Afrique Occidentale & Centrale Com: De retour au Sénégal par demande générale

The Zain-Bharti transaction: How will West African mobile markets be affected?

Mais non! DevelopingTelecomsWatch has not become a francophone blog. The frenchified title of today's offering is in honour of the fact that a noted West African telecoms conference is, after two years in Nigeria, to be hosted in Senegal in June.

Geopolitically, West Africa is defined by the UN as consisting of: Benin, Burkina Faso, Côte d'Ivoire, Cape Verde, Gambia, Ghana, Guinea, Guinea-Bissau, Liberia, Mali, Mauritania, Niger, Nigeria, Senegal, Sierra Leone and Togo. Of these, just four are countries where English is an official language. Of the others, two are Lusophone states and ten are French-speaking.

The organisers of the aforementioned conference have found that this linguistic diversity in the region creates certain challenges for them. Nigeria, as by far the largest market in West Africa, seemed to be the logical place in which to host the event for the last couple of years. Certainly, relocating the conference to Abuja (from its previous venue of Dakar, Senegal) two years ago paid tremendous dividends in terms of boosted attendance numbers and a good buzz of activity at the 2008 and 2009 iterations of the gathering. This was achieved, however, at the cost of making the event a tad less attractive for delegates from the numerous French-speaking markets. This effect was somewhat mitigated by ensuring that simultaneous English-French translation was available during all conference sessions, but perhaps not as much as was hoped given that this year Informa Telecoms & Media have moved the show back to Dakar again.

Given that delegates from telecoms operators attend for free, Informa monetises its Com World Series events (of which West & Central Africa Com is one) largely by selling sponsorship packages and exhibition space to the telecoms technology vendors that do business with those operators. These vendors will doubtless remain keen on the potential of the large (and fragmented) Nigerian telecoms market and might be concerned about not having a good tradeshow route-to-market to address this now the conference has headed back to Dakar.

With this in mind, I guess, Informa are also running a specifically Nigerian event in Lagos this year. This will make its debut in September.

In the meantime, what can we expect to be discussed at the Dakar gathering?

I guess one hot topic - addressed via offline chitchat if not via presentations and panel discussions - will be the effect of Zain's withdrawal from the region. The Kuwaiti group currently controls opcos in Burkina Faso, Ghana, Niger, Nigeria and Sierra Leone - as well as others in markets elsewhere in sub-Saharan Africa. As discussed ad nauseum in DTW posts passim., all of these are now set to be in the hands of giant Indian cellco Bharti Airtel. DTW's most recent article, mainly a brief exploration of whether India's mobile market is set to consolidate, did a little to talk up the ways in which Bharti Airtel might be able to reinvent Zain Africa by introducing the low-cost business model which it has empoyed on home turf. So let's see how much tougher sub-Saharan markets are set to become for Zain/Bharti's competitors.

This acquistion, however, may yet take a little while longer to conclude. One reason for this could be resistance from the governments of the countries in which the Zain-owned opcos are set to change hands. That said, there have been recent signs of these obstacles being overcome.

Back in March, for example, as reported by India's Economic Times, the Government of Gabon said it "disapproves" of the sale of Zain's Gabonese assets to Bharti Airtel and reserves the right to take "all necessary measures". Late last week, Reuters was reporting that this objection had been resolved.

It will be interesting, then, to see how long it takes to deal with any further problems of this kind. If the difficulties do continue into June, it should be interesting to connect with Tiemoko Coulibaly, Vice President of Zain's Western Africa operations at West & Central Africa Com in Dakar.

There will be many other reasons to attend the event - but connecting with the likes of Mr Coulibaly could be motivation enough for anyone who does business with Zain in Africa and now needs to keep on top of how the change of ownership is set to change the game.

Afrique Occidentale & Centrale Com: De retour au Sénégal par demande générale

India: operator space to consolidate while handset market gets more fragmented?

Maarten Pieters: Vodafone India CEO predicts market consolidation

Last week, a broad range of news outlets were carrying the claim that just 31% of the population of India were known to have access to a toilet and 'improved sanitation' in 2008. This is clearly a regrettable state of affairs, with dire consequences for public health, life expectancy and economic development.

Ordinarily, however, it does not follow that the seriousness of an issue always correlates strongly with the willingness of the global media to give it coverage. It was a welcome surprise, then, to see this particular issue given some space even by the website of the thin, brightly coloured newspaper given free at UK railway stations to daily commuters such as myself. After all, this is an organ whose print version dedicates just a few pages to what I would really call 'news' - far more space is given over to celebrity tittletattle and TV listings.

How, then, did this story successfully compete for space even in that kind of context?

The key seems to have been handing the global media an compelling, ready-written headline. The person responsible for doing so in this case appears to be Zafar Adeel, Director of the United Nations University’s Canada-based think-tank, the Institute for Water, Environment and Health.

So how did Dr. Adeel manage to craft a headline sufficiently eye-catching so as to propel this important but unglamorous issue up the news agenda last week? He did so by building it around the assertion that more Indians have access to a mobile phone than to a working toilet. Presumably, the desired effect on readers in Europe and North America was to stimulate a thought process along the following lines: 'More cellphones than toilets? That's crazy! Toilets have been around forever and are one of the most basic facilities expected for a civilised life -  but the mobile phone is a recently invented luxury item.'

Such a characterisation of the mobile device would be understandable when articulated by someone who ticks the following boxes:

• lives in a wealthy, developed country and has not had the opportunity to see mobile phones being used on the city streets or in the villages of (for example) Kenya, India or Bangladesh
• is old enough to remember when mobile phones were seen as an expensive status symbol used only by wealthy executives
• has not thought about how access to communications services can improve the lives of poor people by connecting them with time-saving information and services

Regular readers of this blog, and anyone working in or around the telecoms sector in emerging markets/developing countries, however, would be much less likely to think of mobile phones in this way. They would probably be inclined to realise that is precisely because developing countries have weak infrastructure that the mobile phone has rapidly become a truly vital part of the lives of even very poor people in such nations. Numerous examples of this have been decribed in DTW posts passim. Rather than trawl through all of those, readers might like to look at a nicely succinct round up of observations on this topic, made recently Anand Giridharadas, writing for the New York Times.

Giridharadas observes that there is "a global flowering of innovation on the simple cellphone" and that "from Brazil to India to South Korea and even Afghanistan, people are seeking work via text message; borrowing, lending, and receiving salaries on cellphones; employing their phones as flashlights, televisions and radios." He goes on to assert that "many do all this for peanuts", noting that "in India, Reliance Communications sells handsets for less than [USD] 25, with one-cent-a-minute phone calls across India and one-cent text messages and no monthly charge — while earning fat profits."

Readers of this blog, particularly any working in India's mobile sector, might on one hand take pride in seeing such achievements talked up but may, on the other hand, not fully recognise the idea of an industry revelling in 'fat' profits.

Certainly, the feeling in India may be that at the very low tariff levels referred to by Giridharadas, not all operators may continue to be viable. Sypmathetic to this view is Maarten Pieters, CEO Of Vodafone India. Speaking to the Economic Times last week, Pieters observed: "It’s all about scale because we have very low tariffs here. If you compared the tariffs here, it’s about 10% or what we get in Europe in the Vodafone Group as an average tariff. So, how can you survive as an operator on those low tariffs that is by creating scale and it is very clear that it will not be able for 10 people or 10 operators to create that scale, which means there needs to be some form of consolidation".

Pieters does not expect this consolidation of the mobile market to happen overnight, however, because it would not be facilitated by India's current M&A rules. "So, we first need to see some changes of the rules and then you will probably see consolidation."

Indian mobile operators, then, have to strive for profitability in an extremely tough environment. Quite often, I have heard industry watchers articulate the view that this should equip the country's cellcos very well for meeting the challenges of extracting a profit from developing countries elsewhere in the world. Also out there is the feeling that any Indian MNOs with international ambitions will need to be mindful of quite different challenges they may face.

Writing last month for telecoms.com about the purchase of Zain's African opcos by Bharti Airtel, for example, Matthew Reed observes that "Bharti will be looking to reinvent Zain Africa by introducing the low-cost business model that it has pioneered successfully in India" and "will also be hoping to achieve economies of scale across its Asian and African operations, which together will make it the fifth-largest mobile operator in the world".

Reed does offer words of caution, however, arguing that "operating in Africa does present particular challenges, some of which will be new to Bharti, despite its credentials as an emerging-market operator."

"The takeover of Zain Africa", writes Reed, "will give Bharti operations in 15 different countries, each of which has its own political and regulatory conditions, and some of which present some political risk. The diversity alone will be something new for Bharti, which only had mobile operations in India until it made recent moves into Sri Lanka and Bangladesh."

Reed also observes that while tariffs in Africa have traditonally been rather higher than those Bharti Airtel has to live with on home soil, the giant Indian cellco is entering many African markets at a time when higher levels of competition have more recently been pushing down prices. "In much of sub-Saharan Africa", Reed adds, "the infrastructure is poor and distribution is difficult."

Maarten Pieters of Vodafone India, meanwhile, is almost uniquely well qualified to make predictions about how his company's major competitor is likely to fare as it embarks on its African adventure - between 2003 and 2005, he was the CEO of Celtel International, the collection of African operators acquired by Zain and subsequently sold on to Bharti Airtel. Pieters has also served on the board of Millicom International Cellular, the multinational mobile group whose African assets currently include opcos in Chad, DRC, Ghana, Mauritius, Rwanda, Senegal and Tanzania.

Pieters offers words of encouragement: "Bharti is a very fantastic company. I really admire them. They have done a very good job in India. They have a very good management. If anyone can make a success out of the old Celtel assets, then it’s them. So, I am very happy that they are in good hands."

While, as Pieters argues, consolidation of the Indian mobile operator space may be inevitable, the handset market, conversely, seems to be becoming more fragmented. Priyanka Joshi of the Business Standard writes that "the segment has seen entry of one mobile vendor every month." For the year 2009, Joshi asserts, "new vendors registered a combined market share of 12.3% of the total 101.54 million mobile handset sales."

Examples of new market entrants offered by Joshi include Wynn Telecom. "Starting May this year, writes Joshi, "the company will launch seven dual SIM handsets priced under Rs 5000 and will also get ready to manufacture handsets in India."

Some new entrants, explains Joshi, will build a business around devices tailored to meet the needs of users in India's vast rural areas. Olive Telecommunications  is one example of a company with this strategy.

It will be interesting to observe, then, whether the mobile services and mobile handsets markets do indeed move in these opposite directions - with the former consolidating down to a smaller number of operators of scale and the latter continuing to offer opportunities for innovative new entrants.

India: operator space to consolidate while handset market gets more fragmented?

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 Airtel, edging 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 telecoms.com 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 telecoms.com 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 telecoms.com 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.

Zain Africa Done Deal Watch

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

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

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

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

This just left Tigo Sri Lanka unsold.

The Sri Lankan mobile market is currently contested by that operation and four other MNOs. In terms of the operators' shares of the country's estimated 13.6 million subscribers (according to WCIS), the competitors are ranked as follows:

1. Dialog Telkom - 46.33%
2. Mobitel - 24.14%
3. Tigo Sri Lanka - 17.44%
4. Bharti Airtel Sri Lanka - 9.46%
5. Hutch Sri Lanka - 2.63%

The last time DTW offered an opinion about how this competitive landscape might change, perhaps too much was made of the likelihood of the number of operators consolidating down to four. No very sophisticated analysis was made, nor any inside information sought. It was simply the case that the prospective purchasers of Tigo Sri Lanka getting the most media coverage at the time were companies already active in the island nation. I had noted, for example, that Bharti Airtel was rumoured to be interested in snapping up Millicom's operation there, having read an article by R. Jai Krishna of the Wall Street Journal which reported comments from an unnamed person close to the development. Suggesting that any deal would be worth USD 100-120 million, that mystery source had said "in Sri Lanka, if you need to be a significant player in the market, you need to do an acquisition... greenfield, you will not be successful," by way of explaining the rationale behind Bharti Airtel's rumoured move.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

No. Not now - and maybe not ever.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Anyone who watches these markets - or indeed who reads this blog on a regular basis - will not be surprised to learn which two potentially huge and seemingly stalled deals are the focus of Matt's article:

• the prospective sale of a stake in MEA mobile group Zain, or perhaps just the sale of its African operations
  
• the long-mooted cash and share-swap tie-up between giant Indian cellco Bharti Airtel and South Africa's multinational telecoms group MTN

I only propose to spend time on the latter here today.

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

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

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

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

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

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

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

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

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

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

Zain Group: all operations up for grabs?

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

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

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

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

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

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

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

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

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

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

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

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

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

Zain (Africa) Speculation Watch: Episode 13

Anil Ambani, Reliance Communications: eyeing Zain's African operations?

The newswires have been humming with more than enough Zain-related information over the last few days to justify this thirteenth episode of our mini-series following the summertime rumours around the Kuwaiti telecoms firm.

On Sunday, Eman Goma of Reuters reported that the pan-MEA mobile group has asked shareholders to vote on removing certain ownership restrictions, a move that would pave the way for selling a large stake. This seems to have prompted a Sunday surge in Zain's shares on the Kuwaiti stock exchange, as speculation rose that the move could allow an outside investor to take a large stake in the company.

In the most recent chapter of the Zain (Africa) Speculation Watch story, we considered the possible sale of the 24.61% stake in the operator held by the Kuwait Investment Authority (KIA) (the Gulf state’s sovereign wealth fund) - Kuwaiti newspaper al-Rai, had reported that "the KIA has no objection to discussing any offer to buy its stake in Zain whether made by the UAE’s Etisalat or others under the condition that the offer would be serious and with attractive returns."

Without expressing an opinion about possible purchasers of that stake, it now seems that Zain's management would welcome the opportunity to part ways with the KIA. As a Cellular News article reported this week, Zain CEO Saad al-Barrak has said that he wants to see the sovereign wealth fund sell its stake in his company as soon as possible. "I wish they would leave tomorrow, and I am working on this," he said. He added that the motivation was to ensure the company could operate without political interference.

Whatever the future holds for the group as a whole, stories continue to bubble up about Zain's African portfolio. Only yesterday, that man Eman Goma was reporting comments made by Barrak to al-Rai, to the effect that the company is in talks with three major telecoms firms, including one from India, to sell all or part of its African operations.

Which companies are being referred to here? One of them might be France Telecom. Ten days ago we noted here that in a recent Reuters note on the French incumbent telco's need to limit margin erosion, Finance Director Gervais Pellisier was quoted as saying that the company "might look at some of the African assets of Kuwait's Zain if the latter decided to sell them in parts."

What about the unnamed Indian party? Could that be Bharti Airtel? Back in February, I would not have hesitated to offer that name as my best guess. An article by a former colleague of mine, Nick Jotischky of Informa Telecoms & Media, prompted me to write my own piece about whether India's market-leading cellco might be driven to more aggressive international expansion by the numerous competitive pressures it faces in its home market.

Since then, of course, the Indian mobile operator has been involved in lengthy talks with South Africa's MTN group about a possible tie-up between the two. Given the apparent complexity of those discussions, is it naïve of me to assume that simultaneous talks with Zain would not be feasible? After all, my understanding has always been than an exclusivity agreement has been locking Bharti Airtel and MTN out of discussions with other prospective bedfellows. Earlier this month, the Bharti Group announced the extension of this exclusivity period through to 31st August, and the Economic Times has reported in the last few hours that Bharti Airtel is now very close to raising the funds needed for what would India’s biggest cross-border deal to date, surpassing Tata Steel’s acquisition of Corus for USD 12.2 billion in 2007.

Even if it were possible for India's leading mobile operator to discuss any interest in Zain's African assets at the same time as working on its mooted tie up with MTN, another complication would be that the Kuwaiti group and the South African group have somewhat overlapping footprints. The two companies compete with each other in Congo, Ghana, Nigeria, Uganda and Zambia.

As Eman Goma's article noted, this issue of overlapping assets would also have to be taken into account in any approach Etisalat may make for Zain. Goma quotes Prime Holdings analyst Sleiman Aboulhosn, who says that the Emirati group may be content to cherry pick some of Zain's assets in the region, given regulatory restrictions on a wholesale purchase. "Etisalat cannot buy the ones that co-exist with its own assets, for example in Nigeria," he said in Dubai. "So they might be interested in some parts."

If Bharti Airtel is currently an unlikely suitor for Zain, which other Indian companies might be making the enquiry mentioned by Saad al-Barrak? One possible candidate is state-owned telco BSNL. In June, Reuters reported comments made by the company's Chairman, Kuldeep Goyal, who said the the public sector telco is looking to expand to Africa by acquiring new licences or stakes in firms. "We are looking into various options there... getting into new licences, which are being issued, or partnering with existing licencees (and) taking a stake," Goyal told reporters. Asked whether BSNL, which has cash stockpile of more than USD 6 billion, was ready for a big acquisition, he said: "Yes, why not?"

The positive assessment of the state of BSNL is not shared by Kunal Kumar Kundu of consulting and IT services firm InfoSys. In our most recent article here at DTW, I quoted Kundu's recent Asia Times article, which is nothing short of a gloomy assessment of the health of the state-owned operator, which he feels is 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."

If Kundu's analysis is correct, and if this would prevent any ambitious foreign adventures by BSNL (rather than perhaps actually making it imperative to consider them), perhaps Reliance Communications is a more plausible prospective purchaser of some or all of Zain's African assets? Towards the middle of last year, the Anil Dhirubhai Ambani Group-owned operator withdrew from inconclusive talks of its own with MTN. Another Economic Times article written in the last few hours suggest that the Indian operator's interest in Africa has not waned since then. Amrita Nair-Ghaswalla writes that "sources" have named Reliance Communications as the Indian company currently in discussions with Zain.

The last time DTW visited the topic of all this speculation about the future of Zain, much was made of the impresssive performance of the company's stock since the rumour mill really got churning around mid-May. I even considered whispers passed to a loyal DTW reader - and then to me - to the effect that "the whole Zain thing" has merely been a highly successful attempt to manipulate the Kuwaiti group's share price. If there is anything in that suggestion, the success of any such ruse would appear to have come to a halt around a week after we discussed it here, should we choose to heed the warning noises emanating from Dubai-based investment bank Shuaa Capital. Late last week, Ramya Dilip of Reuters noted that the bank had downgraded Zain to "sell" from "neutral," saying the risk-reward profile of the shares were no longer attractive at current levels.

Around the same time, another Reuters piece carried quotes from analysts who could see the logic of selling the African assets and predictions about Zain's ongoing strategy in the wake of any such sale.

"The African operations are the major contribution to the revenues and subscriber base," said Jithesh Gopi, head of research at Bahrain-based Sico Investments. "But as far as net profit ... they have not been a contributor to the group."

According to this article, African markets account for about 62% of Zain's 64.7 million customers, but only 15 % of the group's net profit, as of the end of March. Seven out of 16 African operations, the article states, made a first-quarter net lost. In the Middle East, only the Saudi Arabian operation was loss-making.

"It's going to be a company that's refocused on the Middle East with a series of very strong franchises," said Simon Simonian, a telecom sector analyst at Shuaa Capital.

If Simonian is correct, Zain's growth plans would be downgraded as the majority of the Middle East markets served by the group are mature to the point of saturation, the exceptions being Jordan and Iraq, where operators face security issues, a relatively unpredictable regulatory/licensing environment and the prospect of a new entrant in the mobile space.

In that scenario, Zain would presumably focus primarily on upgrading existing networks and increasing revenues from mobile broadband multimedia services.

Work of this kind is naturally ongoing across the group's Middle Eastern operations. The Saudi opco, for example, last week announced that it had secured a USD 2.5 billion Islamic loan facility (Murabahah), which will be used to repay an existing Murabahah facilitating network expansion and future growth.

In Bahrain meanwhile, writes Roger Field of ITP, Zain is planning to upgrade its network with LTE technology in a bid to "future proof" its operation and gain an advantage over rival operator Batelco and the new entrant cellco owned by Saudi Telecom. Field observes that Zain Bahrain has failed to provide a timeframe for the network upgrade, but notes that similar projects in other parts of the world are expected to take more than a year to complete, from the time they were announced.

This wraps up another episode in this ongoing saga. Perhaps the fact that Zain's own Saad al-Barrak seems to revealing snippets to the Kuwaiti press suggests that the story is moving beyond the speculation stage. Whether this means we can expect to see imminent announcements about the future of Zain and of its African operations remains to be seen. Keep watching.

Zain (Africa) Speculation Watch: Episode 13

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