulatory reform continues to lag well behind industry development and has the potential to derail the progress already made if the reform is not speeded up." This, perhaps, explains the qualified success of those challenging the national incumbent telco in the mobile space and might be part of why Millicom preferred to focus its efforts elsewhere.

Undeterred by such challenges, however, is the purchaser of the 78% stake that Millicom International Cellular held in Tigo Laos. That purchaser, as I learned yesterday from TeleGeography, is none other than Russia's Vimpelcom, whose Cambodian Beeline-branded operation has been offering aggressively priced services and arousing the anger of its competitors in the process. If Vimpelcom is planning something similar in Laos, perhaps the arrival of Beeline's low-price offerings will accelerate the growth of the country's modest mobile penetration rate. It's also possible that any such strategy would cause the same friction as seen in Cambodia. Beeline comes to Laos and grows its SE Asia cluster. Let's see if there's a sting in the tale.

Regarding Millicom's plan to quit Asian markets and sharpen its focus on Africa and Latin America, just one task remains - the disposal of its asset in Sri Lanka. DTW has noted in previous articles that interest seems to be strong. The last I read about it, both India's BSNL and the UAE's Etisalat remain in what some are describing now as a "race" to buy Millicom's Sri Lankan operation.

Thursday, 17 September 2009

DevelopingTelecomsWatch - age notwithstanding, pleased to be a part of

I'd like to think that I approach everything I do with a reasonable degree of professionalism. Whether it's accurate to describe myself as a young professional, though, is open to question. While I do still feel pretty youthful, it seems that almost half of the thrusting young go-getters who visit feel that a dusty old geezer like your humble scribe is far too long in the tooth to be known as a young professional. is a fast-growing blog aggregator, currently over 14,000+ articles strong. The site's creator describes it as the place for young professionals to find up to the minute news and information that matters. This is achieved by aggregating blogs - 200+ sites are checked automatically every 10 minutes for updated articles, to which links are posted.

On one hand, the blogs added to the site are very diverse in terms of the topics they cover - banking, personal finance, investments, career advice and new media news are among the fields I've seen discussed. On the other hand, the bloggers who have added their sites seem to be less diverse in terms of where in the world they are located. My observation is that, at present, voices from North America are by far the most numerous. Europeans like myself are a rarer breed at YPBLOGS - and bloggers from developing countries and emerging markets worldwide seem to be rarer still.

I'd like to see this rectified, not least because, as this blog often makes clear, innovative technologies, services and business models are being incubated all over the world - inventiveness is certainly not the sole preserve of those of us living in the most developed economies and the most affluent societies. In the telecoms space, it is in developing countries such as Kenya that bleeding-edge mobile financial services solutions are being developed and refined. That country is even home to the 18-year old mobile services entrepreneur who has developed an SMS-based solution which enables car owners to keep track of their vehicles, offering a defence against theft.

YPBLOGS is a useful arena in which to absorb the ideas of younger bloggers, thinkers and innovators. I feel, however, that this community would be even richer were it to be joined by innovative writers from developing countries. I would therefore urge the many readers of DevelopingTelecomsWatch who hail from Africa, Asia and Latin America to add their voices to the conversations aggregated at - and don't be put off if you're over thirty.

Visitors to were asked: What is the age limit for considering a person a "young professional"? The most common response (49% of respondents so far) was 'under 30'. Well, I don't fit in there - but this has not deterred me from taking advantage of the site or from enjoying the interesting material it aggregates.

So I call for an invasion of the over-30s and from developing countries. We can make YPBLOGS even better.

Monday, 14 September 2009

Sri Lankan mobile market: one way or another, consolidation looks likely

Sri Lankans queue to get their hands on Airtel 's low price offers earlier this year

When Bharti Airtel's Sri Lanka operation Airtel Lanka launched its cut price services in January this year, the new cellco became the fifth operator competing for a share of the country's mobile market. The number of mobile service providers in the island nation, however, may soon be set to fall back to four. This will depend, though, on which party comes forward to snap up one operator currently sporting a 'for sale' sign.

Up for grabs is Tigo Sri Lanka, one of the Asian operations that Millicom International Cellular is keen to sell. When this blog first commented on Millicom's planned withdrawal the three Asian markets in which it has done business, Axiata (formerly Telekom Malaysia International) was mentioned as a possible purchaser of two of these operations - Tigo Sri Lanka and Cambodia's Cellcard. In both cases this would lead to market consolidation - in Sri Lanka, Axiata has a controlling stake in market-leading cellco Dialog Telekom; Cambodian MNO Hello is a wholly owned subsidiary of the Malaysian group. As discussed in the most recent DTW article, however, it was another existing shareholder in the Cambodian cellco (the Royal Group) which eventually relieved Millicom of its stake in Cellcard. Given that other organisations have been more recently and more regularly touted as potential purchasers of Tigo Sri Lanka, Malaysia's Axiata also seems to be out of the running with regard to that opportunity.

One potential suitor mentioned very recently is state-owned Indian operator BSNL, whose management committee approved a proposal to submit a bid to acquire the Sri Lankan operator company last week, according to Manoj Gairola of the Hindustan Times.

The public sector telco seems to have attracted considerable criticism of late, some of which has been reported here. Quite striking was the August 12th article written by Kunal Kumar Kundu, who feels that BSNL is crippled by political interference, poor demand forecasting, lack of effective budgetary control and a bloated payroll. This blog has also reported the very modest take-up of BSNL's wireless broadband offerings and negative feedback about the company's preferred franchisee business model for the development of both 3G mobile and WiMAX services. Almost as often, however, the state-owned operator has been linked here with possible overseas investments. Perhaps the competitive pressure from India's numerous private sector mobile players is felt so keenly by BSNL's management that foreign opportunities are seen as a much better bet in terms of realistic growth opportunities. This may explain the fact that in the few months since the inception of this blog, the Indian operator has been mentioned in connection with a stake in pan-MEA mobile group Zain and with a new telecoms licence in Tunisia. BSNL's interest in Tigo Sri Lanka, then, is perhaps not very surprising.

Also connected in media reports with the sale of Tigo Sri Lanka is the UAE's Etisalat, which in August was reported to be considering an investment in the country now that the long civil war seems to have finally reached a conclusion. Priyantha Kariyapperuma, Director General of Sri Lanka's telecoms regulator, reportedly met with a visiting official from Etisalat last month and told journalists that "with the war over in May, there is ample scope for investments into telecom services and infrastructure facilities, especially in the north and east," referring to the area of the island that was most affected by the conflict. Few of the reports on Etisalat's possible interest in Sri Lanka have stated explicitly that the UAE company's route into the country's market would be via the acquisition of the Tigo-branded MNO. All of these reports, however, mention the availability of Millicom's Sri Lankan operation, so perhaps it's not unreasonable to infer that the Emirati company might have had Tigo Sri Lanka in its sights.

The most recent name floated in connection with the opportunity, however, is one from India rather than from the Middle East. As with an Axiata purchase, this move would also lead to market consolidation - because the company concerned is Bharti Airtel, already present in the Sri Lanka market since January, as we noted at the top of this article.

It seems, then, that the management of the giant Indian telecoms firm is not completely absorbed by the ongoing negotiations about the proposed mega-merger with South Africa's MTN. That saga has been notable for the repeatedly-extended deadline for concluding the talks and for various parties weighing in with opinions about the desirability of the mooted deal. One recently expressed opion comes from South Africa's Communications Minister, Siphiwe Nyanda, who voiced caution over the proposed tie-up in an interview yesterday. The Minister told the Sunday Times that any deal should take into account that MTN was a "South African company with a footprint in Africa." I take this to mean that there exists concern over MTN potentially losing its identity as a telecoms group with its roots - and the bulk of its business - in Africa. The Minister's comments are certainly of relevance given that South Africa's Government-owned Public Investment Corporation holds a 21% stake in MTN.

Bharti Airtel's interest in Tigo Sri Lanka came to my attention earlier this week, when R. Jai Krishna of the Wall Street Journal reported comments from an unnamed person close to the development. Suggesting that any deal would be worth USD 100-120 million, the mystery source said "in Sri Lanka, if you need to be a significant player in the market, you need to do an acquisition... greenfield, you will not be successful," by way of explaining the rationale behind Bharti Airtel's rumoured move.

A strengthened presence in Sri Lanka on the part of the Indian cellco could be welcomed by consumers - certainly if the company continues to compete aggressively on price, a strategy that has yielded impressive subscriber growth. Since going to market in January, the new entrant had 900,000 subs by the end of June, according to WCIS market intelligence. Another Informa Telecoms & Media service, Global Mobile Daily, reported in late July that Airtel Lanka claimed to have reached the one million subs mark.

The Bharti-owned cellco, however, has seen some of its competitors crying foul over its tariffs. Late last month, for example, Duruthu Edirimuni Chandrasekera of Sri Lanka's Sunday Times, reported that some operators have threatened to cut their interconnection with Airtel Lanka to retaliate for the the Indian-owned company failling to withdraw tariffs not approved by the country's telecoms regulator.

This sounds oddly familiar - the most recent article here covered a very similar wrangle over tariffs and interconnect agreements in Cambodia. Competition in Asia's mobile markets, then, certainly seems to be brutally fierce right now. Again I find myself voicing the view that there may well be casualties when the going gets this tough.

What price on mobile market consolidation in Sri Lanka then?

Thursday, 10 September 2009

Big trouble in Indochina

Cambodia's mobile operators are in for some serious wrangling and the country's consumers are in for some serious savings - for now, at least.

A week ago, courtesy of Cellular News, I learned that the southeast Asian country's cellcos have been at odds, with one MNO accusing another of offering loss-leading tariffs. The alleged offender is Sotelco, which is backed by Vimpelcom and which operates under the same Beeline brand familiar to mobile users in the CIS markets of Russia, Kazakhstan, Ukraine, Uzbekistan, Tajikistan, Georgia and Armenia. Making the accusations, according to a TeleGeography article on the same story, is Mark Hanna, CFO of the Royal Group, a Cambodian investment and development company whose assets include a stake in Cellcard, the mobile operator whose large share of the country's cellular market (currently 48.41% according to WCIS) has been steadily eroded by newer entrants over the last couple of years.

The Cambodian mobile market is something of a paradox. One on hand we have boosters such as the Royal Group proclaiming that Cambodia has "a booming economy, second in Asia only to China in double-digit GDP growth" and that it "enjoys a stable political situation, together with the most welcoming and liberal business, investment and trade environment in ASEAN." All of this sounds very attractive. On the other hand, Millicom International Cellular, which owns a majority stake in Cellcard, has opted to quit the Cambodian market, having found the level of competition to be excessive in the country's very crowded mobile sector.

Having written back in July about Millicom's decision to exit this and other Asian markets (also Laos and Sri Lanka), the last I heard was that the company has agreed to sell its stake in Cellcard to the Royal Group. Interest in Millicom's Sri Lankan operation, meanwhile, has been expressed by Indian state owned telco BSNL, which, along with fellow public sector operator MTNL, is also said to be mulling over a 46% stake in pan-MEA giant Zain (of which more here later, no doubt).

Certainly, the intensely competitive battle between Cambodia's nine (!!!) cellcos does seem to be cited as the reason for operators' sliding revenues in the country. One example of this, as reported by Steve Finch of the Phnom Penh Post reported late last month, comes from Axiata-backed Hello. While the Malaysian parent company recorded a 44% rise in net profit overall for Q2 2009, its Cambodia operation suffered from a "challenging" business environment, a recent statement said. According to Axiata, "major operators are facing intense competition on pricing, and new operators are offering free SIM cards and free minutes to capture market share." This has affected Hello to the tune of a 17.4% slide in 2Q 2009 revenues.

While Vimpelcom's operation is just the latest disruptive new entrant, this blog has discussed similar tactics on the part of another latecomer, Metfone, a subsidiary of Viettel, an operator from neighbouring Vietnam. Since its launch late last year, the Vietnamese-backed cellco has carved out an impressive 11.66% share of the Cambodian mobile subs market according to WCIS. Last time I covered this, it was stated that Metfone's market share was 17.47% - so I think the good people at WCIS have revised some of their June 2009 figures for Cambodia, doubtless in line with more recently received market intelligence. The lower figure, though, is still very solid. So I stand by the remark I made back in July about there probably not being many precedents worldwide for an operator making such a strong impact so quickly in such an already-congested market.

As discussed here before, Metfone has rapidly built a customer base through the distribution of free SIM cards and airtime, as bemoned by the good folks at Axiata. Further, and as I discussed in a March article on the links between telcos in countries with left-of-centre government and/or centrally planned economies, Viettel Deputy General Director Nguyen Manh Hung has been quoted as saying that Metfone intends to extend services to Cambodia's lower income groups and thereby "contribute to society." I have taken this to mean that the Vietnamese company, with its roots in the military establishment of a socialist republic, is free to interpret the profit motive rather differently than those of us who are compelled to think of shareholder value when we go to work every day.

I don't know if Metfone's very aggressive pricing is now a thing of the past - but it is Beeline Cambodia's actions that have been making the headlines of late and arousing the ire of the Royal Group.

Last Wednesday, the Phnom Penh Post reported that the Vimpelcom-backed operator had been accused of reneging on a promise to avoid selling services "below the cost of connecting across networks". It seems that while Beeline has ceased to make its controvesial 'Boom' tariff plan available only to new subscribers. The Royal Group's Mark Hanna contends that this violates the agreement Beeline struck with the country's regulator. Beeline Cambodia General Director Gael Campan is unrepentant. The operator sent text messages to all users already signed up for the 'Boom' tariff that the rate would remain "forever". Campan has also argued that it is not selling below cost, and that its pricing policy is little different from a supermarket selling most products for a profit with a number of promotions added to entice customers and build loyalty.

Application forms for Beeline’s Boom tariff. Photo: Sovan Philong, Phnom Penh Post

Campan has made accusations of this own, claiming that Cellcard has limited interconnection between the two networks throughout the heated dispute.

Despite the continuing disagreement, stated last Wednesday's Phnom Penh Post article, Campan has neither threatened legal action nor received word of Cellcard planning a lawsuit. Both sides, however, continues the article, have made claims of legal infringement. While Beeline has accused Cellcard of violating an interconnection contract, interconnection standards and therefore Cambodian regulations by blocking its network, Cellcard accuses Beeline of illegally using its rival's prefixes to get around interconnectivity issues. Hanna said Beeline had "violated national security and the ITU guidelines on the use of mobile prefixes".

Undeterred by criticism from rivals, Beeline Cambodia announced this week that the über-cheap 'Boom' tariff is to be followed with another very aggressive offering. Ith Sothoeuth of the ever-indispensable Phnom Penh Post writes that customers will only be charged for the first minute of any calls they make of up to 15 minutes' duration within the Beeline network. Under the "Super Zero" plan, the per-minute charge will kick in again after 15 minutes, while calls across networks will be charged at USD 0.06 per minute, compared with USD 0.05 per minute at all times on all networks on the controversial "Boom" plan, Beeline Commercial Director Benoin Janin told a press conference last Friday. "Super Zero" SIM cards will cost just USD 0.50 under a promotion running until December 31, though the Super Zero tariff will continue for already-qualified users indefinitely, or until the company changes its pricing policy, reports Sothoeuth.

Beeline's Campan, writes Sothoeuth, also said on Friday that he hopes to resolve the dispute with Cellcard and added that the connectivity issue would not help the Royal Group-controlled MNO in the long run. "It is a very fragmented market right now, and nobody has the majority of subscribers," he said. Cellcard, he continued "is not the biggest part of the market; the majority of subscribers are with the other operators. We want to work with them as much as possible, and if [they do] not want to give their subscribers access to Beeline customers, it's their problem, not ours." Tough talk - although, as we have seen from the WCIS numbers, it's only just about true that Cellcard does not own a majority of subs.

Following earlier musings here about Metfone's pricing and its effects on market value in Cambodia, this latest wrangle strengthens my feeling that the country's mobile scene is surely bound to see some degree of consolidation soon. Observing from an admittedly long distance, I'm inclined to think a competitive war of attrition cannot continue unchecked for very much longer. I wonder what prices Cambodia's mobile users will be paying when the number of service providers shrinks.

Friday, 4 September 2009

India update: loose ends from previous entries

MTS: Russian cellco's Indian operation - world's first CDMA2000 1x Advanced deployment

The time is fast approaching when I'll want to revisit the twists and turns of the much-discussed MTN-Bharti Airtel merger. That mooted deal, though, is by no means the only interesting story on the Indian telecoms scene so in the meantime I'd like to follow up on a number of issues covered in previous articles here.

Early last month, this blog discussed the desire of Scandinavian telecoms firm Telenor firm to secure a controlling interest in the Indian mobile operator in which it is a shareholder. A stumbling block had been the concerns of the country's security agencies, worried about the Norwegian firm's links to Bangladesh and Pakistan, both neighbouring states inside which terrorist attacks on Indian targets have been planned. When DTW last picked up this story, it looked as though a solution might be on offer - in the form of the transaction being approved on the condition that none of the staff who have worked at Telenor's Pakistan operation will be employed in India. Courtesy of India's Economic Times, I learned yesterday that this proposal to allow Telenor to increase its stake in Unitech Wireless has been sent to the Indian cabinet for approval. Doubtless the Norwegian firm will be hopeful of a positive outcome.

Another recent India-focused DTW article explored how the Government's security fears may be set to affect other telecoms businesses. That piece mentioned the case of ByCell, a Russian-backed firm that has been prevented from entering the Indian mobile services market, with security concerns about the company and its shareholders being the deal-breaker.

Now, another Indian telecoms firm with links to Russia is also the subject of worries over foreign ownership rules. Sistema Shyam Teleservice (now branded MTS India), a CDMA cellco in which Russian conglomerate Sistema has a controlling stake, has been asked to seek fresh approval for its wholly-owned subsidiary Shyam Internet Services, an ISP. According to an Economic Times article yesterday, the subsidiary never secured the mandatory Foreign Investment Promotion Board (FIPB) approval.

The article states that the issue came to light when the cellco's ISP subsidiary, which currently offers services only in Rajasthan, sought approval from the Department of Telecommunications (DoT) to be a pan-India player. MTS India has reportedly told the DoT that since FIPB had previously approved Sistema's 74% stake in the company, it was therefore "assumed that this approval covered all wholly-owned subsidiaries." MTS representatives seem to be confident that this issue can be resolved quickly and without much fuss, but it's worth pointing out that this is not the first time the cellco has run into trouble over failure to obtain FIPB clearances.

Early last year, according to the Economic Times piece, Sistema grew its stake in the Indian mobile operator to 73.97% despite only having got FIPB approval for a stake of 51%. This was resolved, but perhaps the Sistema people will be hoping that these trangressions have not tried the patience of the Indian authorities too far.

On the mobile side, MTS India remains a vigorous proponent of CDMA technology as a good fit for the country. On Tuesday, the operator announced its membership of the CDMA Development Group (CDG), the international consortium of CDMA service providers, manufacturers, application developers and content providers whose roles are to ensure interoperability among systems and encourage the adoption of CDMA2000 wireless technology worldwide. The previous day, the cellco had announced its plan to adopt 1X Advanced technology to support its growth plans. An announcement about the completion and publication of specifications for CDMA2000 1x Advanced was only made last month, so MTS India's claim to be the first service provider in the world to offer this "future-ready technology" seems credible.

CDMA2000 1x Advanced is intended to enable best-in-class and simultaneous voice and high speed EV-DO data services. MTS India CEO Vsevolod Rozanov says "with a need to offer uncompromising, seamless call connectivity with fewer call drops, and data services at ever faster speeds, operators are in search of solutions that utilize limited spectrum more efficiently, to be able to support a larger subscriber-base on it. 1X Advanced is designed to meet both these needs and will help MTS to significantly increase its capacity to provide outstandingly clear voice quality to its growing subscriber base."

This operator, then, seems bullish about the prospects for its advanced services. Last month, DTW covered the apparently less successful efforts of India's two major state-owned telecoms businesses to compete in that space. That article noted that both BSNL and MTNL have registered very low subscriber numbers for their 3G offerings, failing to capitalise on the first-mover advantage they should be enjoying - India's private sector mobile operators continue to wait for oft-delayed licence auctions to take place. I am not sure to what degree high handset prices have been a barrier to consumer adoption of the state sector telcos' 3G services - in previous articles here, it has been noted that the two state-owned companies have a rather lower ARPU subscriber base than some of their private sector rivals. If the price of devices is a major stumbling block, MTNL will be hoping that its recently launched own brand 3G handset - priced at around USD 110 - will have a positive impact.

MTNL is also looking to develop its 3G play in partnership with franchisees, whose role will be to acquire, serve and retain customers and provide customer care, according to a Business Standard article of 16th July. Two interested parties have emerged - Virgin Mobile and Spice Group. The former is well known globally for its MVNOs in the UK, Australia, Canada, France, South Africa and the USA. The Virgin Mobile brand has also been present in India for a little while, with services offered via the CDMA and GSM networks of Tata Teleservices.

Whether the franchise route will turn out to be the best way forward for MTNL remains to be seen. The DTW article which covered the public sector telcos failing to sell good numbers of 3G subscriptions also mentioned the criticism BSNL has received for selecting the franchising model for its WiMAX deployment. A vocal critic was the WiMAX Forum's top representative in India, who has asked the telco to consider how much revenue it may be foregoing by employing this approach.

This criticism, then, implies that the franchisee in this arrangement can make a tidy sum. Perhaps with this in mind, and presumably encouraged by its existing arrangement with BSNL, wireless solutions provider Harris Stratex is eyeing a role in MTNL's WiMAX franchisee project, according to Thomas K. Thomas of Business Line, writing recently.

In the case of 3G mobile services, perhaps MTNL's management would be encouraged by how successful Virgin Mobile has been in the UK and be attracted to the idea of working with a company whose brand value can prove very attractive for consumers. That said, in April this blog discussed how much less successful the Virgin Mobile MVNO in South Africa has been. In terms of market maturity (measured by mobile penetration), Virgin Mobile South Africa made its debut rather later than its UK counterpart had done some years before, thereby finding itself needing to win custom away from the incumbent MNOs. I don't have figures to hand, but I daresay that here in the UK, the Virgin-branded MVNO was the first supplier of mobile services to many of the customers it signed up. In India, mobile penetration might look attractively low to Virgin Mobile, causing the group to hopeful about experiencing growth more akin to the UK scenario than the frustrating South African one. I wonder, however, how strong an affinity for the Virgin brand exists in the minds of Indian consumers. Here in the UK, the brand is associated with a plethora of other products and services and its founder, the charismatic Sir Richard Branson, is often described as one of this country's most admired citizens. Does this brand resonate much more strongly here in Britain than, say, India?

It remains to be seen whether these franchising deals or the launch of new devices will do much to improve the fortunes of India's two ailing state sector telcos. For Amit Gupta of telecoms and IT advisory firm Ovum, none of this is as important as the need to privatise both BSNL and MTNL. In a recent opinion piece, he argues that "political intervention, a bureaucratic culture and pre-liberalization mindset are the root causes for BSNL and MTNL’s poor performance". Even with control handed to new investors, argues Gupta, "the challenge to transform BSNL and MTNL from state owned sick companies into customer centric service providers will be daunting". He feels that "due to the size and complexity of these companies, it won't be possible for an outsider to manage change without the cooperation of the existing employees", which could be tricky if we believe the argument that "at the same time, investors will have to cut the flab from a bloated workforce." These concerns notwithstanding, Gupta continues, "privatization is the only economically viable option" if these companies are to be saved from "their eventual demise."

Amit Gupta argues against the value of the Indian Government merely divesting stakes in the two operators while retaining control. He feels that this is inadequate. I imagine, then, that he would warn off any potential bidders for minority stakes in either opco. One such might be the giant US telco AT&T, which is reportedly considering a bid for a chunk of BSNL.

I've written so much about India on this blog since February that I daresay other loose ends from previous entries may need tying up soon. Watch this space. The next article on India may well zero on that mega-merger whose developments have rumbled on all summer.

Belize Telemedia nationalisation: Hayward Charitable Belize Trust responds

It's gratifying to realise that this blog is sometimes read by people within organisations at the centre of the stories covered here. This seems to have been the case with the recent piece on the actions of Belizean Prime Minister Dean Barrow, who has amended his country’s Telecommunications Act, thereby allowing the Government to seize control of the incumbent national telecoms operator Belize Telemedia, with shares to be distributed to domestic investors.

A response to this post has been posted in the comments box on this blog, the layout of which does not really enable readers to find comments easily. I thought it would be the courteous thing, therefore, to present this response in full as a post in its own right. The poster was anonymous, but perhaps we should assume that the person who took the time to offer this response is either an employee of Hayward Charitable Belize Trust or of a PR firm working on that trust's behalf. I'm happy to be corrected by the anonymous poster if this is not the case.

Here is that response in full:


Hayward has noted with great interest the Government's intention to nationalise 94% of Telemedia. The good news is the situation is being crystallised. The bad news is that there will probably now be even more litigation in the future than there has been in the past. This litigation, in both Belize and before an International Arbitration Tribunal, may last for several years but ultimately Hayward is entitled to protection of its interests under international law and it will invoke the Investment Treaty between the United Kingdom and Belize to ensure that it is afforded such protection.

A few facts first: Hayward indirectly owns approximately 70% of Telemedia. Hayward is a charitable trust set up to acquire Telemedia shares formerly held by Mr. Jeffrey Prosser. The beneficiaries of this trust are social and charitable causes. In other words, any profits made by Hayward on a sale of Telemedia after repaying debts would be given to support the charitable works of many hard working but underfunded charities.

The employees of Telemedia own around 23% of their company. The Government intends to nationalise these shares as well. The trust formed to acquire these shares borrowed US$10m from private sector lenders and BZ$20m from the Social Security Board and the Government. It is imperative that the employees receive full value for their shares in order to pay-off these debts and to make the rewards they deserve for all their efforts in keeping Telemedia one of the best run companies in Belize while enduring continued hostile actions by the Government. The employees must not be caught in the middle of the crossfire and must be treated fairly.

The balance of the shares are still held by about 800 small shareholders who have unfairly been excluded from the nationalisation. They should be given the opportunity to sell their shares at the full compensation valuation and should they wish to, participate in any future flotation, at what will be, more likely than not, a lower share purchase price.

Now to the history of Hayward: if you listen to the Government you would believe that Lord Ashcroft has personally something to gain here. He does not. He has no economic interest at all in Telemedia as the above analysis of shareholdings indicates. So most of what was said in the House by the Government was simply untrue. No doubt he will express his views on this in due course.

When Mr. Prosser, as the then majority shareholder in Telemedia, led the Government a merry dance they turned to Lord Ashcroft to find a solution to put an end to the complex litigation that they had got themselves into. Lord Ashcroft did not want to own Telemedia again and felt that there was an opportunity to make Telemedia an entity in which charities and employees could benefit. He used his skills over a long period of both time and attrition to achieve this objective. The principle terms of the Accommodation Agreement (which the London Court of International Arbitration has already ruled is both legal and binding on the Government) were substantially those that the Government had already granted to Mr. Prosser. The difference was that the fruits of the Agreement rested with charities and employees and not Mr. Prosser.

In 2008 when a respected international telecoms operator completed full due diligence on Telemedia and made a written offer which valued the entire share capital of Telemedia in excess of US$300m. This will form the starting point in the valuation of the shares being seized by the Government in a manner which will not impress those that do business with Belize.

Telemedia has been advised that the nationalisation is both illegal and unconstitutional. This assertion will be tested through the Courts. Hayward is now only interested in ensuring that the charities it was set up to help, the 450 employees of Telemedia and the 800 or so small shareholders receive full and lawful compensation.