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

Tuesday, 27 October 2009

Knocked back in Sri Lanka, India's state sector telcos continue to eye international expansion opportunities

BSNL: global ambitions?

DevelopingTelecomsWatch has followed, with some interest, suggestions that India's two major state sector telecoms operators - BSNL and MTNL - might be aiming to become international players.

In September, this blog went on a meandering tour of emerging markets M&A rumours, during which it was mentioned that BSNL's bid for Millicom International Cellular's Sri Lankan MNO had been unsuccessful. Tigo Sri Lanka, as reported more recently here, was eventually acquired by Etisalat of the UAE, in a move which prompted some analysts to express fear for the profitability of the island nation's other mobile operators. These commentators have noted that Etisalat tends to compete fiercely on price when coming late to a cellular market.

In the same September M&A tour, DTW also quoted industry watchers who were warning both BSNL and MTNL to steer clear of reported attempts to acquire a stake in Kuwaiti-owned pan-MEA mobile group Zain. A Mint article by Shauvik Ghosh was referenced, in which an anonymous analyst said that BSNL would be advised not to purchase a stake in Zain. "BSNL has a lot of cash on its books but it lacks the ability to execute," said the mystery man. Not shy of the odd split infinitive, the unknown analyst said "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." A previous DTW article discussed at some length the view that the two public sector telcos have perhaps not yet demonstrated that ability to "execute in India" to anything like a satisfactory degree.

There is evidence, though, from as recently as mid-October, that BSNL and MTNL have not been deterred by such criticism and that the two companies continues to investigate both the Zain opportunity and other potential foreign adventures.

Writing on 15th October
, Mansi Taneja of the Business Standard reports that a consortium led by Delhi-based Vavasi Group is in discussions with both BSNL MTNL for a majority stake in a special purpose vehicle that is being formed for a bid for Zain.

Taneja quotes "a top source close to the consortium" who has said: "Our talks with BSNL and MTNL are on track, but we don’t have any exclusivity contract with them. We are also holding informal discussions with other telecom companies, including China Mobile, in case talks with BSNL and MTNL do not fructify."

(note to self: attempt to use the word 'fructify' in conversation this week)

Is it unfair on the two Indian operators to venture the suggestion that the giant Chinese cellco might be a far more powerful player to have involved in an audacious bid to acquire operations and subscribers across Africa and the Middle East? Way back in 2002, the Chinese operator stole Vodafone's crown as the world's leading mobile operator in terms of subscriber numbers. Vodafone was subsequently seen to stake out its credentials as the world's largest cellco by revenues. Finally, in September this year, this accolade was also swiped by China Mobile.

If the Vavasi Group does turn out to be more impressed by the credential of the world's most gigantically-huge-mobile-operator-by-every-measurement-ever than by what BSNL and MTNL can bring to a bid for Zain, where else might the two Indian operators look for overseas growth opportunities?

One possibility, again aired by the indispensable Business Standard, is a much more modest foray into Africa, namely the acquisition of a majority stake in Zamtel, the state-owned incumbent telco of Zambia, which competes in the mobile space and is the monopoly fixed-line operator. On 15th September, the Government of the landlocked southern African country announced its intention to part-privatise the telco through the sale of up to 75% of the company’s equity. Industry watchers Buddecomm, in their Zambia profile, describe the country's wireline infrastructure as "at a very low level of development, which in turn has impeded growth in the Internet sector." Zamtel's monopoly in this space is set to be threatened, continues the Buddecomm profile, which notes that "the country’s ISPs are rolling out wireless broadband networks, which will also position them as competitors in the telecoms sector once VoIP is fully liberalised", something which is meant to be "a key component in Zambia's new ICT Policy."

The Zambia Development Agency (ZDA) makes a more upbeat assessment of the Zamtel fixed network, claiming that it connects all major population centres and is undergoing a substantial upgrade, with over 80% of switching infrastructure now digital, and DSL capacity being rolled out. The ZDA claims that Zamtel’s primary fixed-wireless network is also being upgraded and expanded, with coverage and capacity expected to more than double within the next twelve months. Zamtel’s secondary fixed-wireless network, based on WIMAX technology, is designed to cover the whole of metropolitan Lusaka, and is scheduled to go live during 2010, says the ZDA.

In the mobile space, Zamtel lags a long way behind its competitors in terms of market share. The stats, estimated for September 2009 by WCIS look like this:
  1. Zain Zambia - 72.17%
  2. MTN Zambia - 23.12%
  3. Zamtel - 4.71%
Zamtel, then, is struggling to compete effectively against two of Africa's leading mobile groups. There is, however, room for all competitors to grow, with Zambia's mobile penetration rate currently standing at just under 33% according to WCIS. Whether BSNL and MTNL are ideally suited to improving the fortunes of the company, however, could be questioned in light of some of the criticisms aired here about their performance in their home market of India. According to the Business Standard, the two public sector telcos are joined by seven other companies or consortia from in having successfully prequalified to participate in a bid for Zamtel.

Should both the relatively modest aspiration of buying control of Zambia's incumbent operator and the rather more grand designs on Zain both come to nought, MTNL and BSNL do appear to have ambitions to establish a presence in other regions.

Again, I am indebted to India's Business Standard for an update. According to an article of October 23rd, the two operators, along with the Vavasi Group, are planning to set up new operations in Russian and western Europe.

Under this deal, the article states, Vavasi "is acquiring frequency spectrum and licences for Russia and several western European countries" and "the same [special purpose vehicle] that is being formed to acquire a majority stake in Zain will be used to invest in the Russian operations."

Confirming the development, a senior Vavasi executive is quoted as having said: "We are in the process of acquiring a licence for the new generation (NG)-1 technology and have applied in Russia and four other European countries."

This is where I betray the fact that I am not an engineer by wondering about this "NG-1 technology". What is it? The Business Standard article claims that "NG-1 technology is an alternative to GSM and CDMA and was developed in the US universities" and that "Vavasi claims that the network needs lower capital expenditure as well as operating expenses."

I'll hold my hands up. This is a new one on me.

An inspection of the Vavasi website reveals that NG-1 is a proprietary wireless access technology the company has developed itself and which it claims "understands the need of both rural and urban areas". Impressive sounding claims are also made for the spectrum efficiency and eco-friendly credentials of the technology.

NG-1 sounds wonderful - but can proprietary kit from India really prevail against global standards such as WiMAX, HSPA and LTE?

Some grand claims, then, are being made about the ambitions of India's two major state sector telecoms companies. Some of these claims seem to be articulated rather more loudly by the Vavasi Group than by the telcos themselves. I wonder how much there is in all of this. Can two operators that have attracted much criticism in their home market really be set to emerge as global players?


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Monday, 26 October 2009

CIS: Belarus set for 3G while Ukraine faces delays?

President vs. Prime Minister: 3G licence auctions to be a casualty of political strife?

Political squabbling and paralysed decision-making now looks set to stymie the development of 3G mobile services in of one of Europe's worst-performing economies.

According to a WCIS estimate, there are just 250,000 W-CDMA subscriptions in Ukraine, whose total number of mobile subs stands at around 50.7 million. Just one UMTS licence has so far been awarded in the country, and the very low take-up of 3G services probably has a lot to do with the fact that the lone licensee is not one of the leading mobile operators best-equipped to maximise the value of the technology.

Instead, the single 3G licence was given to state-owned incumbent fixed-line operator Ukrtelecom in late 2005. The use of the word 'given' is quite deliberate here - only one licence was issued and this was handed to Ukrtelecom without a tender, a move which predictably caused consternation on the part of Ukraine's two leading MNOs. It was thought at the time that the point of giving the concession to the public sector telco was to make it a more desirable proposition for potential investors ahead of a planned privatisation. Nearly four years later, Ukrtelecom is still in state hands.

As recently as February this year, the Global Mobile Daily service from Informa Telecoms & Media reported that Turkcell was interested in the Ukrainian incumbent wireline operator. The Turkish cellco has already established a presence in Ukraine via its controlling stake in Life:), the country's third largest mobile operator by subcribers. I have read or heard nothing since then about the Turkish company's plans to purchase Ukrtelecom so I have to assume that this interest came to nothing. Perhaps a well-informed reader could comment.

With Ukrtelecom having failed to make 3G services a truly mass-market proposition, and mobile penetration having passed the 100% mark some time ago, the telco's private sector rivals were presumably looking forward to the opportunity to grow revenues by offering mobile broadband services. The chance to do so, however, now looks in doubt, as Sabina Zawadzki of Reuters wrote last week.

This is because the Ukrainian President, Viktor Yushchenko, has overturned a Government decision to allocate radio spectrum resources for mobile phone network use, thereby casting doubt on a 3G licence tender scheduled for next month.

Things certainly move fast in the East European country. It was only late last month that Ukraine's National Communications Regulatory Commission announced plans to sell a single 3G licence.

The President's decree, referring to the spectrum's use by the military, cited the need to saferguard Ukraine's defensive capabilities.

This could, of course, be a quite genuine concern on the part of Mr. Yushchenko. Those who watch the country's political scene, however, could be forgiven for wondering if the 3G auction might really be a casualty of the poor relations between Yushchenko and Ukraine's Prime Minister, Yulia Tymoshenko, a former ally of the President.

Ms. Tymoshenko and Mr. Yushchenko have not seen eye-to-eye for some time, with their difficult relationship characterised by some uncomfortable clashes. In August 2008, for example, the President's office accused Ms. Tymoshenko of betraying national interests by not backing Georgia in its conflict with Russia. In January this year, when Russian gas reached Europe via Ukraine after a two week interruption of supplies, Yushchenko said the deal clinched by Tymoshenko was a "defeat." Moscow and Kiev had been locked in a prices and debt row that cut supplies to about 20 European countries. As this year unfolded, the Ukrainian Parliament Parliament sacked Foreign Minister Volodymyr Ohryzko, a Yushchenko ally, citing his aggresive stance against Russia, and dismissed another Yushchenko ally, Defence Minister Yuri Yekhanurov, over allegations of corruption in his Ministry.

With this strife in the background, there exist precedents for Mr. Yushchenko blocking proposed transactions favoured by Ms. Tymoshenko's Government. Last month, for example, he halted the privatisation of the Odessa Port plant two weeks before its auction.

Yushchenko and Tymoshenko are both expected to run in a presidential election on 17th January, with polls showing the PM would face former premier Viktor Yanukovich in a second round. Yushchenko's popularity ratings are apparently in single digits.

Perhaps this process will need to play out before Ukraine's mobile operators can expect to get their hands on 3G licences.

MNOs in neighbouring Belarus, meanwhile, have received more positive news about the prospects for mobile broadband there. To date, only second generation mobile services are available from the country's four cellcos. The third-placed player (by market share), BeST, formerly a state-owned company 80% of which was acquired by Turkcell in 2008, in July awarded Chinese vendor ZTE a contract to build a new UMTS network. This followed the allocation of suitable spectrum to BeST by the State Commission for Radio Frequencies (SCRF). Since the takeover by the Turkish MNO, BeST has adopted the same Life:) branding as the Turkcell-controlled operator in Ukraine.

Now, according to the Belarusian Telegraph Agency, a working group for the SCRF is supporting the initiative of the Information Technologies and Communications Ministry to allocate UMTS radio bands to MTS (owned by the giant Russian cellco of the same name) and Velcom, which is controlled by the mobilkom austria group.

My understanding is that both Belarus and Ukraine have the somewhat underdeveloped wireline infrastructure which can offer good opportunities for mobile operators to grow wireless broadband revenues. Whether the economic conditions in both countries will allow for really strong mobile broadband growth, though, remains to be seen. With licensing delays in Ukraine, perhaps it is in Belarus that industry watchers will get the earlier opportunity to track the customer adoption of 3G services in this part of the world.


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Thursday, 22 October 2009

Sri Lanka: Etisalat entry to drive even fiercer price competition?

Etisalat: set to make life hard for Sri Lanka's cellcos?

This blog has recently taken an interest in the fate of the three Asian mobile operations put up for sale by Millicom International Cellular.

Late last month, as noted here, the global emerging markets player sold its 78% stake in Tigo Laos to Russia's Vimpelcom. Prior to that, DevelopingTelecomsWatch had noticed the sale of Millicom's stake in Cambodian cellco Cellcard to the Royal Group, a fellow shareholder in that operation.

This just left Tigo Sri Lanka unsold.

The Sri Lankan mobile market is currently contested by that operation and four other MNOs. In terms of the operators' shares of the country's estimated 13.6 million subscribers (according to WCIS), the competitors are ranked as follows:
  1. Dialog Telkom - 46.33%
  2. Mobitel - 24.14%
  3. Tigo Sri Lanka - 17.44%
  4. Bharti Airtel Sri Lanka - 9.46%
  5. Hutch Sri Lanka - 2.63%
The last time DTW offered an opinion about how this competitive landscape might change, perhaps too much was made of the likelihood of the number of operators consolidating down to four. No very sophisticated analysis was made, nor any inside information sought. It was simply the case that the prospective purchasers of Tigo Sri Lanka getting the most media coverage at the time were companies already active in the island nation. I had noted, for example, that Bharti Airtel was rumoured to be interested in snapping up Millicom's operation there, having read an article by R. Jai Krishna of the Wall Street Journal which reported comments from an unnamed person close to the development. Suggesting that any deal would be worth USD 100-120 million, that mystery source had 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.

This has came to nought, however. The happy new owner of Tigo Sri Lanka is none other than Etisalat of the UAE.

Commenting on this latest purchase, Etisalat Chairman, Mohammed Hassan Omran said: "This new acquisition is a clear example of Etisalat’s international investments strategy of seizing distinctive growth opportunities and maximizing value to shareholders."

He added: "Entering the Sri Lankan telecom market is a logical addition to our interests in the Asia continent. The acquisition promises attractive returns as the Sri Lankan Government is increasing its effort to promote foreign investment in all sectors. The acquisition is of a mature operator with a strong reputation for its good network and quality of service. It also offers great opportunities for synergy with our other operations in the region, particularly in the UAE, Saudi Arabia and India. We also plan to invest in this company to ensure that it has the dynamism to take the leading position in the market in the next few years and that it continues its effective role in the development and growth of the telecommunications sector in Sri Lanka."

How far, then, will this transaction affect the Sri Lankan mobile market? Shortly after it was announced, Fitch Ratings reacted with a gloomy prediction, stating that the entry of Etisalat into Sri Lanka could further delay any prospects for recovery in the country's operators' profitability.

The ratings agency's statement notes that price competition in Sri Lanka has led to a rapid deterioration of tariffs over the last four years, weakening the profitability of the operators, especially in the wake of the licensing of the Bharti Airtel-owned fifth entrant in 2007.

Fitch notes that Etisalat has tended to enter other new markets late in the race and has generally pursued a course of aggressively challenging established operators. "If Etisalat's track record is anything to go by, it is possible that it may invest heavily to acquire more market share in Sri Lanka, which will intensify the challenges facing other operators," says Buddhika Piyasena, Director of Fitch's Asia-Pacific Corporates team. Certainly, I recall a conversation a few months ago with the marketing director of one of Afghanistan's cellcos. He spoke about how the arrival of the the Etisalat-owned operator in that market had caused the price of a voice minute to tumble, with the country's nascent regulatory regime offering little by way of protection for the longer-established players.

Fitch contends that something similar could easily unfold in Sri Lanka, where "apart from lax regulation, a major reason for the heavy price-based competition... is the absence of a framework that requires mobile operators to pay other networks for interconnection." The ratings agency argues that this allowed Bharti Airtel, which has "limited coverage", to challenge other operators to the point where a full scale price war resulted. As Fitch notes, a revision to the interconnection framework is currently on the telecom regulator's agenda. When implemented in 2010, Fitch expects this to ease further pressure on tariffs.

According to Fitch, however, operators may see subscriber acquisition and retention costs - including handset subsidies, and subsidised starter packs - increasing with competition intensifying for market share.

Fitch is also of the view that a higher level of regulatory oversight over the competitive practices of operators and some intervention on tariffs is required to ensure the financial health of the industry.

Etisalat has made this latest acquisition against a background of mostly positive coverage about the group's prospects. While Q3 revenue fell slightly vs. the same quarter last year, the company posted a 5% improvement in net profit.

Also encouraging is the performance of Mobily, the Saudi MNO in which Etisalat has a 27% stake. Q3 profits were up 49.7%, vs. Q3 2008, beating the most optimistic forecasts by about 10%.

Etisalat, then, is well-placed to compete extremely aggressively in Sri Lanka. Industry watchers will doubtless be interested to observe how seriously this affects the profitability of its competitors there.
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Saturday, 10 October 2009

Event preview: Africa's telecoms bigwigs to gather in Cape Town, 11-12 November

That DevelopingTelecomsWatch has featured so many articles about African markets suggests that 2009 has been an eventful year for the telecoms sector in that part of the world.

Certainly, in terms of mobile subscriptions, this has been another year of high growth rates. A reading of the brochure for next month's Africa Com Congress and Exhibition in Cape Town is instructive. Accompanying the booking information and conference agenda is a neat summary of market data from the region. One soundbite: the continent passed the 400 million mobile subscriptions mark in 2Q09 and Informa Telecoms & Media (the event's organisers) tip subscriptions to rise to over 480 million by end 2009 and over 700 million by 2012.

Naturally, growth this impressive is only possible in under-penetrated regions - and Africa remains the world's least mature continental market. The world's regions, when arranged in descending order of penetration rate currently look like this, according to WCIS:
  1. Eastern Europe: 118.18%
  2. Western Europe: 117.97%
  3. USA/Canada: 88.40%
  4. Latin America/Caribbean: 84.56%
  5. Middle East: 74.75%
  6. Asia-Pacific: 52.19%
  7. Africa: 42.77%
This is not to suggest, however, that a rich seam of greenfield investment opportunities necessarily remains under-exploited in Africa. While vast numbers of people have yet to enjoy the benefits of mobile communications, and while the socio-economic benefits of connecting these people have been widely discussed, telcos seeking to address these needs will face numerous challenges.

Not the least of these is the fact that mobile ARPU across the continent, which was already low in 2008, has continued to decline as operators' customer bases expand to include ever less affluent population segments.

In Informa's African mobile market update, 2Q09, Thecla Mbongue notes that pan-African ARPU was USD 9.70, down from USD12 in 2Q08. Orange Kenya posted monthly ARPU of just USD 2.0 in 2Q09, claiming the possibly dubious honour of the lowest figure on record from any African operator.

Surely it is no easy task to extract profits from such markets at a level consistent with the demands of telcos' shareholders. So much so, that this was cited by some observers as a possible explanation for this summer's speculation about Kuwaiti group Zain seeking to sell its African operations to one of a series of rumoured purchasers.

Back in July, at the height of the chattering about this possible transaction, Informa's Matt Reed observed that "although Africa offers opportunities, it is difficult territory in which to operate." Matt pointed out that Zain’s African operations contribute almost half of the group's total revenues and accounted for 40.07 million of the group’s 64.66 million subscriptions at the end of 1Q09; but, as Matt noted, seven of the fifteen Zain units in sub-Saharan Africa made a net loss in 1Q09 while some of the group's Middle East units recorded substantial profits. While Zain Nigeria generated the largest revenue in 1Q09, the group’s second, third, fourth and fifth-largest revenues were recorded by Middle East units: Iraq, Kuwait, Sudan (counted as a ME market by Zain) and Jordan, respectively.

This all begs the question of whether Zain will stick or twist in Africa. Participants at next month's 12th annual Africa Com will doubtless be keen to draw an answer from a man who is well placed to deliver it - Chris Gabriel, CEO of the Kuwaiti group's African operations. Gabriel is profiled as something of a star turn by the organisers, cropping up with supportive quotes about the value of this growing and evolving meeting place for all those who do business in Africa's telecoms sector. At the conference itself, the Zain Africa CEO will enjoy the limelight afforded to him as Keynote speaker, opening proceedings with an update on his company's strategy and on how Zain is adapting to new market conditions. Should we assume, then, even in the context of the recent widespread speculation about the future of Zain, that the group's African operations will not be closer to changing hands by the opening day of the conference in Cape Town? After all, Zain's having committed a senior executive to making a keynote address in front of what is tipped to be a record-breaking crowd rather suggests that the group wishes to radiate confidence about its assured and continued position in the African telecoms landscape.

In this context of low ARPU and markets in which it can be relatively challenging to generate healthy profits, how should telcos design effective strategies?

The market information text component of the Africa Com brochure continues by offering the view that investors "are increasingly targeting networks offering potential in the data segment." MTN, for example acquired Arobase Telecom, the most significant challenger to the France Telecom-owned incumbent fixed-line operator in Côte d'Ivoire. The company has signed a concession agreement with that country's government, allowing it to offer data services over fibre and CDMA WLL.

This push into data services notwithstanding, Africa's low overall mobile penetration does mean that operators will need to expand their networks further into rural - and less profitable – areas, as the Africa Com market information text goes on to explain.

With conference tickets and exhibition space to shift, the Informa marketers are to be commended for eschewing the use of unrealistically gung ho language and for noting how the economic downturn has affected the availability of financing. They have resisted the temptation to say "business is booming so rush to our show to grab a slice of the action."

Also to be applauded, however, is the way in which the conference team have foregrounded the opportunities rather than the problems presented by this tough climate. For example, the event features a breakout session on how telcos can cut operating expenses by migrating towards having their networks managed by vendors.

In the plenary sessions next month, Chris Gabriel is just one of a long list of high-profile speakers with whom delegates will get the opportunity to engage.

Another is Nagi Abboud, the recently-appointed CEO of Atlantique Telecom, the African mobile group known for its Moov brand and in which the UAE's Etisalat holds a controlling stake. The group has operations in markets including Benin, Burkina Faso, Niger, the Central African Republic, and Côte d'Ivoire.

Mr Abboud is among a number of speakers who will be interviewed by the conference chairperson rather than being asked to run a slideshow and make a carefully scripted presentation. This should liven up the proceedings. However hard the organisers strive to avoid it, slow death by PowerPoint can be a feature of events of this kind, so these tweaks to the format are sure to be welcomed by the delegates looking to do business around the conference and exhibition.

Atlantique Telecom's Abboud could be asked any number of searching questions. Among these, it might be interesting to include some which zero in on the challenges his organisation faces across the Francophone markets in which it operates. In Togo this year, for example, the Moov-branded MNO was threatened with suspension of its services by the country's Ministry of Post and Telecommunications for supposedly operating without legal authorisation since 2008.

Another challenge for operators has been the willingness of regulatory agencies in some countries to license the entry of new competitors, even in quite small markets already contested by a good number of players. For Atlantique Telecom, this has been the case in Gabon, where, in February, the authorites sold a 15-year mobile operating licence to Bahraini company Bintel.

In March, DevelopingTelecomsWatch pondered the question of whether the Gabonese market had room for this new entrant. With an estimated population of just 1.5 million, mused the DTW article, could Gabon support four profitable mobile operators? On the plus side, the article argued, abundant natural resources and healthy levels of foreign investment have helped make Gabon one of the most prosperous countries in the region, with the highest Human Development Index score in Sub-Saharan Africa. This relative prosperity, however, which sounds good in terms of ARPU potential, meant that the new entrant will made its debut well after the subscriber gold rush: mobile penetration in Gabon stands at over 100%, according to WCIS. So a question the Africa Com chairperson might direct towards Nagi Abboud could be to ask how disruptive he expects this late market entrant to be in the coming months. After all, to make an impact in this rather congested space, surely Bintel's Azure-branded operation will need to entice customers away from the incumbent networks with very compelling offers.

Also set to be interviewed at the conference are:
  • Themba Khumalo, the CEO of MTN Uganda, an operator that has enjoyed notable success in the area of extending the availability of services to previously under-served regions and population segments
  • Ken Aigbinode, the Executive Vice Chairman of ZOOMmobile of Nigeria, one of several CDMA network operators competing against the GSM-standard heavyweights of Zain, MTN and Globacom.
French interests are also well-represented at this year's Africa Com. Regis Turrini will be speaking on behalf of telecoms and media conglomerate Vivendi, which has a controlling interest in Maroc Telecom, which in turn controls operations in Burkina Faso, Gabon and Mauritania. Mr Turrini, the group's Senior Executive Vice President of Strategy and Development, will doubtless have to field questions about his company's plans for Africa. Having expressed an interest in Zain's African portfolio earlier this year, Vivendi has more recently turned its attention to Brazil, where it faces a tussle with Telefónica and Telmex for control of GVT, a fixed-line operator. Does this signal an end to the French group's further expansion in Africa?

One French group which already has a very significant African footprint is France Telecom/Orange, whose emerging markets bigwig Marc Rennard will speak about where the group might look for further growth opportunities.

Expect another busy conference and exhibition in Cape Town this year. Well worth the visit for those of you doing business with a diverse range of telecoms operators from across Africa.
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Friday, 9 October 2009

Quick march! Military men storm the telecoms sector

Iran's Mohammad Ali Jafari: Guardian of the Revolution... and telecoms tycoon?

Last week, Nugon Sovan of the Phnom Penh Post reported that the Cambodian Government is set to list three state-owned companies on the country's planned stock exchange. The three enterprises for which IPO preparations are underway are the Phnom Penh Water Supply Authority, Sihanoukville Autonomous Port and Telecom Cambodia, the country's incumbent fixed-line operator. Attracting investment to the latter company is certainly a pressing matter if the Hun Sen Government is serious about improving what I understand to be very underdeveloped wireline infrastructure.

The southeast Asian country has certainly enjoyed something of a cellular boom, with mobile penetration currently standing at 34.23%, according to WCIS. This is up from 23.54% in September 2008 and 14.86% a year before that. In contrast, fixed-line services have not been developed with anything like as much enthusiasm. The 2008 country profile from industry watchers Buddecomm has this to say: "fixed-line services [have] flattened out at around 42,000 [lines] with no sign of any revival in interest in this segment of the market." The report also contends that Internet penetration has remained particularly low, one of the biggest inhibitors to Internet growth in the country being the high cost of online access in comparison to other countries in the region.

One intention for the telco's IPO, then, must be to extend the reach of the Telecom Cambodia network and broaden the range of services available in the country. That will not happen right away, however, because a September 2009 target for launching the new Cambodian bourse has passed without construction of the planned stock market building getting underway.

Jason Szep of Reuters, writing on Sunday, reports that the global financial crisis intervened to delay the Cambodian Government's plans, ending an unprecedented boom which had seen the country's economy expand 10% annually in the five years up to 2008. Foreign investment collapsed, writes Szep, with tourist arrivals falling by double digits and garment exports, a mainstay of the economy, shrinking by 15%. Now, officials seem confident that these difficulties will soon have abated sufficiently for the bourse construction project to get back on track. "We want to do it next year," Mey Vann, director of the financial industry department at Cambodia's Ministry of Economy and Finance, said in an interview. "It'll be good timing for us with the economic recovery."

Plans for the new stock exchange seem to be quite modest. As Szep reports, the exchange expects to start small with just four or five companies issuing about USD 10 million worth of shares each. Contrast this with the experience of neighbouring Vietnam, whose first stock market launched in 2000 with an initial market capitalisation of USD 43 million, according to Szep. From tiny acorns, reasonably large oaks can grow, however. Perhaps the Cambodian Government will take some encouragement from the fact that today, Vietnam's market is worth USD 27 billion.

Yet, writes Szep, there are risks to Cambodian investors - "in Vietnam, most of the investors were local, often unaware of the risks, and many were burned as the market steered a rollercoaster course. Meanwhile, foreign investors largely sought to dip into the potential high returns of an emerging frontier market while hedging their bets with a highly diversified portfolio."

As in Vietnam, Szep continues, Cambodia is giving state companies priority with a place to sell stock. However, the reaction from inside the companies set to be privatised is not universally positive.

"We don't have any financial constraints. I don't understand the reasons we are going to be listed," said Ek Sonn Chan, who runs the Phnom Penh Water Supply Authority, which employs about 600 people, has about USD 200 million in assets and generates about USD 25 million in annual revenue. He said the company is profitable."If we become a public company, maybe we are more responsible, more transparent and maybe we can help the government allocate financial support to our company. But in the meantime, we don't know much about how it happens. It's very new to Cambodia, very new to me," he said.

I am not aware of any views - positive or negative - being expressed by the current management of Telecom Cambodia about next year's IPO. As Jason Szep writes, though, there does exist the view that the timing of the planned launch of the country's bourse may not be right for some time. Foreign direct investment nearly halved to an estimated USD 490 million from USD 815 million in 2008, writes Szep, who also reports that the International Monetary Fund expects Cambodia's economy to shrink nearly 3% this year before growing about 4% next year.

It seems that it will be in 2010, then, that we should watch for signs of Cambodia's fixed telephony and Internet segments beginning to enjoy the early stages of new growth. Whether this will ever be anything like as impressive as the growth of mobile services remains to be seen. I certainly doubt that the wireline space will, in the near future, be contested by anything like as many players as the mobile market, which, as I've stated here numerous times, has no fewer than nine cellcos jockeying for position. Again, let me take the opportunity to opine that while a good number of MNOs competing on price and innovation are needed to drive the growth of any cellular market, Cambodia seems to be a place were the level of competition may actually be excessive. I've repeated here (almost ad nauseum for regular readers, perhaps) that the aggressive pricing by the likes of Metfone and Vimpelcom-backed Beeline Cambodia has been cited as the reason for global emerging markets player Millicom International Cellular quitting the country.

Another matter given a fair amount of space here has been the fact that the first of those two disruptive later market entrants is backed by a company owned by the military establishment of Vietnam. At risk of excessive repetition, I'll say again that an army-owned cellco from a communist, centrally planned economy is surely not under the same kind of obligations to return profits for shareholders as is the case for its competitors. This affords the operator the possibility of building a mission around extending the availability of services to more remote regions and less affluent people, as Viettel-owned Metfone seems to have done in Cambodia.

Perhaps encouraged by how successful this has been, Viettel is now reportedly keen to buy a stake in Teletalk, a state-ownd GSM operator in Bangladesh, according to a recent Cellular News article.

Teletalk has not carved out a significant chunk of the Bangladesh mobile market. According to WCIS, it is currently estimated to own just 2.31% of the country's 48.7 million subscriptions. However, with mobile penetration at under 30% in the densely populated south Asian country, a nice growth opportunity may exist for any company acquiring the public sector MNO and somehow improving its performance. If Viettel prevails in its bid and is similarly successful in growing the customer base through the application of the same low-price approach used in Cambodia, perhaps a major shake up will affect the Bangladeshi market, where change of some kind has seemingly been on the cards for a while.

Back in July, in an article which was mainly focused on Millicom's exit from Cambodia and two other Asian Markets, I also mentioned that Aktel (an Axiata/NTT DoCoMo joint venture) was rumoured to be in merger talks with Orascom Telecom-backed Banglalink, whose CEO Ahmed Abou Doma had explained in a statement that apart from market-leading 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 was "considering many strategies of which consolidation is an option."

Here, then, we have another market in which the room for growth implied by quite low mobile penetration (29.58% in Bangladesh) does not necessarily mean that a licence to operate a mobile network is also the proverbial licence to print money. If Viettel's bid is successful and if the Cambodian example is instructive, perhaps the likes of Mr Doma at Banglalink are about to find that things are about to get even tougher.

So, the Vietnamese army may be set to march into another market and inflict damage on more private sector telecoms operators.

This meandering article will conclude with the observation that Southeast Asia is not the only battle zone for military men with an eye on the telecoms market.

Another is at the western edge of Asia, where, in Iran, the state-owned incumbent fixed-line telecoms operator, TCI has been the subject of a fairly exotic form of 'privatisation'. A 51% stake in the company has been acquired by a consortium controlled by the Islamic Republic's Revolutionary Guards, a move which, according to the Guardian newspaper, is "fuelling suspicions that the organisation is quietly staging a military takeover." The Guardian article also mentions claims that a rival enterprise had been unfairly excluded from the bidding process because it lacked appropriate "security qualifications".

Also reported are warnings from critics who worry that the deal "exposes ordinary people, especially political activists, to intensified spying and electronic surveillance." The article goes on to report that this news came days after the governor of Iran's central bank, Mahmoud Bahmani, announced that a finance company owned by the Revolutionary Guards, the Ansar Institute, had been cleared to become a fully fledged bank.

The Revolutionary Guards, formed in 1979 to safeguard the Islamic revolution, writes the Guardian's Robert Tait, have built a financial empire with interests including oil and gas fields, airports and eye and dental clinics during the presidency of Mahmoud Ahmadinejad, himself a former member. Tait writes that this "empire" has been awarded lucrative building and engineering contracts "and is thought to control the smuggling of contraband into Iran."

The telecoms takeover, reports Tait, has provoked accusations that the Government's privatisation programme – required under Iran's constitution – is a sham designed to sell state assets to the Revolutionary Guards.

Journalist Mohammad Nourizad has warned that the Guards' control of TCI would be used to step up monitoring of the Government's opponents, Tait reports.

"Getting access to telecommunications management has always been vital for the security requirements of the Revolutionary Guards and the iron men behind the scenes," Nourizad wrote in a blog. "It means control over the country's entire telecommunications system, including landline telephones, mobiles, text messages, the internet and any other stuff linked to telecommunications. After that, it's a piece of cake … to trace people."

Scary stuff, if true.

At ease. Dis-MISS.
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Thursday, 8 October 2009

Connecting DTW to rivers of related content

I am always pleased when a reader of this blog takes the time to indicate that some of what is shared here has been useful. From time to time, I receive such feedback by email or in the comments box for a given blog entry. It's even more gratifying when somone points me towards a news item that had escaped my notice or suggests a topic which might be explored.

Part of what is pleasing about such communication is that it serves as confirmation of something that I only sensed when I decided to make DevelopingTelecomsWatch a part of my working week. I had come to believe that far too much of what is presented on telecoms industry news portals is focused on what's happening in the world's most developed economies and most mature markets for communications services. Too much for my purposes, that is - because for several years, I had made a living out of developing some knowledge and a network of telecoms sector contacts specifically in emerging markets and developing countries.

I am not alone, of course. It is in emerging markets that we see new licenses, new operations and robust subscriber growth. It is in emerging markets that we see innovative new business models deployed, as service providers and technology vendor realise that industry practices from the entirely different markets of Europe and North America, for example, cannot be easily re-purposed. Further - and this is an especially satisfying part of working in the higher growth markets - it is from developing countries that we so often hear stories of telecoms services making a real impact in the areas of economic development and the alleviation of poverty.

I won't claim that this blog is unique in its remit of discussing telecoms news and views specifically from emerging markets - but I don't know of many other blogs or news portals which share this particular purpose. So, while my list of 'noteworthy blogs' in the right-hand sidebar of this site consists entirely of links to useful sites, none of those links are to places where telecoms sector issues across all emerging markets regions are discussed. That this blog has a loyal readership, however, proves that the theme around which it's built is one which arouses interest around the world.

A challenge for me, then, is identifying new blogs, portals and articles whose interests overlap with my own. I would therefore welcome anything which makes it easier to interconnect with widely distributed communities of fellow digital citizens interested in the telecoms sector in emerging markets. It would be wonderful if this blog could be linked easily with extracts of related content in any format - text, video etc. - without asking readers to navigate away from the site. To do so would be to enrich readers' experience around the theme this blog and other sources of content might have in common. I am excited, therefore, by the potential of a new service named SmallRivers, which is designed to do exactly that.

This new service enables bloggers to attach a portable network to any chunk of content - to an entire blog or to a particular article. Bloggers grab a 'sticker' from www.smallrivers.com and paste the code onto the relevant part of their own site. This enables others to contribute to your content and/or copy your sticker, pasting it into their own related content. Clicking on a SmallRivers sticker will open a sidebar showing everywhere else this same sticker can be found, what content can be found on those pages and what discussions are taking place on these blogs and websites.

SmallRivers is currently a 100% free service and it is my understanding that the developers only propose to charge (possibly) for more advanced functionality. I would like to see this initiative succeed, not least because it offers hope of connecting with like-minded souls and new opportunities for myself. I daresay many other readers would welcome the possibility too.

Sponsored post


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Tuesday, 6 October 2009

India: cut-price tariffs squeezing margins and causing telecoms stocks to tumble

A number of articles here have wrestled with the question of optimum pricing for mobile operators in emerging markets. Some of these have focused on the case of Millicom International Cellular selling its three Asian operations, having cited, in the case of Cambodia, the challenges of maintaining healthy profitability in the face of the highly aggressive market entry strategies of new entrants.

This week a price war fought amongst telcos elsewhere in Asia has cause a slide in the value of their stocks:

The lady speaking in this clip contends that the first shots in this Indian tariff war were fired by Aircel (India's seventh largest cellco by market share) and Tata DoCoMo, the recently-launched GSM proposition from CDMA operator Tata Teleservices, arising out of its strategic alliance with Japanese mobile giant NTT DoCoMo.

In August, Tata DoCoMo made waves by becoming the first Indian mobile brand to offer per-second billing. Some media sources contend that impressive subscriber additions for the operator since then have been largely driven by the attractiveness of this innovation. Surya R Kannoth of the Economic Times, writing today, says that the most aggressive response to this yet has been from Reliance Communications, which on Monday announced a flat, cheap per-minute lifetime tariff for all calls - local, NLD, on-net, offnet, inbound/outbound roaming - made by both CDMA and GSM prepaid users. All this comes for no monthly fixed charge, but with a one-time set up fee of Rs48 (around one US Dollar).

The commentator speaking in the video clip above argues that this tariff causes the spread between cost per minute and revenue per minute to become very narrow, "and that would hurt profitability going forward." She goes on to quote analysts who say that the tariff is "disruptive" and will put pressure on major players such as Vodafone, Idea Cellular and Bharti Airtel, whose Chairman said today that prices in India have hit rock bottom. In light of the damage to share prices seen this week, investors in the various mobile operators will doubtless be hoping that this really is the case.

Bharti Airtel is getting consecutive mentions at DTW, having been the subject of the most recent article here, which was about how India's market-leading cellco has been disappointed by a second failed attempt to create a merger with the Africa and Middle East cellular powerhouse MTN of South Africa. In that article I mentioned, not for the first time, that there exists the belief that competitive pressures in its home market will continue to make the exploration of foreign investment opportunities very compelling for Bharti Airtel. I take today's news of a price war and tumbling telecoms stocks to be a pretty solid plank for that argument. I also reported the opinion that the Indian cellco might want to take a good look into acquiring some or all of the assets of Zain, the availability of which has been talked up for months now, not least here at DTW, where we ran a whole series of articles on speculation around the Kuwaiti group's possible exit from Africa.

A Business Standard article run on Saturday contends that not only is this a likely scenario, but that the Indian operator may need to take on its one-time suitor in a battle to take control of Zain. This idea seems to be drawn from the fact that last month, MTN CEO Phutuma Nhleko told journalists that his company would consider buying the African assets of Zain if the deal with Bharti Airtel did not go through.

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Saturday, 3 October 2009

What next for Bharti Airtel in the wake of scuppered MTN deal?

Sunil Bharti Mittal: looking to new opportunities in the wake of scuppered MTN deal?

Will they? Won't they? Will they? Won't they?

No. Not now - and maybe not ever.

Of the two big telecoms M&A deals discussed by this blog over the last few months, one has definitely stalled, seemingly not to be revived again this year.

We've been here before. Giant Indian cellco Bharti Airtel and South Africa's multinational mobile group MTN failed to come together last year. Now, after months of discussions and a repeatedly extended deadline for those talks, the two firms have once again failed to find a way to combine their assets into one giant emerging markets player which would have been the third largest telecoms company in the world, according to the Indian MNO's statement about the scrapped merger plans.

Bharti Airtel maintains that the planned alliance "was a vision based on solid fundamentals" and that "substantial synergies could have been captured" with the proposed transaction. The Indian firm's statement indicates that much thought was given to the "the sensibilities and sensitivities of both companies and both their countries" and contends that "the proposed deal structure took into account their leadership in their respective geographies to ensure continuity of business - including listing, tax residencies, management, brand etc." With what sounds like a note of regret about a missed opportunity, the statement expresses the opinion that "the deal would have been a significant step in promoting South-South cooperation - a vision of the two countries."

So what's gone wrong this time? The Bharti Airtel statement indicates that failure to gain the approval of the South African Government is what has caused both companies to take the decision to disengage from discussion. James Middleton of Informa Telecoms & Media also describes the aborted transaction as a case of both firms failing to convince the Zuma Government, which is MTN's biggest shareholder via the Public Investment Corporation (a pension fund), of the value of the deal.

Another Informa scribe, the shadowy 'Informer', in his usual playful manner, reaches for the fairly obvious metaphor of a cancelled wedding and has some fun with it. Writing yesterday, the mystery man of Mortimer House jokes that that "the parents of the bride-to-be" were "clearly unimpressed by the quality of her suitor."

While the Indian firm expresses the hope that "the South African government will review its position in the future and allow both companies an opportunity to re-engage," it's probably legitimate to wonder if there will be the appetite to revisit this again for a third time. I'm all in favour of persistence - God loves a tryer and all that. I've also learned, though, that 'no' often means... 'no'. Happily, I've not had the chastening experience of asking several times for a lady's hand in marriage and being repeatedly spurned. My guess, though, is that I'd probably start to take the hint at the second knock-back. If Sunil Bharti Mittal and his management team feel at all like that, then this recent disappointment begs a new question: What next?

In its statement about the failed tie-up with MTN, Bharti Airtel stated that the company "will continue to explore international expansion opportunities that are consistent with its vision and bring value to its shareholders." I would expect that to be the case, having expressed the view back in February that competitive pressures on home turf might force the Indian operator to identify investment targets around the world.

As the year has unfolded since then, some of these pressures have not proven to be as strong as might have been feared. For example, one threat my February article identified was state-owned operators (i.e. BSNL and MTNL) stealing a march in the 3G space and in the WiMAX services arena. As we have seen here since, however, it now appears that the two big public sector telcos have failed to make much of this this first-mover advantage.

Other pressures do continue to exist, though, even in a massively booming market. Since that February article, India's mobile operators have added almost 100 million subscriptions. Bharti Airtel's share of the vast subscriber base, however, has slipped a little, with ground conceded to a strongly performing Reliance Communications and to smaller players whose market share has improved a bit, notably Aircel and Russian-owned MTS India.

Where, then, will the giant MNO seek new growth opportunities outside its home territory? Back in February, I aired the view that Bharti Airtel may be almost uniquely well suited to the challenges of African markets, noting that the Indian operator has to cope with the lowest tariffs in the world while sustaining growth. More than once, when reporting the rumoured sale of a set of African mobile operators, this blog has noted that those operations are rather less profitable than the parent company's properties in the Middle East. Bharti Airtel, then, might be the most obvious fit to purchase those assets. The group being referred to here is, of course, Zain.

So, could the failure to tie-up with MTN now put the Indian operator in the frame as a suitor either for Zain's African portfolio or for a stake in the entire Kuwaiti-headquartered group? Maybe. Consider this from the chuckling 'Informer':

"You shouldn’t stick around where you’re not wanted... there are, after all, plenty more fish in the sea. The Informer suggests that Bharti has a look at Zain, instead. Zain gives the impression of being a little more, how shall we say… available."

If this were to happen, I'd guess that a link-up with MTN would be permanently off the cards, due to the significant overlapping of the Zain and MTN footprints.
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Thursday, 1 October 2009

CALA region privatisation, nationalisation and liberalisation: variety is the watchword

Central America and the Caribbean: varied telecoms markets

When I wrote in late August about the quasi-nationalisation of Belize Telemedia, this was in response to being urged to do so by a Caribbean-based regular reader of this blog. That reader also suggested a number of other stories from his part of the world that I might dig into and discuss here. Alas, an extremely busy September prevented me from updating DTW as much as I ordinarily like to - and what I have written has tended to be on subjects about which it's been relatively easier to construct a discursive piece without significant research. To have done justice to any of the ideas suggested by my Caribbean correspondent would have required more thought and time than I can currently spare.

It is fortunate, then, that Tammy Parker of Informa Telecoms & Media, has rounded up some notable news items from around the Caribbean and Central America and built a useful article whose theme is an examination of very varied approaches to competition by governments in the region. I hope Ms. Parker's article, and my own reactions to it here, are of interest to this blog's most regular Caribbean-based reader and to others who visit this blog.

Parker starts with a mention of the situation in Belize, where Dean Barrow, the country's Prime Minister, has seized the 94% of the telco's shares that had been held by companies associated with British businessman and Conservative politician Michael Ashcroft. Parker reports the same twists and turns previously discussed here, but does not give space to the contention that Belize Telemedia is not actually under the control of Lord Ashcroft. That contention, some readers will recall, was made in statement from the Hayward Charitable Belize Fund posted here by an anonymous person, whom I assume to be either an employee of that Fund or of a PR firm working on its behalf.

The DevelopingTelecomsWatch article about the goings on in Belize concluded by considering the question of whether the seizure of Belize Telemedia shares would discourage pan-Caribbean mobile group Digicel (or some other likely foreign stategic telecoms sector investor) from taking an interest in the country. I wondered whether a buccaneering company such as Digicel might actually look more favourably at the Belize opportunity if it were quickly to become apparent that Mr. Barrow is earnestly trying to break a telecoms monopoly, i.e. rather than just trying to gain somehow from attacking the billionaire ally of his domestic political opponents.

Tammy Parker is not so sure. As she points out, the entire expropriation process, from initiation in the nation's legislature to the actual Government takeover, was amazingly swift, taking just two days. Parker also notes that new Belize Telemedia board members include Anwar Barrow, the son of the Prime Minister, and his mother, Lois Young, as Secretary. The Belizean Government, reports Parker, has said that it hopes the full nationalization of the company is temporary, since it would like to offer shares to other investors, to encourage investment and competition in the nation’s telecommunications market.

Parker feels, however, that potential investors will be wary of entering a country where the government "so wantonly takes command of a private business and places the prime minister's family members on the board, whether for seemingly good reasons or not." She also contends that the Government "still wants individual institutions and people to be limited to a stake in BTL of 25% or less, ensuring that none has majority control", arguing that "the ownership restriction is likely to turn off potential investors, keeping major regional players, such as America Movil, Cable & Wireless and Digicel, far from Belize's shores."

Tammy Parker then takes a look at Costa Rica, which she describes as "moving in a completely different direction by opening its long-closed telecommunications market to new entrants".

The country is apparently set to issue three mobile network licenses, probably in 2Q10, creating, for the first time, competition for the cellular business unit of incumbent monopolist telecoms operator and utilities firm ICE (Instituto Costarricense de Electricidad). As Parker notes, while ICE has excelled in building a basic landline service in Costa Rica (the nation’s fixed-line penetration exceeds that of much of Latin America), the national mobile sector is something of a laggard. According to WCIS, the mobile penetration rate across South America, Central America and the Caribbean stands at 84.45%. The figure for Costa Rica is just 57.29% - and this is not one of the region's poorer countries. Although high inflation and under-investment in the national infrastructure continue to be problems, Costa Rica has consistently been among the top Latin American countries in the Human Development Index, ranking 50th in the world in 2006. It looks, therefore, that the lack of a liberalised mobile sector, rather than any general economic malaise, is what has stifled the take-up of cellular services.

When competition does come, it may be the case that ICE will need to up its game in several areas. The company's management, for example, will hope to have moved on from what seem to be quite serious mobile network quality issues affecting subscribers right now. Two days ago, news portal Inside Costa Rica reported that ICE expects problems with coverage and SMS delivery to continue into next year. An ICE official is quoted as advising customers to make calls and send messages during off-peak hours.

The final stop on Tammy Parker's whistle-stop CALA tour is in the Bahamas, where, "more than a decade after government leaders proposed the privatization of Bahamas Telecommunications (BTC)", a process has finally been launched a process to sell a 51% stake in the company to a partner that will also gain operational control. Apparently, the plan is for fixed-line telecommunications services, including cable TV, IPTV and Internet services, to be liberalised first, with mobile services set for liberalisation two years after the privatisation of the incumbent telco.

The new investor in the Bahamian telcoms firm will face some challenges right away. According to Neil Hartnell, writing last month for local newspaper the Tribune, BTC has seen the revenues derived from its international long distance business fall by 80.7% between 2004-2008. VoIP offerings from local firm IndiGo Networks as well as from the likes of Skype, Vonage and magicJack are blamed for this collapse. This has caused BTC to approach the recently incorporated Bahamian utilities regulator, asking for fixed-line international calls to be removed from the list of services in which the telco is deemed to have significant market power.

"Given the alternatives available to end users with respect to outgoing international long distance services, there is a case to be made to have international long distance excluded from the basked (sic) of price-regulated services," BTC said. "The inclusion of outgoing international long distance as part of price regulated services impedes BTC's ability to compete with licensed and unlicensed operators."

Tammy Parker's article concludes with the observation that "it will take time to assess which of these three countries will be most successful at bringing about the sought-after improvements in its telecoms market." Parker feels that "not only are their different approaches likely to yield vastly different results, but thorough execution of their plans will be paramount to generating the changes that they seek."

For those interested in the CALA region then, I guess it will be necessary to keep watching. DTW will try to do likewise.


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