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

Wednesday, 31 March 2010

Zain Africa Done Deal Watch

Former Zain CEO Al Barrak - exit from Africa caused his departure?
During 2009 DevelopingTelecomsWatch became somewhat preoccupied with the fate of the African assets of MEA mobile powerhouse Zain. As speculation mounted about whether these operations were up for sale and, if so, who the prospective purchasers might be, DTW managed to churn out no less than thirteen Zain-themed articles, the first of these appearing on 12th June. Scratching away at persistent rumours like a mutt with fleas, this blog was still whining on about the story on 18th August.

The whole series of ramblings rejoiced in the clunky title 'Zain Africa Speculation Watch', which has been revived and paraphrased here with today's offering.

Along the way, a number of potential suitors for Zain's African opcos got a mention. These included France Telecom and Vivendi plus Indian operators Reliance Communications and BSNL.

All these months later, it seems fairly safe to assert that the speculation stage is finally over, with shares in another Indian cellco, Bharti Airteledging higher on the back of news that it will sign a USD 10.7 billion deal to acquire the Zain's African telecom assets later today.

If, as now appears to be virtually certain, the Indian MNO does manage to conclude this deal, it will be a case of third time lucky, as noted recently by Shalini Singh of the Times of India, who reminds us of Bharti Airtel's two fruitless attempts to engineer a tie-up with South Africa's MTN, another saga which had some coverage here at DTW. As well as observing that the Zain Africa purchase will "catapult Bharti to the rank of the sixth-largest telecom service provider in the world by number of subscribers", Singh feels that it is "an ironic twist of fate" that one of the Indian firm's major competitors in its new markets will be MTN.

With this mega-deal now on the brink of proceeding, perhaps the time is right to ask that Bharti Airtel has to gain (and lose) from competing in so many new markets at once, and to ask what motivated Zain to quit Africa less than five years after entering the continent's mobile arena via the acquisition of Mohamed Ibrahim's Celtel International.

James Middleton of writes that "for Zain, the deal represents a retrenchment of the company's strategy as well as good value." Middleton argues that while the company has succeeded in transforming its brand and in building up an impressive customer base across sub-Saharan Africa, it has struggled to operate profitably.

Quoted in James's article is his fellow Informa Telecoms & Media employee Nick Jotischky, a principal analyst with the firm. "Perhaps it turned to the managed services model too late in the day and failed to leverage its supplier relationships so as to build in sufficient economies of scale", says Jotischky, who suggests that this is where Bharti Airtel will focus its efforts.

"Whilst it will, no doubt, be confident of controlling its costs, Airtel will aim to build up its brand equity characterised by reliability very quickly," says Jotischky. "But reliability alone will not be enough – the newcomer will have to show itself to be innovative as well. In an already competitive marketplace, Bharti will not just be competing with other mobile operators for a share of wallet but with other brands in adjacent consumer goods sectors. This means that Bharti will be under pressure to offer services that are directly relevant to end-users and this will differ from market to market."

James Middleton talks up the chances of the Indian cellco maximising the value of this large new investment. "Bharti has a heritage in making network sharing and outsourcing deals work and will not be afraid of being aggressive on per minute pricing," he writes. "The company is also well versed in addressing the difficulties of serving a largely rural, high-churn, low-revenue market."

Inspired by this transaction, Informa's is currently running a series of articles offering 'ten tips for investing in Africa'.

Informa offer their first tip, that operators need to be innovative on pricing, while noting that mobile tariffs in much of Africa are high compared to those in some other emerging markets. "For example", runs the article, "Zain Kenya’s lowest tariff is about [USD] 0.04 per minute, for on-net calls.. compared to India, where Reliance Communications offers tariffs that are as low as [USD] 0.01 per minute, for both on-net and off-net calls." The article continues by pointing out that the fact that tariffs in Africa are relatively high is reflected in ARPU levels: "In 4Q09 blended monthly ARPU across Africa as a whole was [USD] 10.49 – but in India blended monthly ARPU in 4Q09 was much lower, at just [USD] 2.73, and falling.

However, the article observes that mobile tariffs have already come down in many African markets in the past couple of years as competition has intensified, often because of the market entry of new operators. Usage in Africa, meanwhile,  the article contends, has increased over the past couple of years too. African MoU, however, remains "half that of India's, which does suggest that there is potential for substantial further growth."

This growth opportunity notwithstanding, the gist of Infoma's 'tip' is that "African operators are probably best advised to avoid getting into the kind of price wars that are taking place in the Indian market", where ARPU halved during 2009, creating a big squeeze on  operators' profits.

Rather, Informa advises, "African operators should aim to demonstrate more of the innovation in pricing that is already evident on the continent through plans such as Zain's One Network, which allows subscribers to pay local rates when roaming, and MTN's MTN Zone, a dynamic tariff plan that charges lower rates when the network is not busy."

Let's see whether Bharti Airtel considers this to be sage advice as it embarks on its African adventure.

On a personal note, I will be interested to see whether the Indian cellco will make many changes to the management teams running its numerous newly-acquired opcos - and to listen out for a sense of how far Zain's people around Africa welcome the change of ownership. One opco CEO apparently quite upbeat about all of this is Zain Zambia MD David Holiday:

Presumably less positive about Zain's sales of its African assets is the man who masterminded their acquisition for the Kuwaiti group, former CEO Saad al Barrak, who resigned in February.

At the time, Emeka Obiodu, a senior analyst at Ovum, said: "Al Barrak championed this expansion push – buying Celtel, and aiming to make Zain one of the top ten mobile operators by 2011. But his whole ambition was blown to pieces by the owners who wanted to sell off in Africa."

While Al Barrak and his strategy do appear to have some detractors, Obiodu does not seem to be among them: "He’s taken MTC, this small company from Kuwait and transformed it into Zain, a global mobile powerhouse. He didn't bite of more than he can chew, but his vision diverged from the vision of the owners. When we did some financial analysis on Zain, the company wasn’t doing particularly badly. It wasn’t like he ran the business into the ground, although you have to concede that some of the small markets in Africa were seriously under-performing."

Now we will see whether Bharti Airtel has the patience and vision to stay in these numerous African markets for longer than Al Barrak's former company elected to do.

Friday, 19 March 2010

East African opportunities unclear as cellcos remain coy about data ARPU

Kenyatta Int'l Conference Centre, Nairobi: venue for this year's East Africa Com

Last year I had the pleasure of visiting Nairobi, Kenya for the first time, building meetings around the excellent East Africa Com conference and exhibition.

This year, given that my day-to-day commercial activity now does not give me much exposure to Africa, I will not attending. Were I still more active in Africa, however, I would certainly want to be there - and I would encourage anyone who does business with the telecoms operators of the East Africa region to head for the Kenyatta International Conference Centre on 27th-28th April.

This year's event will be graced by the presence of the Hon. Samuel Poghisio, the host country's Minister for Information & Communications and by Charles J.K Njoroge, Director General of telecoms regulatory agency the CCK (Communications Commission of Kenya). I don't recall the Kenyan Government and authorities being represented at such a high level at the 2009 event, so the organisers are to be congratulated for the upgrade.

Sponsors and exhibitors will doubtless also be impressed by the number of operator CEOs to whom they will have access during the two days of discussions. Of these, two of the biggest hitters are Michael Ghossein, CEO of France Telecom-controlled Telkom Kenya, the country's incumbent fixed-line operator and Michael Joseph, the long-standing CEO of Kenya's dominant (78.8% market share, according to WCIS) mobile operator Safaricom.

This may be one of the final conferences appearances for the latter, Joseph having announced his impending retirement. He joined the Kenyan operator in mid-2000, when Vodafone first invested in the company. Since then, he has guided the company from a subscriber base of fewer than 20,000 to over 15 million today. Along the way, Safaricom has become renowned for its M-Pesa mobile money transfer service, which has brought the advantages of financial services to very large numbers of Kenya's largely 'unbanked' population. Safaricom also attracted praise this week from Alexander Grouet of Mira Networks, a leading provider of connectivity and billing tools between business and mobile networks in Africa.

Grouet asks: "Would you plan a trip to a foreign destination if you didn't know what the place looked like, what there was to see, how much a hotel room cost and what local transportation was available?" Having concluded that most readers would not, Grouet then invites us to imagine that what we’re talking about is not your vacation, but your business. "Well that’s pretty much what it’s like for most content providers wanting to penetrate the SSA [sub-Saharan Africa] market", he continues. "Despite the hype, the market metrics WASPs crucially need in order to make the next step, such as data ARPU or WAP traffic, are virtually inaccessible. Even traditional market data resellers don't offer it, as optimistically named Africa VAS reports almost exclusively include blended indicators rather than content-specific ones." I don't recall if this is a fair accusation to direct towards the good folks at the reports business of Informa Telecoms & Media, the organisers of East Africa Com.

Even if it is, Grouet suggests that the fault for the scarcity of these vital data lies with operators. "Out of the 26 operators in the 5 countries I worked on last year (Nigeria, Kenya, Ghana, Senegal and Cote d'Ivoire) only 2 to my knowledge," he writes, "publicly released their data ARPU." The two cellcos in Mr. Grouet's good books are Safaricom and Starcomms, a Nigerian CDMA carrier.

"The most likely explanation for this", ventures Grouet, "is that the data figures are still so low on most networks that operators simply don’t want to release them at this stage." According to Grouet, even Safaricom's data ARPU, including M-Pesa, stands at just USD 1 monthly, while the figure for Starcomms, including EV-DO dongles, is just under USD 2 per month. "But at least, we know where they stand, and we will be able to measure their progress when they next update those figures," Grouet continues.

Grouet hopes that other African operators will break their silence on the topic of data revenues, not least because that unwillingness to share data "only has the counter-productive effect of making it harder for international content companies, who precisely could help operators boost their data traffic, penetrate their markets."

Let's see how many cellco attending East Africa Com agree with these sentiments. Were I to attend this year, I would probably like to pursue that line of questioning, not least because I have received marketing emails from Informa which suggests that the region's operators are somewhat focused on data services.

A speaker likely to turn in an entertaining presentation is Noel Herrity, CEO of Tanzania's Zantel, an operator in which the UAE's Etisalat owns a 51% stake. Mr. Herrity delivered a compelling, nicely paced talk at the 2009 iteration of the conference and delegates will be hoping for more of the same. Perhaps we can be optimistic about that - Herrity may be in buoyant mood in light of recent reports indicating that the operator has begun recording net customer additions again, following two quarters of net loss.

One speaker for whom it could be challenging to stay 'on message'? Bashar Arafeh, the COO of the East Africa Region for MEA mobile group Zain.

This might arise as a result of delegates' curiosity about the future of Zain's African operations. Subject to takeover speculation for many months now (see DTW articles passim.), these assets could well be the property of giant Indian cellco Bharti Airtel before too long. The most recent developments in this long-running saga may soon prompt a revival of the popular mini-series (well, it generated more hits than usual) which appeared here on-and-off for much of 2009, rejoicing in the clunky title 'Zain Africa Speculation Watch' (and variations thereon).

Other CxOs appearing on stage at next months event include:
I'm sure this year's event will once again be a useful place to do business, gain market intelligence and enjoy the company of a crowd who always seem very open to networking and making new contacts.

Thursday, 4 March 2010

Libya: diplomatic wrangles fail to derail Vodafone's plans

Vodafone services: coming soon to a Socialist People's Arab Jamahiriya near you...

One African republic has been hitting the headlines recently, as the effects of a diplomatic row between that country and a European nation is now affecting citizens of many other states. This is a particularly thorny issue given that much European money has been poured into the construction and oil sectors of that North African nation. People carrying the passports of most major European economies are now prevented from travelling there. This must be causing great disruption to companies whose personnel usually need to spend time in the African state.

One giant global mobile business, however, seems to not to have been too seriously affected.

In July last year, DevelopingTelecomsWatch made some positive noises about the investment climate in Libya. While there was some head scratching about the attractiveness of the North African country's mobile market (mobile penetration was a hefty 141.58% at time of writing - it is 159.42% now, according to WCIS), it was noted that relations between the USA and the Colonel Gaddafi regime had improved to the point whereby foreign investors might not fall foul of restrictions set by the U.S. Treasury's Office of Foreign Assets Control.

More recently, however, relations between Libya and some western countries have once again become rather strained, causing Tripoli to stop issuing visa to citizens of the twenty-five European countries of the Schengen passport-free zone. At the centre of this dispute is Switzerland, which, according to a Libyan newspaper report of February 14th, had denied entry visas to nearly 200 Libyans, including Gaddafi, members of his family and other senior officials. As a helpful Reuters timeline explains, this Swiss move came after wrangles that had continued since June 2008, when police in Geneva arrested Hannibal Gaddafi, one of the Libyan leader's sons. Gaddafi jr., along with his pregnant wife, were taken into custody following allegations about the mistreatment of two of their employees.

By February 26th of this year, both the European Union and the United Nations felt forced to respond to Col. Gaddafi's subsequent call for jihad against Switzerland, announced as the row has escalated and become yet more bitter. By March 1st, analysts were commenting that the row has exposed weaknesses in Swiss foreign policy and damanged the country's reputation as an impartial global mediator.

Citizens of countries in the Schengen zone, meanwhile, continue to be refused entry to Libya.

From his name, I would hazard a guess that Mr. Colin MacDougall is either an Irish or a British citizen. As such, he would be a national of a country that has chosen to opt out of Schengen's border control arrangements. This would explain his recent present in Tripoli, representing Vodafone, on whose behalf he formalised a Partner Markets agreement with state-owned Libyan mobile operator Al-Madar.

MacDougall seems to work for the Partner Markets unit of the giant cellco, which enables subscribers of operators in which Vodafone has no equity to enjoy exclusive access to a range of products, services and devices from the UK-headquartered group. Partner operators also gain from Vodafone's experience in supply chain management, the acquisition of enterprise customers and improved network inter-working. In turn, Vodafone customers can gain from improved roaming arrangements in countries where Vodafone does not otherwise have a presence.

Over the last few years, I have had the pleasure of meeting several people attached to Vodafone Partner Markets and know that they work pretty hard to maximise the value of the numerous relationships they manage worldwide. In light of the recent wrangles, and keeping in mind the eccentricities of the state which owns Vodafone's latest MNO partner, one wonders whether this will be an especially challenging relationship to maintain. However, given that oil-rich Libya is of vital economic significance and that the Vodafone teams who run these partnerships appear to be so adept at meeting tough challenges, I daresay this will prove advantageous to the shareholders and customers of the global mobile group.

Tuesday, 2 March 2010

The road to hell...

... is paved, as Dr. Johnson didn't ever say, with good intentions.

One such intention was set out here in the most recent DTW post, namely that this blog would review some of the predictions made in the Industry Outlook report that is made available for free downloading by Informa Telecoms & Media. The plan was to zero in on any predictions relating specifically to emerging markets and developing countries.

Two months have passed since that rash promise was made and not a peep has been heard from this once prolific blog - no fewer than 147 posts saw were published here in 2009.

Apologies, then, to anyone who has found DevelopingTelecomsWatch to be a useful source of news, commentary and speculation and who now wonders whether the blog has fizzled out of existence. Happily, for anyone that cares, this is not the case. That said, I do not expect to be writing anything like as often in 2010 than was the case last year. My commercial activities are, I am pleased to report, taking up far more time now, suggesting that this year will be more profitable than the one we have left behind us. I do hope that regular readers are facing this first year of a new decade with similar optimism.

Failure to deliver on good intentions notwithstanding, then, perhaps DTW and its writer are not on that proverbial road to hell.

What of our industry and its interests across emerging markets? Hellbound? Or good times ahead?

Belatedly, then, with two months of the new year having already passed, let's attempt to answer those questions by taking a look at a couple of the predictions made by the crystal ball gazers at Informa:

'So-called emerging markets will transition into a new phase of competition based on services and bring into question the validity of the term "emerging market" as it is understood in the telecoms sector today.'

Informa's report notes that "Until now, the term 'emerging market' in the context of the mobile sector has been used as a catch-all phrase to describe markets characterised by low penetration rates, a proliferation of mobile network operators, steep drops in the price of basic communications and resulting explosive mobile subscription growth."

This is familiar territory here at DTW. Numerous times, reference has been made to markets in which the price of mobile services has been squeezed down to a level that makes life very hard for some of the competing cellcos. In July last year, for example, this blog covered the decision of Millicom International Cellular to withdraw from all the Asian markets in which it once did business - Sri Lanka, Laos and Cambodia. The latter country certainly matches the Informa's report's reference to "a proliferation" of MNOs. No fewer than nine (!!) cellcos are currently fighting for business in a country with just 14.8 million inhabitants. Here they all are, with market share figures from Informa's WCIS product:
  1. Cellcard (GSM, 42.12% market share - the operator in which Millicom had a stake)
  2. Metfone (GSM, 18.86%, owned by Viettel of Vietnam)
  3. Mfone (GSM/W-CDMA, 15.52%)
  4. Hello (GSM, 13.38%, controlled by Axiata)
  5. Star-Cell (GSM, 3.56%, part of the TeliaSonera group)
  6. Beeline Cambodia (GSM, 2.90%, owned by Russia's Vimpelcom)
  7. qb (W-CDMA, 1.95%)
  8. Latelz (GSM, 1.32%)
  9. GT-TELL/Excell (CDMA, 0.39%)
Regular readers may have spotted that from time to time I like to share video clips of telecoms operators' TV advertisments from around the world. Latelz (AKA Smart Mobile), as the list above suggests, is one player that may need some pretty compelling advertising if it is to become a more significant player. You decide how powerfully the Smart Mobile case is made by these:

Cambodia is a pretty extreme case, perhaps, but DTW has also examined a number of African markets which seem to be ripe for mobile market consolidation. I daresay there are many more around the world in much the same state.

While I am insinctively in favour of competitive environments which offer value and choice to consumers of mobile services, I do also sympathise when I speak with employees of operators that are struggling to improve shareholder value in the context of dramatically slashed prices. These guys, it sometmes seems to me, can feel as if they are on that proverbial inferno-bound round. If Informa's prediction is on the money, however, perhaps that fiery destination need not be reached this year.

On to the next prediction with an emerging markets/developing countries angle...

'Mobile banking efforts will continue to proliferate in emerging markets, but in the short-term these will be more important as a customer acquisition and retention tool than as a genuine driver of significant new operator revenue streams.'

The efforts made to date in this area got some coverage here last year. In May we noted that giant cellco Bharti Airtel was looking to tap into the big opportunity presented by the fact that 85% of the citizens of its Indian home market do not have bank accounts. By August, readers were invited to consider whether mobile operators would necessarily dominate the market for mobile banking services aimed at turning a profit while going some way to alleviating the poverty of subscribers in developing countries. An alternative that we discussed was the possibility of operator-neutral solutions gaining traction.

The chaps at Informa were have not been alone in keeping discussions of this sort on the agenda for 2010. Indeed, mobile banking in emerging markets got a mention during the plenary session of last month's Mobile World Congress. Simon Rockman of the Register noted, however, with some distaste, "that transforming the lives of millions of people by giving them bank accounts – something that can make the difference between eating and starving - didn't garner the same round of applause" as that received by the GSMA project aimed at making every mobile phone use the same charger."

Writing up his notes from the Congress the following week, Rockman also wondered at some of the number crunching around the scale of the m-banking opportunity. He noted that day four of event saw an assembly of the mobile money working group that has received USD 12.5m from the Bill and Melinda Gates Foundation and is working towards the GSMA's target of getting 20 million of the billion people who have a mobile phone but do not have a bank account onto the first rung of the financial ladder.

Ignacio Mas, writes Rockman, gave a detailed account of what the Bill and Melinda Gates Foundation wants to achieve: "They wanted the very poor and insecure to be able to save", targeting people living on less than USD 2 per day. "As much as they have low subsistence incomes", reports Rockman, "the real problem is stability - they might only find work occasionally and have to eke out money until they next find work. Or if they are farmers they get paid seasonally at harvest time."

Without access to banks, continues Rockman, such people are very vulnerable: "They will often give the money to people they trust for safekeeping but these are people in a similar situation to themselves. Lack of stability means people get multiple jobs. They can't concentrate on what will get the best return and pull themselves out of poverty because they have to opt for stability."

This, and other challenges, blight the lives of so many people around the world that it does seem reasonable to suppose that a huge opportunity does exist for the telecoms industry to provide what the retail banking sector cannot in underdeveloped countries.

Well, I enjoyed finally finding the time to write something here after such a long hiatus - but will refrain from making rash promises about when the next article will appear. More soon, I hope, though.