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

Zain (Africa) Speculation Watch: Episode 12

Zain share price: massive spike since the rumour mill started turning

One loyal reader has suggested it's high time that this blog revisited its most regularly explored theme - the ongoing not-so-mini-series that is Zain (Africa) Speculation Watch.

Note the parentheses around the word 'Africa', a set of punctuation marks that, for good reason, crept into the title of this series in Episode 11. Bracketing 'Africa' in this way was to denote that while this continuing investigation into developments at the Kuwaiti MEA telecoms group was initially focused on the rumours about the sale of Zain's African operations, the focus needed to become a bit wider, i.e. speculating about the future of the whole company. This was due to the UAE's Etisalat informing reporters of its interest in buying a 51% stake in the Kuwaiti group.

Since then, that loyal reader I mentioned has urged me to take note of a couple of possibly quite significant elements of the Zain story.

The first of these is the news that a major Zain shareholder is likely to consider selling its stake in the telecoms company if it receives the right price. That shareholder, the Kuwait Investment Authority (KIA) (the Gulf state’s sovereign wealth fund), owns a 24.61% stake in the operator. According to Kuwaiti newspaper al-Rai, "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."

That, then, looks like pretty positive news for the Emirati telecoms group if its interest in Zain really is very strong.

The other bit that my friendly reader brought to my attention is much more cloak-and-dagger.

My friend tells me he's heard whispers that "the whole Zain thing" has been a ruse set in motion with the sole intention of driving up the Kuwaiti group's share price. By way of support for this assertion, my pal urged me to take a look at Zain's stock chart from March to July. "It's quite amazing what transpired", my correspondent reminds me. Kuwaiti blogger 'Alpha Dinar' concurs, having noted back on July 13th that Vivendi’s USD 12 billion rumored proposal to acquire Zain’s African operations "has stolen headlines for the past few weeks, sparked large volumes, and resulted in a huge spike in Zain’s stock price."

I asked my correspondent whether he felt that the likes of Vivendi (and other rumoured Zain Africa suitors like France Telecom) could really be tempted into declaring their interest and thereby enabling any such ruse to succeed. My friend's response: "If the new buyers weren't really aware of the game, and if the game was well-played, I don't think they would have been able to keep the genie in the bottle. In any case, if Party A wanted to manipulate the share price, they would be the ones leaking and Party B wouldn't have been able to stay in stealth mode. I don't know how likely it is. I'm not saying that's what happened. I'm just saying that the price did indeed jump up quite a bit, and despite the talks having failed, it hasn't gone down that much at all."

My correspondent concedes that games of the kind being alleged here are not terribly common in Bahrain or Kuwait. He asserts, however, that this is a game often played in other parts of the world and that the fact remains that "the stock was even and then - BOOM - a ninety degree angle."

Who knows? Not me, that's for sure.

One company whose talks with Zain could be said to have "failed" is Vivendi, which announced on July 20th that it was "interrupting" the discussions. No reason was given at the time. Since then, however, Kui Kinyanjui, writing for Kenya's Business Daily Africa, has alleged that the French telecoms and media conglomerate's interest cooled following a disappointing trip to her home country. Kinyanjui writes that "a dozen senior Vivendi officials jetted into the country to view close hand one of the Zain operations their company hoped to purchase" and that "they came, they saw, were disappointed, and in the process, a multi-million dollar deal was scuttled." The article describes Zain's struggle to compete with Kenya's market-leading cellco Safaricom and cites unconfirmed information from Kenyan sources which indicates that Zain is "keen to sell its Kenyan, DR Congo and Sierra Leone units, and could consider separate bids from disparate telecommunications firms for those operations."

Such rumours of Zain breaking up its African portfolio and selling off operations piecemeal have been far less prominent than stories of that whole portfolio being sold to a single buyer. One prospective purchaser, however, has expressed an interest in buying up only those Zain-owned opcos which would complement its own existing African footprint.

In a recent Reuters note on France Telecom's need to limit margin erosion, Finance Director Gervais Pellisier is quoted as saying that the French incumbent telco "might look at some of the African assets of Kuwait's Zain if the latter decided to sell them in parts." Any willingness on the part of Zain to consider a piecemeal sell-off of some African assets - as alleged by Kui Kinyanjui - would presumably, then, be music to the ears of Mr. Pellisier and his colleagues.

Were a sale of Zain itself or just of Zain's African assets to go ahead, one stumbling block could come in the form of legal action brought by Econet Wireless, the telecoms group led by Zimbabwe-born businessman Strive Masiyiwa. As a recent Guardian article reminds us, in late 2000, Masiyiwa led a consortium that won a licence to operate a mobile phone network in Nigeria. Econet Wireless had a 5% stake in the consortium and claims it had a right of first refusal to buy out the rest of the network in the event of any bid emerging. A bid did emerge from Mo Ibrahim's Celtel International, but, writes the Guardian's Richard Wray, "a series of legal obfuscations blocked Econet from ever getting the chance to bid."

Celtel was, of course, subsequently acquired by Zain and Wray states that the fast-growing Nigerian mobile phone business now accounts for about half of all the Kuwaiti group's African revevnues. In court, says Wray, "Masiyiwa's lawyers are arguing he should be allowed to buy back Zain's Nigerian business at the price set in 2006, in effect blasting a hole straight through Zain's plans to sell its whole African operation with Nigeria as the jewel in its crown."

Well, another episode of Zain (Africa) Speculation Watch has probably left you not much the wiser. It was ever thus. Let's see what happens in the next installment. Don't touch that dial etc.

Zain (Africa) Speculation Watch: Episode 12

Mobile Merger Mania Mystery Tour: calling in Africa, Turkey, the UK and points worldwide

T-Mobile UK campus, Hatfield, Hertfordshire: uncomfortably close to DTW HQ

Late last month, I turned the gaze of DevelopingTelecomsWatch away from the world's developing countries and emerging markets and focused my attention much closer to home.

Getting all self-indulgent, I described the possible effects of a rumoured T-Mobile UK-Vodafone UK merger on the area where I live. This is because I am personally acquainted with a few people who make the pleasantly short commute from here in St Albans to the T-Mobile campus in nearby Hatfield. Without any real numbers to hand, my sense, then, is that the Deutsche Telekom-owned cellco is a pretty significant employer in this part of the world. So, in a town where the unemployment figure has recently surged upwards, albeit from a very low base, a true merger of the two MNOs is unlikely to be warmly received. I think this is the first telecoms story that I've ever heard being discussed by parents waiting for their kids outside my son's nursery school.

Perhaps a more predictable setting for talk of telecoms M&A activity is Investor's Business Daily, whose writer Reinhardt Krause believes that "after slowing to a crawl in the first half of 2009, deal-making among phone companies is bouncing back, a shift that's playing out in developed and fast-growing emerging markets alike." Krause quotes a former colleague of mine, Thomas Wehmeier, an analyst at Informa Telecoms & Media, who says that "the talking that has been continuously ongoing is finally bubbling up to the surface in the form of actual bids and deals."

Krause cites a number of prospective deals:

• Hutchison Whampoa may seek a merger for some or all of its money-losing operations in Europe, including 3 UK
• The merger talks between Bharti Airtel of India and South Africa's MEA mobile group MTN
• China Mobile being "on the prowl for more deals in Asia"
  
• The much-discussed notion of Zain selling its African operations

When asked about the last of these, Wehmeier expressed surprise, but conceded that "Zain is seeing that operating in the African environment is not simply a way to print money, not matter how impressive the rate of subscription growth."

Tom Elliott, an analyst at Strategy Analytics, meanwhile, says that Zain may be tempted by the huge "one-time gain" it would realise by selling its African assets. As Krause's article states, in 2005, Zain acquired Celtel International's African operations for USD 3.4 billion and, if the current rumours are to be believed, is now looking to sell these (plus some other acquired later) for around USD 10 billion. The even larger sum of USD 12 billion has also been mentioned - and for a very interesting discussion on how that a 12 billion dollar valuation could be calculated, I'd heartily recommend a nice article written by Carlos Valdecantos of Spain-based management consulting and advisory firm mmC Group.

The Zain story is certainly the one to which most time has been dedicated here at DTW but, as discussed, the T-Mobile-Vodafone issue is the one whose impact I'd be most likely to feel in day-to-day life here in London's commuter belt.

The last time I looked at this, I briefly raised reasons why such a deal might not be plausible. These included the idea that UK authorities might be concerned about the market power of the merged operation in a consolidated mobile market and the question of why Deutsche Telkom would offload such a significant asset at the bottom of the market.

Paul Rasmussen of FierceWirelessEurope, writing late last week, has an interesting take on these two concerns. Rasmussen has listened to sources who believe that DT may prefer an asset swap to a sale, favouring the acquisition of a "comparable mobile operator in central or eastern Europe" from a group interested in T-Mobile UK.

Rasmussen cites "insiders" who claim that DT's CEO, René Obermann, is keen to avoid a sale of its UK subsidiary, not least because this would create doubts about the company's ambitions to remain a global player. "Early speculation has placed Vodafone Turkey as a possible candidate", writes Rasmussen.

Vodafone's Turkish operation must count among Big Red's least satisfactory acquisitions. No dent, for example, has been made on Turkcell's leading share of the market, currently estimated at 56.40% by WCIS, which is actually slightly higher than it was at the same time last year.

In March, another Informa Telecoms & Media analyst, Dario Talmesio, profiled the performance of Turkcell and, when analysing the competitive environment in the company's home country, asserted that the cellco's achievements were "facilitated by the exceptionally weak state of Vodafone Turkey."

Talmesio wrote that "Turkcell continued to hold a competitive advantage against its British-owned rival... with Vodafone Turkey scoring particularly low compared with Turkcell in key areas, such as quality of network, commercial distribution and customer satisfaction".

On a personal note, I've travelled to Turkey on business a several times and have had the pleasure of making the acquaintance of people working with just about every significant telecoms operator there, as well as many more in the mobile VAS space and with various consultancy firms. There does seem to be a very strong feeling in Istanbul that Turkcell's dominant position is unlikely to be threatened any time soon. I've even heard the suggestion that Turkish consumers can be quite resistant to foreign brands competing with ones perceived to originate from their home country. Even this seemingly quite intangible advantage might weigh heavily in Turkcell's favour. Personally, I have a fairly strong aversion to slugs and snails - almost a phobia - so, Turkcell's use of the latter in its branding does not float my boat. It doesn't seem to put off the majority of Turkish cell phone users, however.

Turkcell's snail: not to my taste, but works just fine for Turkey's mobile users

One can see, then, why Vodafone might look to retreat gracefully from Turkey. Why, though, would Deutsche Telekom be keen to have a crack at all these problems which Vodafone has seemingly failed to handle? Well, as Paul Rasmussen writes, "such a move would nicely complement Greece's OTE", in which DT has been growing its stake since last year and which has a SE Europe footprint, with mobile operations in a number of Balkan countries.

If we're going to ask what is attractive about Vodafone Turkey, we might equally ask why Vodafone would be interested in T-Mobile UK. Beyond the opportunity to jump instantly to a 40% share of the UK mobile market and into a clear leadership position by market share, does the Deutsche Telekom-owned cellco not come with considerable baggage?

As Paul Rasmussen notes, analysts are beginning to question the value of what T-Mobile UK has to offer. He writes that "while the company has around 16 million customers, it is largely made up of an unstable base of prepaid consumers who can switch carriers easily to chase the cheapest or best value plans" and notes that "T-Mobile also generates around 45 per cent of its cash flow from its MNVO deal with Virgin Mobile, a deal that could easily evaporate if a new owner ruffled Virgin's sensitive feathers."

Bearing all of this in mind, you'd have to ask why media speculation abounds about the UK's two other leading mobile operator, O2 and Orange being interested in T-Mobile UK.

One suggestion raised by Paul Rasmussen is that this stems from each operator seeking to "spoil the ambitions of the others", leading to "the winner overpaying while the losers then complain bitterly to the regulator in an effort to confuse and delay the acquisition." Rasmussen argues that "The 'losers' could then attack the unsettled T-Mobile subscriber base with attractive offers and packages. Why so cynical, Paul?

Scary stuff.

Let's keep watching.

Mobile Merger Mania Mystery Tour: calling in Africa, Turkey, the UK and points worldwide

Zain Africa Speculation Watch: Episode 3

Zain-branded retail store in Uganda: needing a new paint job soon?

(image from Honeysun blog)

Telecoms media news sources, analysts and bloggers continue to be divided on the issue of whether there is much substance to the rumours about Zain looking to sell its African assets. Some commentary about this story, which, for me at least, popped up seemingly out of nowhere last week, continues to express a high degree of skepticism. The tone of some writing, meanwhile, seems to present Zain's desire to offload the former Celtel International operations pretty much as a given, focusing on quite detailed analysis of particular challenges that will have to be faced during the process.

Zambian journalist Michael Malakata, for example, writes in terms of how "Zain's efforts to sell its African operations" are likely to be hampered by problems such as a move by Econet Wireless Group to block the Nigerian element of the deal. Just as Malakata's article seems built on the assumption that Zain's exit from the African scene is actually going to happen, he also seems very sure that Orange/France Telecom is set to acquire the sixteen mobile operators supposedly up for sale - rather than Vivendi, whose name has been bandied about very freely these last few days.

Adam Durchslag of Reuters, conversely, seems more interested in examining the case for Vivendi being involved and gets a big thumbs up from me for making a pun of the word za(i)ny in the title of the blog post he wrote yesterday. I avoided the temptation to do so myself, but only just.

In his article, Durchslag picks up on widespread bemusement about how getting out of Africa would make sense in the context of Zain CEO Saad al-Barrak's recently stated ambition for the business to a top-ten global mobile operators by 2011.

With this in mind, Lesley Stones of South Africa's Business Day offers some useful thoughts on what could drive any sale, asserting that while Zain’s African operations accounted for 65% of its subscribers and 56% of revenue in 2008, "they absorb more than 75% of its capital expenditure, yet only account for 15% of net income." Stones states that "while Zain’s net income rose just 6% last year, if Africa had been excluded it would have been up 34%."

Adam Durchslag, meanwhile, considers the idea of a rather different kind of Zain-Vivendi tie-up potentially being on the cards, such as Zain taking a minority stake in the larger French group. If there is any substance to rumours of these two companies being in talks, perhaps that scenario is more likely than Vivendi simply buying operations from Zain. As Durchslag notes, it is worth considering Vivendi's ability to afford a USD 12 billion transaction. He points out that the French group has about EUR 8.3 billion of net debt and, "according to some analysts, has only EUR 1 billion for manoeuvre without jeopardising its investment grade BBB credit rating."

Durchslag then considers another possibility - that of Vivendi, through its Maroc Telecom subsidiary (which owns telcos in Mauritania, Burkina Faso and Gabon) buying only some of Zain’s African operations.

This raises of the question of whether Zain could conceivably be open to the possibility of breaking up its African operation and selling assets piecemeal to groups looking to fill gaps in their pan-African footprints - rather than a single transaction in which the whole lot are sold to a single buyer. Kenyan newspaper the Daily Nation carried rumours on Tuesday that Zain's Kenyan outfit "could end up in the hands of MTN Group, the powerful South African transnational." The article asserts that "MTN has for years been known to covet the Kenyan market", having previously tried and failed to buy the operation now known as Zain Kenya.

Writing for another Kenyan newspaper, Macharia Kamau considers MTN as a possible suitor, but spends more time considering the Vivendi option. In the spirit of Alanis Morisette, Kamau feels that if Vivendi succeeds, this would mark an "ironical" return of the company to the Kenyan market. Kamau reminds us that Vivendi sold a 60% stake in KenCell (the predecessor of today's Zain Kenya) in 2005. Any loyal Kenyan subscribers of this operator's services, therefore, are already on third brand name in a four year period. A further transaction could mean four brands in four years - that's almost as confusing as the regularity with which my favourite football club hires and fires managers.

Even this high degree of brand name turnover, however, would be trumped in Nigeria. Writing for that country's Vanguard newspaper, Prince Osuagwu, notes that if "Zain Group finally agrees to sell its Celtel Africa unit to a bidding French media conglomerate, Vivendi SA this week, the Nigerian operation of the company may be heading for the 6th... name change."

Osuagwu spoke with Zain Nigeria subscribers and reports some discontent at the prospect of yet another rebranding, feeling that some might switch to rival service providers because of "fears that the network might not catch up with competition after going through [the] image crisis that may possibly follow."

Thanks for bearing with me on another long-ish ramble through the Zain empire as I try to figure out whether this is a hot story, a non-story or something in between. There's bound to be a least one more episode in this mini-series. Don't touch that dial. No flipping.

Zain Africa Speculation Watch: Episode 3

Out of Africa: Zain to sell assets to a European buyer?

Earlier this week I started to receive email news updates suggesting that Zain, the Kuwait-headquartered multinational telecoms group specialising in mobile communications across the Middle East and Africa may be quitting the latter territory.

If this is correct, Zain's stay in Africa will turn out to have been quite a short one, having extended its reach from its Middle East roots via the 2005 acquisition of Celtel International, the pan-African telecoms group founded by the Sudanese-born British entrepreneur Dr. Mo Ibrahim.

One report from TelecomPaper contends that Zain Group may agree as early as this week to sell its African unite to a French company for up to USD 12 billion. A French company? A good guess has to be France Telecom/Orange, right? That was my first guess, but one report from a Nigerian newspaper is tipping Vivendi, the telecoms and media group whose assets include majority stakes in French quad-player SFR and Morocco's Maroc Telecom. It must be said that I haven't found any other articles naming Vivendi as an interested party...

The Nigerian report continues that if the deal isn't settled, Zain will study bids made by other companies. Apparently, the plan is for the French company to buy Zain Africa's debts, which will be discounted from the purchase price.

If there is any truth in this story, genuinely savvy market-watchers are now invited to smile at my naivety now because I must admit that since well before the inception of this blog, I have regularly opined that in the current economic climate, the only telecoms strategic investors likely to remain acquisitive, expanding their geographical reach in any major way, would be those headquartered in the Middle East and Gulf region. I was, of course, thinking of Zain as well as the likes of Etisalat and QTel. If these reports are to be believed, however, we will see a major Gulf region player divesting significant assets with a European buyer being the acquirer. Not at all what I would have expected.

If the timing of this were different, perhaps the pool of prospective purchasers would be larger. For example, one player which would presumably find it very challenging to become involved right now in a tussle for Zain's African assets is the South Africa-headquartered MTN group. If Zain really does intend to quit Africa, the timing is odd, argues Lesley Stones of MoneyBiz. Stones feels that MTN is an "obvious suitor" and therefore wonders why Zain would put its African business up for sale just as the South African group is negotiating a tie-up with Bharti Airtel of India, especially because these two "have agreed to talk exclusively to each other until July 31." MTN, as Stones, notes, was one of the interested parties when Zain/MTC prevailed with its acquisition of Celtel International.

Given my own contention that groups such as Zain are more likely to be in buying mode than selling mode these days, the big question for me around all of this is why Zain would be looking to sell its African unit. Let's look at evidence to support the notion that this would be a strange move:

• Celtel operators across Africa were the subject of an expensive rebranding exercise only last year - surely quite wasteful if there was never a long-term plan to stay in these markets.
• As Lesley Stones notes, as recently as November, Zain Africa CEO Chris Gabriel said the company "planned to be the acquisitor rather than the acquisition in an inevitable consolidation of telecoms players."
• As Stones argues, Zain CEO Saad Al Barrak has not hinted at any plans to sell, instead saying only a month ago that the group has an "unwavering commitment to reach our 2011 target of being a top-10 global mobile operator", an aim that would be made impossible by the shedding of a major chunk of its business.
• Zain’s commitment to Africa saw it launch a network in Ghana as recently as December.
• Zain has announced plans to introduce mobile financial services for Africa's unbanked via cellphones in several countries this year.

Bearing all of this in mind, the whole thing does feel rather implausible. The (non?) story seems to originate from a single article in a Kuwaiti newspaper. As Lesley Stones notes, rumours of the sale may simply be untrue. Watch this space, I guess.

Out of Africa: Zain to sell assets to a European buyer?

The going gets tougher in African mobile markets?

By writing here quite regularly about developments in Africa, I might have created the impression that I am a regular visitor to that continent. Not so. While it has been my pleasure to meet many telecoms sector executives who work hard to grow their businesses and widen the availability of services across Africa, these meetings have always taken place either on European soil or in the Middle East. Typing with crossed fingers might sound difficult (and painful), but that is what I need to do today because I am fervently hoping to avoid any last-minute problems which might prevent my finally correcting this glaring omission from my experience of world travel. All going well, I should soon be representing my company in Kenya on an admittedly too-short trip to the East African country.

With this in mind, it is perhaps understandable that one article which caught my eye around a week ago was a Financial Times piece about predictions made by MTN boss Phuthuma Nhleko. The influential South African businessman believes the continent will see a wave of telco sector consolidation in the next 1-2 years, and the article contends that this will result from both new entrants and more established competitors struggling to maintain healthy margins in increasingly crowded markets.

At first sight, you might think that there is plenty of room to play in Africa, where mobile penetration stood at just 37.75% by December 2008, according to the Informa Telecoms & Media-run World Cellular Information Service. The FT's Tom Burgis feels that this figure is "far lower than in all other regions." For me, the fact that WCIS logged just 44.64% penetration across the Asia-Pacific region suggests to me that while Africa does stand out, it is clearly not the only part of the world where further robust subscriber growth looks like a possibility.

Despite initially appearing to pick out Africa as the stand-out telco sector investment opportunity of 2009, the FT's Burgis first raises then dashes hopes of truly excellent growth prospects there, arguing that "all but the earliest arrivals in most countries have struggled to make inroads, despite often having to build infrastructure from scratch."

Does that claim stand up to examination? Let's take a look at Africa's most populous state, Nigeria. Here, the country's very first mobile operator is actually among the laggards: WCIS market intelligence suggests that M-TEL, the mobile arm of wireline incumbent Nigerian Telecommunications Limited, had fewer than 260,000 subscribers at the end of 2008, down from around 700,000 in December 2006. At the end of 2005, M-TEL subscribers numbered over one million.

So what has caused this alarming exodus of M-TEL customers? While the success of MTN and others has hurt in recent years, the arrival of the South African cellco's Nigerian subsidiary in 2001 did not immediately cause a reversal of M-TEL's fortunes. Quite the reverse, in fact. The country's first-to-market MNO continued to grow well when MTN and fellow 2001 entrant Econet Wireless Nigeria hit the local mobile scene.

Any subscriber loyal to the latter ever since its launch would be forgiven for having become a bit confused by regular branding changes. Econet was redubbed Vee Mobile in 2004 as a result of a protracted wrangle that I won't even try to summarise here. 2006 saw another rebranding when the MNO was acquired by Celtel International, another transaction not without twists and turns. A notable difficulty was the the last-ditch attempt by Econet Wireless to block the USD 1 billion acquisition. At the time, Informa's Global Mobile reported that Econet, as a co-founder of the cellco, had "long asserted preemptive rights" and was claiming to have "raised more than US$1.5 billion to acquire the company" while protesting that it had been "prevented from making payment."

By the time Celtel brand made its debut in Nigeria, the pan-African mobile group founded by Dr. Mo Ibrahim had already been acquired by Kuwait-based MTC, now known as Zain. In 2007, when MTC came up with the Zain brand, it was announced that the Celtel name would continue to be used across the group's African footprtint, at least for a while. As Global Mobile Daily reported at the time, the the decision to retain the Celtel name "was aimed at maintaining continuity", precisely because of how recently the operations in Nigeria and Kenya had been rebranded.

Fast forward to August 2008: after barely two years of operating with the Celtel name, the Econet-Vee Mobile-Celtel branding roadshow arrived at its most recent stop.

"Zain wants to be one of the top 10 mobile operators in the world within the next three years, and it has developed the Zain brand as the main vehicle for that global aspiration, because the company sees mobile telecoms as a commoditized business in which branding is one of a few important differentiating factors that are available to it," said my former colleague Matthew Reed at the time. Matt, the Middle East & Africa Intelligence Centre editor continued with words of warning: "Celtel is one of the best-known and most successful homegrown brands in Africa, and there are risks - as well as huge costs - in rebranding the Celtel operations. Zain also regards its One Network scheme as an important differentiator, but to some extent it can be copied by other multicountry operators."

The Nigerian market entry of MTN and Econet-Vee Mobile-Celtel-Zain (phew!) was enabled by the January 2001 auction of some GSM licences, with one reserved for existing player M-TEL, which up to then had run a TACS network used by around 40,000 subscribers. My understanding is that the Nigerian Government had intended to sell three licences in addition to the one put aside for M-TEL. One of these was not used.

One 2001 AllAfrica article that I found today tells the story of how Mike Adenuga, a billionaire businessman, banker and oil mogul had hoped to take part in the country's GSM revolution. His company, Communications Investment Limited (CIL), had emerged as one of the auction winners of the three slots auctioned by the government, but, the article states "barely a month later, things [had] turned sour for CIL and its quest for a digital mobile telephone licence." What went wrong for CIL, continues the article, "depends on who you talk to" with the the Nigerian Communications Commission saying that "CIL failed to pay for is licence in time" and CIL saying "it had demonstrated that it had produced the funds but was delaying the final stage of payment, because it was trying to clarify the status of the frequency it had been allocated."

"When you begin from day one with a frequency that is encumbered, that puts you at a disadvantage with your competitors," a spokesman for CIL told Allafrica at the time, adding that CIL "realised that the frequency given to it by NCC had previously been awarded to another company, and was the subject of a court case."

After this frustrating delay, Mike Adenuga finally got to compete in the Nigerian mobile arena in 2003, when Globacom launched services. Since then, the company has gone on to acquire over 16 million subscribers, including the roughly 30,000 that have been persuaded of the value of 3G services since Globacom's W-CDMA network launch in February last year. Going to market later than the 2001 auction winners does not seem to have prevented Dr. Adenuga's company from establishing a solid presence in the market, although it is worth noting that Globacom's market share has been declining fairly steadily since peaking at around 31% in the Spring of 2007. Globacom, now with a 25% share of the Nigerian market, has sought growth opportunities elsewhere in West Africa, rapidly establishing a solid presence in Benin and buying a mobile licence in Ghana, where sub-50% mobile penetration and a population of over 20 million may present a good growth opportunity.

Given the MTN CEO's comments reported by the Financial Times this week, it will be interesting to see if Globacom's foray into Ghana proves challenging in terms of maintaining decent margins. Back in Nigeria, we can watch how Etisalat manages to fare, having entered the market as recently as last year. Despite Globacom being pushed back in terms of market share over the last couple of years, with 16 million subscribers, it seems hard to argue that going to market later than its competitors has hurt the company badly in the sense of establishing a presence.

I will be interested to see how far an examination of further African markets in future posts will dig up evidence to support the notion that the going is about to get tougher for new entrants and established players alike.

The going gets tougher in African mobile markets?

Telcos hit by high licence prices in India and Romania

These days it is proving rather tricky not to make a blog entry without some reference to the global economic downturn. When I was putting some notes together for today's posting I thought I might manage it, but then I spotted the latest post on Dean Bubley's excellent Disruptive Wireless blog. Dean writes about the panel discussion which he will be moderating at Mobile World Congress in Barcelona next week, the theme of which is 'Prospering on a Shoestring', i.e. looking at "various tactics and strategies that can be employed by operators to mitigate the worst impacts of the downturn". In the years before I had the luxury of sharing an office with the in-house analysts at Informa Telecoms & Media, I had to beg, steal (not literally) and borrow information when working out what should be on the agenda of the various industry conferences it was my task to organise. Dean Bubley was always an excellent source of valuable insights and my hunch is that in this Highdeal-organised panel session, he will ask very challenging questions and stimulate lively but civilised disagreement between the participants. I am not sure if Dean rounded up the panellists himself, but whoever is responsible gets ten out of ten for putting together telco operator representatives from varied markets. Telekom Slovenije and Mauritius Telecom on the same panel? I doubt that happens very often.

I won't be there to see Dean stirring up debate. Having made it to two consecutive 3GSM/Mobile World Congresses, this year I will not be in Spain for the annual cellular industry get-together. Instead, I shall be using the next three weeks to prepare for the role I will be taking on in March. In case that sounds like a boringly pragmatic use of what could be a nice bit of free time, I should point out that a good deal of my preparation work will be done within sight of a swimming pool and golf course in south Florida. Much as I'd love to watch cold rain falling on melting snow for the rest of this month, family obligations compel me to turn my back on the dark, short days of northern Europe in favour of milder climes. It's a hard life...

I don't anticipate that this blog will grind to a halt while I am catching some rays in the Sunshine State, although I will have to work out my connectivity options. Cost-conscious in these troubled times, my host in Florida has ditched his PSTN line and broadband service and, when not in his office, is now linked to the wider world only by his AT&T Mobility iPhone. I'll fight him for it...

While enduring a punishing regime of sunshine, warm weather, free babysitting and free room and board, I will continue to keep an eye on what's going on among the telcos active in emerging markets. What caught my eye today was really just a case of picking up from yesterday's musings about the prospects for 3G and WiMAX in India.

Today's Cellular News mailout included a piece on how Vodafone Essar plans to meet the cost of its bids in the country's delayed 3G and WiMAX auctions. As I mentioned yesterday, the latest delay is a result of the country's Finance Ministry weighing in to see if the the reserve price for the 3G auction can be doubled. The Cellular News article provides the numbers: the current reserve price for the 3G auction is US$412 million with the Ministry now hoping for at least US$824 million.

Working to bring 3G services to market in India certainly seems to be a task fraught with difficulties, of which this demand from the holders of the nation's coffers is just the latest. Also sticking a spanner in the works is the country's Defence Ministry, which, according to this article, is set to release just one fifth of the unused defence sector radio spectrum that the Department of Telecommunications had hoped for.

In this challenging context, who can blame Vodafone Essar CEO Asim Ghosh for taking up the option to retire at the end of next month? According to a second Vodafone India-related Cellular News story today, Ghosh, who joined the former Max Touch-branded operator in 1998, is to be replaced by Marten Pieters, a former CEO of Celtel International, the pan-African cellco which is now part of Zain. Pieters is currently a director of Millicom International Cellular, a Luxembourg-headquartered company with mobile operations across Africa, Latin America and Southeast Asia.

While the 3G licence process in India has hit a number of hurdles, I discussed yesterday the belief that once these are overcome, the greater efficiency of the technology vs. 2G networks will turn out to be a key driver of accelerated growth of the country's overall mobile market. I wrote about a proponent of this view arguing that the case for 3G looks very positive and that WiMAX also looks a reasonable bet.

WiMAX fans will be more disappointed by news from Romania, where Telecompaper reports that absolutely nobody fancies either of the two licences in the 3600–3657 MHz and 3700–3757 MHz radio frequency bands for providing broadband wireless access services. Having acquired the tender book, a diverse group of initially interested parties have all come to a negative response to the EUR 7.5 million licence fee. These include two long-established mobile operators - Cosmote's Romanian operation and the country's outpost of the Vodafone empire. Also interested was RCS & RDS, a cable MSO and broadband service provider which launched 3G services in December 2007 and now has a mobile market share of just over 5% according to WCIS. Two more to say no were Asesoft International (an IT solutions provider) and a company called Comcore Management.

That's all for today. Having failed to avoid mentioning the global economic horror story today, I will set myself the challenge of not mentioning the Indian 3G and WiMAX licencing processes tomorrow. That might be tricky with new twists and turns getting coverage every day.

Telcos hit by high licence prices in India and Romania