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.

Quick march! Military men storm the telecoms sector

Telenor: good news from India; troubles continue in Russia/CIS

Telenor HQ: India, Pakistan and Russia issues on the agenda

A recent DevelopingTelecomsWatch article went into the likelihood of mobile market consolidation in Pakistan. I was prompted to write this by a rumour doing the rounds, according to which Telenor is considering selling its operation in Pakistan to China Mobile, which already has a presence in the market in the form of the MNO Zong. I noted that Telenor's presence in Pakistan was worrying the authorities in neighbouring India - worrying them to the extent that it could make it impossible for the Scandinavian telco to increase its stake in start-up Indian cellco Unitech Wireless. Such is the level of tension between the two countries, it seems.

I moved on to speculate (wildly, I admit) that Telenor's thinking might be along the following lines:

• We can't play in India and Pakistan...
• India (population 1.15 billion, mobile penetration 34.47%) presents massively richer opportunities than Pakistan (population 173 million, mobile penetration 55.58%)...
• so, if being in Pakistan prevents us from maximising the opportunity in India, let's get out of Pakistan...
  

Last week, however, came news of a possible way for Telenor to maintain a presence in both markets. An Economic Times article of 30th July indicates that India's Home Ministry is set to give security clearance for Telenor's hiking its stake in Unitech Wireless up to 74%, but on the condition that none of the staff who have worked at the Norwegian firm's Pakistan operation, are employed in India.

The Indian authorities are not only concerned about Telenor's Pakistan connections, it seems. Security agencies apparently also had reservations regarding the Norwegian company's presence in Bangladesh, where Telenor is the largest shareholder in market-leading cellco Grameenphone. The Economic Times article notes that both the neighbouring countries not only have a history of strained ties with India, "but have also served as a launchpad for various terror attacks". In the case of Bangladesh, investigations into serial terrorist blasts that killed 80 and injured 216 in the northern Indian tourist city of Jaipur last year pointed to the involvement of Bangladesh-based terrorist group Harkat-ul-Jihad-al-Islami, according to local reports.

The Economic Times piece notes that Indian authorities have had to take into account the concerns of the security agencies while also keeping in mind the reputation and stature of the Norwegian firm and how it has revolutionised rural telephony in Bangladesh via Grameenphone. The Bangladeshi MNO takes its brand name from that of Telenor's local partner Grameen Telecom, a non-profit sister concern of the internationally acclaimed microfinance organisation and community development bank Grameen Bank. A Grameenphone-Grameen Telecom partnership operates the national Village Phone programme, which puts mobile phones in the hands of very poor women who then operate a business, offering access to communications services to their neighbours.

This programme is not purely altruistic and has been an important component of an encouraging growth and profitability story for Grameenphone - and in a market where other cellcos have struggled to succeed. In this blog's most recent previous article, we heard from the CEO of rival Banglalink, which is owned by Egypt's Orascom Telecom. Ahmed Abou Doma explained in a recent statement that apart from the market leader (Grameenphone), "others are continually posting losses".

The Economic Times article also states that the Indian Government is keen not to send out the wrong message to foreign investors and has therefore "come around to the view that the Norwegian giant should not be held back from picking up up to [a] 74% stake in Unitech Wireless simply because it has a successful presence in Pakistan. " Keeping the human assets of the Indian and Pakistani arms of Telenor separate is expected to take care of risks such as spying and subversion, the article suggests.

For Telenor, good news from India comes at the same time as much less encouraging news from Russia. Within the last few hours, Reuters has reported that the Norwegian group has lost another round of its legal battle over its stake in Russian cellco Vimpelcom. The latest development in a long-running and acrimonious saga sees a Moscow appeals court rejecting Telenor's latest attempt to delay the enforcement of a USD 1.7 billion fine owed to Vimpelcom. Telenor faces the prospect of losing its stake in the Russian company after bailiffs ordered the sale of its shares to cover the fine that a Siberian court imposed for allegedly holding back Vimpelcom's expansion in Ukraine. Maria Kiselyova of Reuters writes that the case is being closely watched as a guide to the climate for foreign investors in Russia, coming after the shareholder battle last year that forced management and personnel changes at BP's Russian oil joint venture, TNK-BP. Kiselyova asserts that analysts watching the case, brought by Farimex, a small shareholder in Vimpelcom, say the forced sale of Telenor's stake in Russia's second-biggest mobile phone company by subscriptions "would further undermine confidence in the rule of law in Russia." She continues by saying that Telenor views the case as part of a protracted dispute with the powerful conglomerate of Russian billionaire Mikhail Fridman, Alfa Group, the other strategic investor in Vimpelcom. Alfa, as Kiselyova notes, has denied any links to Farimex.

These developments follow a Q2 performance which beat the expectations of analysts polled by Reuters. The Norwegian telco posted a bigger-than-expected 6.8% rise in Q2 core earnings and curbed investments to protect against a potential fall in mobile revenues amid global economic hardship. EBITDA rose to USD 1.24 billion.

Telenor also cut its CAPEX target, excluding investments in India, to 13-15% of its revenues from an earlier prediction of 15-17%. An impairment charge for its Serbian operation, linked to a poorer outlook for that country, hit its bottom line, driving earnings per share down from last year's figures.

It remains to be seen, though, how a bigger stake in India's Unitech Wireless and possibility of losing its foothold in Russia and the wide CIS (where Vimpelcom has numerous subsidiaries) will affect Telenor going forward.

Telenor: good news from India; troubles continue in Russia/CIS

Mobile price wars in the downturn: time to do battle?

Still reeling from the roaming bill I racked up on my last trip to the UAE in December, I was interested to see the Dubai Chronicle reporting a big cut in international calling prices on the part of Emirates Integrated Telecommunications Company, better known as Du.

For the first time, Du's prepaid customers can now use a AED 200 recharge card and receive AED 320 credit to towards international calling. Other Du recharge card denominations of AED 100, AED 50 and AED 20 will provide instant credits of AED 150, AED 70 and AED 26 respectively, to be used towards international calling.

Farid Faraidooni, EVP Commercial at Du says: "Every dirham counts, and more so in the case of the UAE, with a large expatriate population with the need to stay in touch with their loved ones back home."

This might make me think more seriously about getting myself a prepaid Du SIM for future trips to the Emirates. However, my situation is similar to that of Dean Bubley of Disruptive Wireless, who, in an amusing blog post this week, describes himself a frequent traveller, but to lots of different countries. Writing this Wednesday, Dean bemoaned the costs and complications of staying in touch with work contacts, friends and family while attending next week's Mobile World Congress. "One thing that's immediately apparent," writes Dean, "is that despite all the talk of VoIP, SIM-swapping and the like, I'm going to end up with a large bill for voice and SMS roaming. I've got dozens of meetings, loads of people I'll need to contact (or be contacted by), inevitable changes to schedules and venues, plus all the usual work and personal call traffic I'd normally get in the UK. I'll be paying for both inbound and outbound roaming calls."

"It's clearly not an option just to get a local SIM card - most of the people I need to contact will be outside Spain and there are too many people likely to contact me to inform everyone of a new number." Given that, as Dean says, keeping a Spanish SIM year-round would not work because it would expire after a few months without use, I had to sympathise when I read his remarks about WiFi not being an option due the likely (he says notorious!) congestion on the network provided at the Barcelona Fira (MWC venue). Dean also criticises VoWLAN service providers for having "haphazard support of SMS, which is absolutely mandatory at trade shows where you have back-to-back meetings."

Dean's suggested remedy for international travellers? "What would be good would be a way to get a local SIM or account/number - ideally without physically having to buy one - and for this to automatically propagated to all your contacts when you were in-country. Or for it to somehow be linked to your existing home account in the network."

That sounds useful. Let's see. In the meantime, after reading about Du's reduced international call charges, I noticed a couple more stories about operators slashing prices. Both relate to markets from where a large number of the UAE's expatriate workers originate.

According to an article last week on the Bangladesh news portal priyo.com, the CDMA operator CityCell is "struggling to remain in business... with operating losses escalating to almost double in the first quarter." The company, of which SingTel is the largest shareholder, has apparently suffered as a result of having to subsidise handsets. The article asserts that only market-leading
Grameenphone is profitable, "with other players bleeding for years."

While device subsidies are said to be hurting CityCell, greater pain is apparently being caused by an intense price war. Says Zia Uddin, an analyst with New York-based asset management company LR Global: "Intense competition has led to [an] unhealthy price war in [the] Bangladesh mobile phone market. Most of the companies have to subsidise handset prices to woo clients," he said. "In addition, the ARPU and [tariffs] in Bangladesh are possibly the lowest in the world".

CityCell, the country's first ever MNO, seems poorly positioned to grind it out in this kind of environment, having steadily lost market share to rival GSM operators since Grameenphone, Banglalink (then called Sheba Telecom) and AKTEL entered the market in 1997. The CDMA carrier now has just 4.03% of the subscriptions in Bangladesh.

Meanwhile in India, according to an story carried by Global Mobile Daily last month, the entry of CDMA operator Reliance Communications onto the GSM scene has already triggered rivals Airtel, Vodafone and Idea Cellular into price cutting mode.

This is not surprising if, as reported by the Economic Times yesterday, Reliance plans to slash its GSM rates by 50%. However, the same article cites a recent study by Lirneasia which deduces that such a move is not likely to make a significant dent in telcos' existing subscriber base.

Lirneasia, a not-for-profit ICT policy and regulation capacity building organisation working in nine South Asian countries, conducted a survey on mobile users at the bottom of the socioeconomic pyramid which shows that even the most cost sensitive subscriber segment has reached a stage where it is driven more by service offering, brand loyalty and number retention than by price discounts.

T.V. Ramachandran, head of India GSM operators' trade association the COAI supports the findings of the Lirneasia study. This seems like a sensible response from a body whose members could suffer badly if a price war is escalated and sustained.

It will be interesting to watch developed and emerging markets worldwide to see how many operators feel this economic downturn compels them to cut prices heavily and how many take the view outlined in the Lirneasia report - that it makes more sense to compete on quality and brand value.

Mobile price wars in the downturn: time to do battle?

Nordic telcos' emerging markets plans for 'challenging' 2009

In July 2007 I was pleased to provide meeting facilities for in Dhaka, Bangladesh for a gathering of the South Asian GSM Forum, whose Chairman Mehboob Chowdhury was a key supporter of the following day's Mobile South Asia conference of which I was co-organiser. Mr Chowdhury, a former Chief Commercial Officer of Orascom Telecom-backed Banglalink, had fellow Forum board member Stein Naevdal run the pre-conference meeting. Mr Naevdal, now CMO at Bakcell of Azerbaijan, was with Bangladeshi operator Grameenphone at the time, a company owned by Grameen Telecom and Telenor.

Having had the opportunity to meet members of Grameenphone's senior management team, and having had a quick look round a Grameenphone retail store on the busy streets of Dhaka, I have continued to take an interest in the performance of this and other MNOs across Telenor's collection of emerging markets operations.

An article carried yesterday by Telecompaper reported Telenor's cautious forecast for the "challenging" year ahead: stable organic revenues and an adjusted EBITDA margin around 34 percent, versus a reported 34.7 percent in 2008.

The article indicates that the Norwegian company's $US 1 billion purchase of a majority stake in Indian cellco Unitech Wireless is not expected to add significantly to revenue and will generate and EBITDA loss of of NOKA 2-2.5 billion ($US 295 million-369 million). Revenues are not expected to begin flowing from the greenfield operator, which has licences in all 22 of India's telecoms circles, until mid-2009.

The largest shareholder in Telenor, the 7th-ranked telecoms operator in the world in terms of subscriber numbers, is the Norwegian Government, which was apparently initially supportive when the business proposed a rights issue in order to fund the Unitech Wireless purchase while maintaining the company's credit rating.

While Telenor CEO Jon Fredrik Baksaas has continued to express great confidence in the long-term value of the move into the Indian market, investors have not responded well to news of the acquisition. The proposed rights issue has also attracted criticism, not least from Norway's Conservative opposition, which attempted to persude the Government to prevent Telenor from selling shares to fund the Indian adventure.

A Bloomberg TV interview with Baksaas on November 9th was prefaced with a reminder that Telenor's share price fell by as much as 20% on the trading day on which the Unitech deal was announced. Baksaas reponded by saying "The negative swing in the share price was greater than we had expected... but in order to build a long-term... mobile operation takes years." He reminded viewers that the company has been making such long term bets in Ukraine, in Russia, in Malaysia and in other countries for many years. "It is a period of investment that's needed in order to grow towards a sustainable, long-term position," Baksaas explained.

Baksaas told viewers about the criticism Telenor faced when entering Ukraine, then "one of the poorest countries in Europe" in 1997 and stated that Kyivstar now one of the best performing contributors to the Telenor business.

When interviewed by the same channel twelve days later, by which time the fall in Telenor's share price (since the Unitech announcement) was 26%, described by the interviewer as the largest in eight years, Baksaas was speaking about the good growth prospects afforded by India's low teledensity relative to other countries in the region. He sounded lukewarm about the prospect of Unitech getting involved in the Indian 3G licence auction, saying that the company would be intitially focused on "basic services". Baksaas was also keen to express the belief that the telecoms industry is likely to be more resilient than many sectors in a downturn.

Late last month, Telenor finally withdrew the proposed rights issue, electing instead to fund its investment in Unitech Wireless in India through a combination of cash flow and issuance of additional debt. A proposed immediate result of this will be to make no payment of dividend to shareholders for 2008 or 2009.

Yesterday, another Nordic telecoms giant was reporting a positive contribution from emerging markets business units. As reported by Telecompaper, TeliaSonera's Eurasian activities continued to show strong growth, with sales up 45 percent to SEK 4.2 billion and EBITDA rising 57 percent to SEK 2.1 billion. Consolidated since October 1, 2008, the operations in Nepal and Cambodia affected net sales positively by 5.8 percent. However, according to Total Telecom, TeliaSonera cautioned that it needs to "be prepared for a potentially drawn-out economic downturn that may affect consumer and corporate behavior."

Nordic telcos' emerging markets plans for 'challenging' 2009