Vodafone to quit Egypt?

This blog is (usually) written on a Sceptred Isle whose citizens (subjects) are currently wondering what life is going to be like under a newly cobbled-together coalition government. This is rather a novel state of affairs because the our electoral system is carefully rigged designed to crown a decisive winner and deliver the 'strong government' we Brits are supposed to favour. Usually this works out fine, with a healthy majority and almost unchecked power conferred upon the winners. There's never even been the need for those 'winners' to command a majority share of the votes cast, much less the support of a majority of those eligible to vote.

During its election campaign, the senior partner in the new government issued dire warnings about the terrible consequences should the voters be unwise enough to elect a hung parliament. The markets, we were warned, would respond unfavourably, leaving our fragile economic recovery exposed to the fall out of their nervousness.

Perhaps this was not too far wide of the mark. The markets continue to be volatile in the early days of this new administration, with Nick Fletcher of the Guardian reporting another bumpy week of trading.

Bucking the current downward trend, however, writes Fletcher, is mobile behemoth Vodafone.

"The mobile phone group has had a busy week", observes Fletcher, winning an Indian 3G licence... and reporting a doubling of annual profits. Today, Fletcher reports, its shares have jumped 2p to 131.45p, making it the biggest riser in a falling FTSE, following reports it plans to sell its 55% stake in its Egyptian business.

One such report, from TeleGeography, suggests that the buyer of Vodafone's controlling stake in the Egyptian MNO may be incumbent wireline operator Telecom Egypt, already the owner of the other 45% of the business.

The article also suggests that if no agreement can be reached between Vodafone and Telecom Egypt, the fixed-line operator may seek another route into the domestic mobile sector, perhaps trying to secure its own wireless licence, should the government, as rumoured, offer a fourth mobile concession in the future.

Vodafone to quit Egypt?

Something to Grin about for Malawi's mobile users?

Tay Grin - star of the African hip hop scene... and Malawi's mobile sector?

It is not with any pleasure that DevelopingTelecomsWatch sometimes observes a country's mobile market and concludes that one of more of its competing cellcos surely seems doomed to fall by the wayside. All such enterprises are doubtless founded in good faith and with the firm intention to reward investors and employees for providing services to customers who will want them. A somewhat recurrent theme of this blog, however, in its first year, has been to wonder aloud about likely market consolidations around the world, and to speculate a little about which actors might be shaken out in any such eventuality.

In March, DTW picked up comments on this topic from MTN CEO Phuthuma Nhleko, spotted in a Financial Times article. Nhleko was quoted as saying that he believes Africa will see a wave of telco sector consolidation in the next 1-2 years, and the article contended that this will result from both new entrants and more established competitors struggling to maintain healthy margins in increasingly crowded markets.

Shortly after this, DTW took a look at some examples of particularly congested competitive environments in Africa, starting with Benin, the continent's 31st largest country in terms of the size of its population. We noted that five mobile operators now compete in a country of just 8 million people.

In the same month, DTW articles asked about the potential for mobile market consolidation in Burundi and in Gabon. By June, the same questions was being asked of Tanzania. A related post the same month zeroed in on Malawi, which might be something of a different case.

In that piece, it was noted that this under-penetrated market (still only 17.47% mobile penetration as of end-December 2009, according to WCIS) may offer a decent opportunity for a new entrant. At present, a duopoly exists, with the country's mobile subscriber base split between Zain's Malawi operation and Telekom Networks Malawi, a cellco in which the country's incumbent fixed line operator Malawi Telecommunications owns a 44% stake. Market share now (as of end-Dec 2009) is as follows: Zain 71.34%; TNM 28.66% (estimated figures, again from WCIS).

The June article on Malawi noted that country's telecoms regulator felt that the services offered by these two operators were at a price point which did not offer a fair deal to consumers. Zain responded by blaming high tariffs on high taxes. The market-leading operator also claimed that as the overall mobile market grows in Malawi, it will be able to lower prices. Zain Malawi's Managing Director Fayaz King explained: "Imagine at Zain, we have mounted a network that could take up to 5 million users but we currently have only 1.5 million customers. We believe that if at least 3 million people started using the Zain network, we could start enjoying the benefits of economies of scale."

The regulatory agency apparently remains unmoved by this line of argument. Aiming to bring down prices and extend service availability to the wider population, the Malawi Communications Regulatory Authority felt that the best course of action was to open the market to a third entrant. As early as April this year, press reports were naming this third entrant - Globally Advanced Integrated Networks, the holder of the G-Mobile brand name.

Does Malawi, then, really offer a good prospect for this third entrant? As discussed back in June, there are reasons to suppose that while there are certainly numerous European countries with populations smaller than that of Malawi sustaining three or more mobile operators, the landlocked southeast African nation might nevertheless offer insufficiently attractive returns for prospective new entrants. While its high population density suggests that mobile coverage could be built out relatively cost-effectively, Malawi is, however, among the world's least developed countries, with a heavily agriculture-dependent economy and with GDP per capita of less than USD 320. Low life expectancy, high infant mortality and a high prevalence of HIV/AIDS all blight the country, with the latter draining the labour force and expected to impact further on GDP in the near future.

However, even in this context, mobile penetration is very low, as we have seen, even when compared with other underdeveloped African economies. So there could be room for one more MNO.

Is GAIN/G-Mobile, though, a likely candidate for success as a third entrant in this environment? Perhaps not. Due to the economic factors mentioned above, DTW suggested back in June that Malawi might be the kind of market where only MNOs able to leverage the scale and best practices of large groups can prevail and prosper in the long term.

G-Mobile, seemingly not aligned to any such major international telecoms group, certainly does not fit that description.

Who, then, is behind this latecomer to the Malawian mobile scene? The only person connect with the business whom I have seen quoted in the press is one Limbani Kalilani, the company's Vice Chairman. Mr Kalilani appears to be something of a celebrity in Malawi - and is working to become more well known across and beyond Africa. Although he has some track record in the telecoms industry, having set up a wireless payphone company called Phone Yanu, it is in the music world that Kalilani has made his real impact. Better known to his fans as Tay Grin, Mr Kalilani has established himself as a hip hop artist. Here he is in action:





It would be truly admirable if Tay Grin can succeed as both an international music phenomenon and a domestic business success story - more admirable still if it is his indigenous Malawian company that manages to bring the benefits of mobile communications to a larger number of his compatriots than can currently afford the services offered by the two established cellcos. DTW would be instinctively in favour of this form of African empowerment.

Are there already signs, however, that the going will prove as tough as DTW fears? Perhaps.

TeleGeography has recently reported that G-Mobile has admitted it will not be able to meet the 31st December 2009 deadline for the rollout of its network as stipulated by its licence. Instead the company plans to request an extension to the deadline from the regulator, and will make up for the delay by combining rollout phases outlined by the concession. Let's wait and see.

G-Mobile's rivals, meanwhile, are making progress of their own. TNM has launched its W-CDMA/HSDPA network, with Charles Kamoto, head of the cellco's Commercial Services division, saying that the service is initially only available to post-paid subscribers but that prepaid customers will soon have access 3G. Kamoto added: "Most less developed nations do not have this service on board for their customers but in Malawi we are very aggressive, we believe that our customers need quality, they need top-notch services and that is why we had to bring this 3.5G technology."

Something to Grin about for Malawi's mobile users?

Unsurprising news of the week

India's Communications & IT Minister: summoned to explain falling revenues at BSNL

To my mind, the least surprising news item so far this week comes from Mansi Taneja of India's Business Standard, who reports that state-owned Indian state-owned telco BSNL is likely to exit a consortium that has been aiming to acquire a 46% in pan-MEA mobile group Zain. According to Taneja, MTNL, the other public sector operator party to the consortium, is also likely to exit since it had agreed to follow BSNL’s lead in the deal.

DevelopingTelecomsWatch has no axe to grind with regard to these two telecoms enterprises, but it won't have escaped the notice of regular readers that this blog has observed some pretty strong criticisms of their performance in their domestic market, most notably in an article written in August.

It was partly with these criticisms in mind that DTW was unsurprised when Etisalat rather than BSNL prevailed in the scramble to acquire the Sri Lankan mobile operator previously owned by Millicom International Cellular. It would, then, cause raised eyebrows at DTW HQ were MTNL to win what looks to be a hotly contested scramble to buy a controlling interested in Zambia's soon-to-be-privatised incumbent fixed line operator, Zamtel. As a recent Cellular News item points out, the list of other interested parties contains some formidable names including Orascom Telecom, Telkom of South Africa and Russia's pan-CIS cellco Vimpelcom, which has recently expanded its footprint into Southeast Asia.

Lest anyone feel that this blog returning quite regularly to the troubles of India's two major state-owned telecoms enterprises is somehow unwarranted, it is worth noting that concern about their prospects has been expressed in the highest circles in the south Asian country. Monday's Economic Times, for example, reported that Prime Minister Manmohan Singh is likely to meet the BSNL's management along with Communications and IT Minister A. Raja to look into the causes of the company's falling revenues and to find ways to improve its performance.

According to the Economic Times, BSNL says the loss in net profit and revenue is due to huge wage costs and customers deciding to terminate their fixed line subscriptions. The article states that the company has been struggling with the problem of landlines being surrendered for years now, due to a combination of the increasing popularity of mobile phone and its own service levels falling below customer expectations. In the past three years, the article reports, 6.3 million landline connections have been terminated.

This blog has also documented the company's struggles to capitalise on first-mover advantage in the 3G mobile services space or to take make much of a similar head start with WiMAX broadband services.

In light of all this, DTW remains wary of any claims that BSNL makes about ambitions to grow its business into unfamiliar overseas territories.

Unsurprising news of the week

Aptilo Networks positive about prospects for WiMAX in developing countries

Johan Terve, Aptilo Networks:
good opportunities for WiMAX in emerging markets

DevelopingTelecomsWatch was a proud media partner of this year's iteration of the annual Africa Com conference and exhibition held in Cape Town. The event concluded on Thursday this week, wrapping up two days of discussions and networking among the continent's telecoms operators and their business partners from the vendor and systems integrator communities.

One theme explored in some detail at the conference - via a special breakout session - was the question of to what extent WiMAX is gaining traction in Africa.

With this in mind, DTW spoke this week with Johan Terve, VP Marketing at Aptilo Networks, a supplier of pre-integrated management solutions for control of billing, user services and access in WiMAX and Wi-Fi networks. Aptilo Networks had a presence at Africa Com so we were keen to get a sense of whether this was indicative of an upbeat view of the scale of the WiMAX opportunity in Africa - and across developing countries and emerging markets more generally.

For proponents of WiMAX, the emerging markets opportunity may grow in importance - certainly if we are to believe bleak analyses of the technology's ongoing prospects in more developed economies. One such comes from Terry Norman of consulting and research firm Analysys Mason, who in August predicted a difficult time ahead for equipment makers.

Norman believes that "over the last two or three years, WiMAX has gained a strong foothold in developing countries in which there is a need for broadband, but the fixed infrastructure is poor." He feels, however, that these markets offer insufficient growth potential and size "to sustain continued investment from such heavyweights as Cisco Systems, Intel and Motorola without additional sales in the developed markets". Therein lies a problem, argues Norman, because "in the developed markets of Europe and the USA, we see some early signs of a difficult future for WiMAX."

One difficulty could be any reluctance on the part of of leading mobile operators to deploy the technology. Terry Norman writes that in developed European markets, operators are almost certainly upgrading their 3G technologies to 4G LTE in order to match the rising demand for data. Norman draws a connection between leading no leading MNOs hinting that they might adopt WiMAX and the idea that "LTE is imminent."

Johan Terve rejects the notion of that it being "too late" for WiMAX in developed markets. Terve feels that such language would suggest that "this is a race with a single winner". He believes the opposite to be true and that both WiMAX and LTE will co-exist just like xDSL and fiber do in the wired broadband world.

While Terry Norman of Analysys Mason was downbeat about the growth prospects for WiMAX in Europe and US but sounding somewhat positive about the case for the technology in emerging markets, some analysts are more cautious even about the latter opportunity.

A Cellular News article published last month asks whether there really is a big market for WiMAX in the developing countries. The article is built around opinions recently expressed by industry watchers Ovum, who find "that the confluence of several factors including technology cost, coverage, vendor support and service provider choices will limit WiMAX to only a niche technology in the emerging markets, forming part of established fixed and mobile operators' broader broadband access portfolios."

Johan Terve responded to this point by saying that "if they mean that WiMAX technology will be niche based on size, then there is an element of truth in that since in the end LTE will be bigger because of its massive support amongst mobile operators" and because "the industry expects LTE to be a replacement technology for 2G/3G mobile phones as well."

"The WiMAX market does not have the ambition to be a new mobile phone system", argues Terve. "In terms of pure mobile data technologies for portable laptops and mobile Internet devices," he continues, "the two markets will be more equal, and for the 'Wireless DSL' or CPE market WiMAX will probably be larger".

Last month's Cellular News article, however, contends that most emerging markets WiMAX operators currently have thousands, or tens of thousands of subscribers, rather than the hundreds of thousands of subscribers that they planned to have at this stage. DTW asked Johan Terve to what degree he is concerned by these modest numbers.

"We in the vendor community are always far more optimistic in growth projections than the reality," he answered. "The projections of rolled-out LTE networks and subscribers will most likely have to be revised down in the coming quarters. However, there is a big difference between LTE and WiMAX in that the tier 1 mobile operators already have a huge subscriber base just waiting for more bandwidth [and] disappointed with what the current 3G networks have been able to deliver. This will make the LTE ramp-up quicker than it has been for WiMAX having to deploy from scratch. Essentially all larger WiMAX operators are new to market, including Clearwire, PacketOne, Yota and UQ. None of them have the luxury of just adding WiMAX technology to existing cell towers. Are we concerned about WiMAX? No, we are seeing signs now within our customer and prospects base that things are really starting to move. One encouraging factor is, for instance, one of the largest operators in India that is currently deploying Aptilo’s solution. This type of operator tends to scale very quickly in terms of subscriber growth. As a company, we are continuing our multi-wireless support (currently Wi-Fi and WiMAX) and have added LTE to our roadmap to be able to cater to all the help operators need in managing their mobile data traffic."

Where, then, does Aptilo networks see some of the richest opportunities in Africa and in emerging markets more generally?

"We see the greatest opportunities with existing Internet Service Providers and new greenfield challengers in the first phase," says Johan Terve. "We also see a great opportunity with CDMA mobile operators that have hesitated to deploy EV-DO for broadband data services. Their strategy is to keep developing their voice offering in CDMA and then choose between LTE and WiMAX for data. For them LTE is a heavier fork-lift than for 3G operators and WiMAX has the benefit that it is here now, ready to deploy."

Could Terve point to any specific examples of this particular deployment scenario?

"We are currently working with one of our Caribbean CDMA mobile operator customers that will continue with their CDMA for voice and build their data broadband on WiMAX," he responded.

Aptilo Networks, then, is among those continuing to make positive noises about the value WiMAX may be able to add to the communications landscape of emerging markets and developing countries worldwide. It is likely this theme will be revisited when DTW reports on next year's Africa Com event, and it will be interesting to see how far this view has proven to be accurate by that time.

Aptilo Networks positive about prospects for WiMAX in developing countries

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.

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

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?

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

Mobile industry nicely balances profit motive with improving lives: not everyone agrees...

It has been a tendency of this blog to eulogise the ways in which telecoms companies with business units in developing countries are able to reconcile efforts to alleviate poverty and misery with their need to turn a profit and grow shareholder value.

I therefore tend to be very encouraged when I read articles such as that written in April by Rohit Singh of the Overseas Development Agency (ODI), a British think tank focused on international development and humanitarian issues. Singh writes about the numerous studies which support the idea that a rapid increase in mobile penetration contributes significantly to economic growth. He discusses the incremental, tranformational and production benefits brought by mobile phones:

• Incremental benefits: improving what people already do – offering them faster and cheaper communication, often substituting for costly and risky journeys.
• Transformational benefits: offering something new such mobile banking, enabling the unbanked to store value.
• Production benefits: resulting from the creation of new livelihoods, not only through professional telecommunications jobs but also through activities like re-selling airtime or phone cards.
  

Much praise, then, has been directed by DevelopingTelecomsWatch at the efforts of mobile operators worldwide, notably in Africa. None of what has been written here suggests that there might be a possible downside to the rapid growth of mobile infrastructure and services in the places where the world's least affluent people live their lives.

There are those, however, who voice precisely that concern. Notable, I think, is Steve Song, who spent ten years working on ICT for Development issues at the International Development Research Centre (IDRC), a Canadian state-owned enterprise whose role is to help developing countries use science and technology to find practical, long-term solutions to the social, economic, and environmental problems they face. Song is now based in Cape Town, where he has taken up a fellowship with the Shuttleworth Foundation, an organisation which works to drive social and policy innovation in the fields of education and technology through policy dialogue and practical projects.

I was very interested in Steve Song's reaction to Kenyan cellco Safaricom winning a UN-HABITAT award for its M-Pesa mobile money services. This got a mention in the recent discussion here about whether mobile banking and money transfer services branded and run by cellular operators in developing countries might be vulnerable to a competitive threat from apparently operator-neutral solutions such as the one recently announced by Monitise. My own reaction to a cellco being lauded for how its services improve the lives of poor people is always very positive - it makes me pleased to make my living in and around an industry whose technologies can be a force for good. On hearing about Safaricom's award, Steve Song, however, was prompted to consider, not for the first time, "the effective monopolies/oligopolies" that mobile operators in Africa have become.

While Song acknowledges "the miracle that mobile phones are" and says that "there can't be many people who still doubt the direct value that mobile phones provide to people", he is concerned that the wealth that is being generated by cellcos in Africa is being distributed too unevenly. To support this assertion, he cites the case of South Africa's MTN apparently acknowledging that is subsidises 3G data traffic with revenue from its core voice and SMS business. This means, says Song, that when it comes to communication, "the poor in South Africa are effectively subsidising the wealthy".

Song also invites us to consider "the microeconomics of the edge cases of mobile access" - the case of a remote village served by a single cell tower. He contends that in this scenario, the majority of calls made would be to other users in the same area, i.e. local calls. Song also asserts that people in Africa "are spending substantial amounts of their disposable income on access." So, he argues, if, say 50% of the phone calls made in a remote village are local and if people are spending 50% of their disposable income on mobile access, "that means that 25% of their disposable income is being siphoned out of that village."

Perhaps with my own mobile bill in mind, I initially wondered whether it could really be true that even very poor people could possibly be spending as much as 50% of their disposable income on voice and SMS. Apparently so, according to a 2008 report from Research ICT Africa, a twenty-country network hosted by the EDGE Institute in Johannesburg and funded by Steve Song's former employers, the IDRC.

We can see from the table below that the report has indeed identifed African countries where consumers spend more than 50% of their disposable income on mobile services. These include Kenya (52.5%), Nigeria (52.4%) and Zambia (60.3%). According to this study, for the same three countries, the percentage of disposable cash spent on cellular services for the bottom 75% of the population by disposable income rises to 63.6%, 60.9% and 73.9% respectively.
Is this phenomenon - people spending such a major chunk of their incomes on mobile phone charges - purely an unavoidable consequence of how poor these people are? Or might more competitive mobile markets deliver considerably lower prices, thereby freeing up African consumers' cash to be spent on other items?

Several times, a DevelopingTelecomsWatch piece has focused on a particular country and voiced the idea that perhaps that state's mobile market is currently contested by too many cellcos - too many in the sense of not all of them being able to turn a profit and justify further investment. In the few months since this blog's inception, that question has been raised about Cambodia and Sri Lanka and about Tanzania, Burundi and Gabon.

Along the way, I've sometimes been quite critical of operators with aggressively low pricing. Metfone (the Cambodian subsidiary of Vietnamese MNO Viettel) is one example. I have expressed the view that Metfone's distribution of free SIMs and airtime is a "disruptive" market entry strategy which is "very nice for quickly building a subscriber base, but taken to its logical conclusion this can seriously erode overall market value for all players."

What I've had in mind is an idea I've heard articulated countless times at many, many telecoms industry conferences - that telecoms groups will only invest in and improve the communications infrastructure of those countries where good profits can be earned; that most operators naturally settle around a band of prices which enable profitable operation and happy shareholders for all competitors; that operators which sell their services below the lowest end of that band of prices can be accused of destroying martket value and threatening the ability of others to keep investing; that regulators/governments which allow any market actors to do this are not acting responsibly.

Steve Song would presumably not sympathise with these sentiments because he rails against the failure of telecoms regulators in Africa either to license enough new market entrants or to curb the excesses of incumbent players with significant market power. He feels that this has led to a situation where existing operators "collude to maintain high profits", citing the global price of SMS per byte vs. the true cost of delivering text messages.

The ODI's Rohit Singh also deals with the role of telecoms sector regulatory agencies in developing countries. He writes about how governments should oversee such issues as interconnection between the operators, spectrum allocation, and access to the international gateway. He argues that the importance of this role is shown when, in the absence of regulated interconnection tariffs, dominant firms charge high prices for connecting calls from other networks. Singh asserts that this limits effective competition, with dominant firms earning monopoly profits, keeping their prices high, and having little incentive to expand or innovate.

Without effective regulation, Singh continues, ownership of bottleneck infrastructure by dominant firms can diminish the developmental impact of the mobile sector by pushing up prices and restricting coverage.

When Singh reaches for an example of this kind of failure of regulation, he thinks of Zambia, where he says international calls are very expensive because the state-owned fixed-line operator charges high tariffs to private operators to access the international gateway. This distortion, he argues, then affects the domestic calls market, because private operators have to subsidise their international calls to compete with the public sector firm. In this characterisation, private sector mobile operators are the good guys of the piece, forced rather than inclined to charge high prices for their services. My feeling, then, is that Rohit Singh and Steve Song have quite different views of the optimally desirable interplay between telecoms operators and regulators.

Going beyond the issue of pricing, in an earlier blog post, Song expresses concern about how mobile operators in developing countries might conceivably take advantage of the ways in which cellphones have become indispensable in people's lives. Drawing on a March 2009 presentation by Nathan Eagle, the developer of crowdsourcing application txteagle, Song observes that no one in Kenya can afford not to have a mobile phone because "even if you are digging a ditch by the side of the road, day labour is now organised via SMS." Song feels that this means that mobile operators have Kenyans by the throat. To support this argument, he discusses another anecdote from Nathan Eagle's talk, which concerns a water pump manufacturer in Kenya that, by combining an M-Pesa-enabled, solar-powered metering system with their water pumps, has completely changed its business model. This company is apparently now giving water pumps away for free and then making a profit by selling access to water through the M-Pesa service. In his presentation, Eagle observes that Michael Joseph, the CEO of Safaricom, "loves this because you have to have a Safaricom account to get water."

Steve Song ask whether he is alone in finding this a little disturbing and feels that there is something wrong about a single mobile operator acting as the gatekeeper to water supply. Song argues that "for any village in this situation, Safaricom can charge whatever they like".

When I stumbled upon Steve Song's blog, I felt it would be interesting to draw attention to the uncomfortable questions which he raises. After all, DevelopingTelecomsWatch was never intended as a cheerleader for a particular view of the role of the communications sector in developing countries and emerging markets. So, for anyone else who has so far been unaware of Song's writing, I hope it has been refreshing to consider the ideas of someone who observes the actions of mobile operators with a critical eye. What I like about Song's writing is that his arguments are not weakened by an unattractively shrill tone. However, if you're curious to hear from someone who really doesn't mince his words about cellcos, I'd suggest you read a recent article by Llewellyn Kriel about South African operators and the country's telecoms regulator.

Mobile industry nicely balances profit motive with improving lives: not everyone agrees...

WiMAX and 3G trials and tribulations for India's public sector telcos

'India Week' here at DevelopingTelecomsWatch concludes with a round up of views on the prospects for the country's public sector telecoms enterprises.

State-owned telco MTNL is one company somewhat keen to experiment with WiMAX, but is also keen to mitigate the risks and reduce costs through a proposed partnership with another organisation.

Writing for the Economic Times on Saturday, Joji Thomas Philip explains that the public sector operator has invited global telecoms businesses to set up and run its Delhi and Mumbai WiMAX operations on a franchisee basis for a six-year period. If a willing partner is found, MTNL plans to enter into a revenue sharing agreement with the successful bidder. Philip writes that the contract will be reviewed every two years and can be terminated if the franchisee partner does not meet prescribed targets. MTNL wants to work together with the winning bidder when working out strategies for advertising, marketing and promoting the broadband services, and wants those services to carry the MTNL brand. Execution on the sales and market side, along with the business of credit checking customers will be the prime responsibility of the bidder. MTNL, on the other hand, wishes to retain responsibility for fixing tariffs. While there will be room for consulation with its partner, MTNL's word will be final on this issue, the company has said.

How attractive is this opportunity? This may depend on interested parties' views of where WiMAX fits into India's evolving communications landscape. Any prospective bidders who envisage strong demand for a mobile WiMAX service, for example, may encouter words of warning - even from the CEO of the one company already offering WiMAX-based services on a franchisee model.

San Francisco-headquartered Soma Networks, is a supplier of WiMAX base stations, CPE and a multimedia application system designed to provide essential software elements for broadband service providers - support for simultaneous multimedia applications; integration with third-party, IP-based billing and provisioning; interoperability with IMS infrastructures.

A former colleague of mine, Ken Wieland of Informa Telecoms & Media, recently summarised the deal struck between Soma Networks and BSNL, India's other major state-owned telecoms operator back in January 2008. Writing for the telecoms.com portal, Ken notes that BSNL uses Soma Networks as a mobile WiMAX franchisee in the three circles (regions) of Goa, Andhra Pradesh and Maharashtra. Under the franchise arrangement, Ken writes, Soma Networks pays for the WiMAX equipment in exchange for access to BSNL infrastructure (such as tower sites and backhaul facilities). A revenue-sharing deal is also in place as part of the arrangement, with a 70-30 split in favour of the kit-maker.

Soma Networks CEO Yatish Pathak, in an interview with Business Line last month, argued that the mobile WiMAX opportunity in India is probably quite limited, at least in the short term.

"One of the reasons that Soma Networks chose to use WiMAX 802.16e-2005 technology, also called Mobile WiMAX, is that it supports mobile broadband as well as [having] the capability to provide wireless broadband to homes and offices," Pathak told Business Line. "However, its application depends on the context and availability of competing technologies. In an emerging market such as India with vast areas under-served due to lack of wired infrastructure or due to sub-optimal DSL connections, the best use of WiMAX today is to deliver broadband to the homes and businesses that have no broadband, or poor broadband connectivity."

"Using WiMAX as a mobile broadband application is better suited for developed, more mature markets that have high data consumption," Pathak asserted. "Classic examples are Tokyo and Korea."

Pathak can see the business case for broadband service providers opting to use WiMAX to target the Indian laptop user market, saying that "then it will simply be a service such as EV-DO, but with higher data rates." The Soma Networks CEO believes that India's existing mobile operators will continue to evolve their network towards LTE to address their customers' evolving mobile broadband needs. He feels that cellcos might opt for WiMAX deployments in select high traffic business districts and cities to address the enterprise market. However, Pathak does not envisage any Indian MNO deciding to use WiMAX for mobile data on cellphones, arguing that such a service would require the operator to invest in and run two separate networks - an FDD network for 3G and a TDD network for WiMAX. Besides, he continues, the service would require dual mode phones, and the support for two different types of radios would make the handsets cost-prohibitive for Indian consumers, "until there is service acceptance and we see economies of scale."

Soma Networks, is, then, in Pathak's words, currently focused on the delivery of a "broadband data service that optimises the use of bandwidth link to wirelessly deliver a megabit-rate experience within the comforts of a fixed location, such as home or office," notwithstanding the fact that the company's technology, used for rollouts in India for BSNL, "supports mobility even today". It is BSNL's prerogative, Pathak states, to make a decision depending on its business model and strategy on when it wants to extend the mobility features to consumers.

Pathak feels that "going for mobility from day one is a very ambitious plan and requires massive investments." He told Business Line that broadband penetration across the three circles (total population 240 million) served by Soma Networks and BSNL is currently just 0.5%. Even if this rises to 3% over the next three years, he says, we are still talking of very small volumes to justify that kind of investment, given the low ARPU numbers in India.

"In my opinion," Pathak says, "a prudent approach is to focus on Wireless DSL market where there is a huge pent-up demand. This helps us deploy in a scalable manner without making billion dollar investments before any revenue starts accruing. By phasing the rollouts, we lower costs and risks to achieve rapid ROI and then scale up the investments to stitch the coverage areas to offer mobility."

BSNL, however, does not seem to share Mr. Prakha's cautious view about the prospects for mobile WiMAX. Earlier this month, wireless solutions provider Harris Stratex announced an agreement to supply mobile WiMAX technology to the Indian telco. Under the multi-year contract, run the announcement, Harris Stratex will supply its StarMAX™ WiMAX solution to extend BSNL’s public wireless access network to provide high-speed wireless mobility services to enterprise and retail customers in urban areas across the southern Indian state of Kerala, the country's fourth largest telecommunications market. Financial details were not provided in the announcement, but media coverage indicates that this is another franchising model arrangement.

This has presumably not met with the full approval of global trade and standard body the WiMAX Forum, whose regional Honorary Chairman for India, C.S. Rao, in June asked BSNL to avoid further use of the franchisee model.

"While adopting the franchisee model, we feel that BSNL is losing out on the opportunity of racing ahead of the private players in this space," said Rao, who argued that if the state-owned telco deployed networks itself, this would result in revenues amounting to about USD 1.2 billion annually. In the franchisee model, argues Rao, BSNL would only get about USD 500 million per annum.

That public sector telcos BSNL and MTNL are the ones dominating WiMAX news from India at present is due to the period of exclusivity the two organisations have had in this space. As James Middleton, another former Informa Telecoms & Media colleague of mine, observed in February, BSNL also has a first-to-market advantage when it comes to BWA (broadband wireless access) spectrum. While the BWA auctions are scheduled to take place the same time as the 3G licence awards, BSNL is already sitting on a chunk of pan-Indian 20MHz spectrum in the 2.5GHz band, for which it does not have to pay until the auctions take place. BSNL’s 20MHz of BWA spectrum will cost the state-owned operator the same as the highest amount paid for the three remaining 20MHz BWA licences that will be up for auction, two in the 2.3GHz frequency band and another at 2.5GHz. Whether BSNL can be said to have made of the most of this advantageous position seems debatable in light of the low broadband penetration figures and conservative-sounding projections offered by Yatish Pathak of Soma Networks.

BSNL and MTNL have also gained first-to-market advantage in the 3G space, again not having to make payment for spectrum until private sector operators are involved in an auction. As with the BWA auction, and as noted in a Wall Street Journal article today, the two public sector operators will have to pay the Government an amount equal to the highest bid in that auction, the date of which the article only predicts in the vaguest terms, i.e. "later this year."

The state-owned operators may have got into the 3G space ahead of their rival cellcos, but I'm not sure they can be said to have "enjoyed" first-mover advantage. In Tuesday's piece about Mobile Number Portability, we heard from Rajiv Sharma of HSBC Securities, who warned the public sector telcos not to make significant further investments in 3G mobile technology and from Alok Shende of Ascentius Consulting, who believes that the below-industry ARPU recorded by MTNL and BSNL reflects that the companies have attracted price-sensitive, low-MOU subscribers who do not use VAS and do not gain from the enhanced capabilities of a 3G offering. We noted reports that in the six months since its 3G launch, BSNL has acquired just 10,733 subscribers and that the figure for MTNL is said to stand at a mere 902, an average of just 150 per month across Mumbai and Delhi, considered the two most lucrative 3G markets in India.

It is in the context of these extremely modest 3G subscriber numbers that I'd like to consider an Asia Times article written this week by Kunal Kumar Kundu of consulting and IT services firm InfoSys. This - which is a summary of the writer's personal opinions - is nothing short of a withering analysis of BSNL, a company Kundu describes as showing "signs of sickness." Kundu feels that India's largest fixed-line telco looks set to go the way of struggling government-run Air India, "which has had to crawl cap in hand for a state bailout to survive."

For Kundu, "the signs of sickness are all too obvious, led by bloated payroll costs." He states that BSNL's salaries now account for about 25% of revenue, compared with rival Bharti Airtel's 5%, after rising at an compounded rate of 21.5% per annum between the financial years ending March '02 and March '08. Kundu notes that this far outpaces revenue gains, which in the same period increased at a compounded 5.53% per annum. He also argues that only by earning interest in cash kept idle in bank deposits has BSNL kept out of the red, and reports a deterioration in finances in the year to March 2009. Analysts, says Kundu, are forecasting a loss of between around USD 825 million-1.03 billion as salary costs jump by about USD 500 million.

The company, says Kundu, once regarded as one of the Government's crown jewels, is now one of the top candidates for disinvestment this year. He is especially critical of BSNL's performance in the fixed-line space, where "an abominable quality of service and increased options from the private sector have led to a drastic fall in the company's landline subscriptions."

Whether a proposed merger between BSNL and MTNL would cure these ills remains to be seen - and there may be some wait. A week ago, the Business Standard reported that India's Communications and IT Ministry will decide on the merger between the two state-owned telecom companies only after the listing of the former.

"MTNL is a New York Stock Exchange-listed company, and a merger would not be possible without the listing of BSNL. We will first look at listing BSNL and then will decide on the merger," Union Minister of State for Communications and Information Technology Gurudas Kamat said.

WiMAX and 3G trials and tribulations for India's public sector telcos

Opportunities and challenges for mobile players in Iraq and Libya

A number of telecoms news services this week picked up a story from Waleed Ibrahim of Reuters, who writes that Iraq's Finance Minister Bayan Jabor has announced the approval of two new mobile phone licenses for auction soon, one of them for a 3G network.

So, which telecoms groups might fancy setting up shop in what is the world's sixth most unstable country according to the 2009 Failed States Index produced by Foreign Policy magazine and the Fund for Peace?

A Cellular News piece, reporting the same item, states that Etisalat and Turkcell would be interested in bidding for a mobile license in the country. The Turkish cellco certainly seems to have a taste for adventure, having established an operation in Belarus, a country which under the leadership of President Alexander Lukashenko has been barred since 1997 from membership of the Council of Europe for election irregularities, and which has also attracted criticism for its record on human rights and freedom of the media.

Turkcell, then, is not shy of a challenging environment, something which is also evidenced by the operator's thwarted attempt to enter the Iranian market in 2004-2005. Earlier this month, DevelopingTelecomsWatch visited the issue of whether involvement in the Iranian market - and in the Syrian market - could derail South African telco MTN's mooted merger with giant Indian cellco Bharti Airtel. This is because banks involved in the transaction might fall foul of restrictions on dealing with these two countries which are set by the U.S. Treasury's Office of Foreign Assets Control (OFAC).

One country which might have proved problematic in these terms until quite recently is Libya. Now, however, relations between the USA and the North African country have improved to the point where such concerns should not be an obstacle to companies seeking to invest in Libya - and it seems Turkcell are keen to take advantage of this improved investment climate. According to a recent TelecomPaper story, the operator plans to bid for a licence to provide fixed and mobile phone services in Libya, announcing that the country's stable economy and per-capita income indicates the domestic telecoms market has high growth potential.

In February, the Global Mobile Daily service from Informa Telecoms & Media reported on the availability of this new licence, noting that the General Telecommunication Authority (GTA) of Libya had launched an international tender for a mobile and fixed-line concession in the country. As this report indicated, the Libyan telcoms market is currently monopolised by state-owned incumbent fixed-line operator General Posts and Telecommunications Company (GPTC), which owns 100% of mobile operators Libyana and Al-Madar. According to the GMD report, the GTA hopes the entrance of a new player will stimulate the country's telecoms market. That said, the status quo does not seem to have discouraged Libyans from embracing mobile technology and it should be stressed that the country is not under-penetrated. According to the World Cellular Information Service, Libya's mobile penetration rate is currently a hefty 141.58%. I am therefore a little uncertain what Turkcell might mean when it refers to the country's high growth potential. Perhaps the relatively low take-up of 3G services to date offers a nice opportunity. Or perhaps Turkcell is most excited about the chance to challenge the incumbent telco in the fixed-line voice and broadband space.

The Iraqi mobile market would appear to offer a lot more room for growth for Turkcell and any other companies keen to pick up one of the two new licences. Mobile penetration there stands at 67.47% according to WCIS.

However, aside from the general instability of the country mentioned at the top of this article, Iraq offers a challenging environment for mobile operators in some other ways. The imposition of fines by the authorities, for example, seems to happen on a fairly regular basis. Global Mobile Daily reported on 28th May that all three of the country's mobile operators had been fined for poor service, with Zain Iraq, facing the heftiest fine (USD 18.6 million) and Asiacell and Korek Telecom each being fined a little more than USD 1 million. The report notes that this is not the first such penalty for Zain, which had previously been fined USD 9 million.

This, however, does not appear to have prompted Zain to consider withdrawing from Iraq. A Reuters article last month quotes the group's CEO Saad al Barrak as saying the company will continue to operate in Iraq: "It's not a crisis at all. It's normal... to get some penalties here and there," Barrak said. According to Zain, the poor quality of service which caused the imposition of the fine is due to jamming by U.S. forces trying to prevent insurgents from setting off bombs.

Asked by Reuters whether Zain planned to halt its operations in Iraq in response to the fine, Barrak replied: "never."

This is not to suggest, however, that we can expect Zain Iraq's management to accept Government criticism and intervention in meek silence. A week before his group CEO's comments, Ali al-Dahwi, who heads up the operation in Iraq, used strong language to protest how his company is treated by the Iraqi authorities. "We kept our mouths shut for a long, long time from speaking the truth because this has something to do with the safety of the Iraqi people. One hundred percent we are sure (it is) interference and jamming," he told Reuters.

Dahwi said Zain Iraq tried to talk to the Government to explain why the service was suffering but met "deaf ears." He claims that the decision to impose the fine was based on "hearsay," rather than scientific proof. "The more we played Mr. Nice Guy, the more we were abused," he said. "It seems to me there are many members of this government who talk the talk about encouraging investment but when it comes to walking the walk, the only thing they care about is their political position, not Iraq, how to get reelected."

Iraq, then, is a market not without challenges for those courageous enough to invest there. I will be interested to see if Turkcell, a company I've followed closely for some time, will indeed make this move - and make the move into Libya, where it's less obvious to me that there is good room for growth.

Opportunities and challenges for mobile players in Iraq and Libya