Cellco-branded mobile banking to thrive without challenge?

If you were asked to reach for an example of mobile financial services gaining traction really impressively, perhaps you would think immediately of the M-Pesa service offered by the Kenyan cellco Safaricom, in which Vodafone owns a minority stake.

I daresay most readers are somewhat familiar with the service. For those who are not, Safaricom's TV advertisement provides a concise demonstration of the simplicity and utility of M-Pesa:



Since its launch in 2007, M-Pesa has attracted widespread praise. In February 2008, the 'send money home'-themed marketing campaign, of which this ad was a component, scooped the 'Best Broadcast Commercial' gong at the annual Global Mobile Awards ceremony hosted by the GSM Association. This year, 'Best Mobile Money Service' was introduced as a new award category at the same ceremony - Safaricom and Vodafone were joint winners. More recently, M-Pesa has been feted by UN-HABITAT, the United Nations agency for human settlements whose mission is to promote socially and environmentally sustainable towns and cities with the goal of providing adequate shelter for all. In June, the agency announced the first Habitat Business Awards for best practice in categories including affordable housing, clean urban energy solutions and innovative ITC solutions. In the latter category, Safaricom made the winning submission for M-Pesa, which the jury felt boosts urban entrepreneurship and clearly demonstrates the impact of innovative IT solutions for sustainable urbanisation.

In its submission to the judges, Safaricom mentions Kenya's large 'unbanked' population - people, largely from the urban poor, to whom opening a bank accounts is off limits. The submission document explains that such people face challenges around the safety of carrying cash (mugging and carjacking are cited as dangers they face) and the high cost of transferring monies to relatives in rural areas via existing channels.

The benefits for the consumer, then, are quite clear - but what does a mobile operator such as Safaricom gain from entering the mobile money space? Dawn Marshallsay of mobile^SQUARED, writing in January, emphasised how mobile financial services drive up cellphone usage. She also quotes Safaricom CEO Michael Joseph, who told delegates at a London conference that "banking is a value-added service for mobile, not a money-making product"

"The main purpose of mobile banking is getting the customer to have an emotional attachment with the operator as they entrust their monetary details with the operator. Customers then start using their phones more in general," Joseph continued.

Where one operator in a developing country achieves differentiation as the only provider of such services, benefits for that operator, then, would presumably include achieving a high degree of customer stickiness in a market where the vast majority of mobile users are highly price sensitive (due to their relative poverty vs. their counterparts in developed countries) and where prepaid plans are dominant.

This model, in which consumers are locked into a specific mobile operator's set of financial services, is open to challenge, however. Earlier this month, Richard Wray of the UK's Guardian newspaper wrote about a recently-announced deal between mobile banking firm Monitise and Paynet, a company which operates ATMs and electronic payment services across Kenya, Tanzania and Uganda in partnership with thirty-five banks. Wray writes that the deal "will bring financial services to millions of people in Africa for the first time". The suite of services will include checking balances, moving money between accounts, and enabling customers to fill a mobile-wallet with cash to pay bills or send money to relatives.

A pretty close resemblance to M-Pesa and other mobile operator-run services, then. The crucial difference emphasised by Wray, though, is that while operator-branded services demand that users are customers of a particular MNO or are connected with a specific bank, the Monitise system is open to any financial institution and any mobile phone network that wants to plug into it. If I have understood this correctly, it seems, then, that M-Pesa and rival services such as Zain Kenya's Zap are to be challenged by an operator-neutral alternative. Monitise CEO Andrew Lukies believes that "mobile money is most effective as an 'open ecosystem' where you can transact with anybody or any organisation, regardless of your bank or mobile operator. Another differentiator, according to the Monitise Group's press release on this deal, is that "uniquely among mobile banking services, [it] enables people without a bank account to use its services, as well as providing traditional mobile banking to those with accounts."

It remains to be seen how far operator-neutral services of this sort pose a competitive threat to cellco-branded solutions such as M-Pesa, Zap, Orange Money (launched by France Telecom's mobile operation in Côte d'Ivoire) and the service launched by MTN Uganda in March, which the South African group hopes to roll out across its African footprint.

Assuming any such threat can be withstood, services like M-Pesa - improving the lives of the unbanked while providing cellcos with a customer retention tool - seem to be good for consumers, good for society and good for the operator.

None of this is to suggest that M-Pesa and services like it are never subject to criticism or concerns around their reliability and security.

Earlier this month, writes Victor Juma of Kenya's Business Daily, a technical hitch in the M-Pesa service caused anxious customers to crowd at outlets to have their accounts updated. For several days, it seems, users were unsure of whether some transactions had been properly credited to their accounts.

The service also appears to have been targeted by organised criminals depositing counterfeit currency via M-Pesa agents. Kenya's Daily Nation newspaper reported on 4th August that staff in two bureaus in the towns of Kutus and Kianyaga had received fake money worth Sh29,000 (about USD 380). Accounts used by the fraudsters were topped up without agents spotting the counterfeit cash. I assume that fraudulent deposits of this kind can be stopped once noticed, but this incident demonstrates that no system is completely immune from human error. Having visited Kenya, but never having stepped inside a retail bank there, I have no idea whether counter staff in banks there are more highly trained than M-Pesa agents and therefore less prone to making mistakes of this kind. Whatever the case, my feeling is that if mobile operators in developing countries are to capitalise on consumers' lack of access to traditional financial services and institutions, the authorities in those countries would be justified in insisting that the cellcos' services are subject to many of the same regulations imposed on the banking sector. I daresay, however, that incidents like the two mentioned here are relatively rare, so none of these observations are meant as a very serious criticism of mobile financial services in developing countries.

Kenya - and more specifically Safaricom's M-Pesa - stands out as a mobile money success story. How far is it an exceptional story? Can we expect services of this type to face greater obstacles to consumer acceptance and commercial success in other developing countries?

Sarah Rotman of the Consultative Group to Assist the Poor (CGAP) could presumably take a view on this, having written in July about the question of whether the success of mobile banking in Kenya can be replicated in neighbouring Tanzania. Rotman notes that unlike the rapid service uptake and quick development of an agent network in Kenya, things have moved much slower for Vodacom’s M-Pesa product in Tanzania. Explanations offered are as follows:

• Geography/demographics: Tanzania is a less densely populated country than Kenya, which is important in light of the idea that the density of an agent network is a key factor in the success of any mobile financial services suite.
• Market and competition: Safaricom in Kenya dominates its market (77.59% market share as of June 2009, according to WCIS), holding its own very well against established competitors and new entrants. Vodacom in Tanzania has just a 35.28% market share (according to WCIS) and is losing ground to the local operation of the Zain group and Millicom International Cellular's Tigo-branded operator.
• Control over agent networks: according to Rotman, it appears that Vodacom Tanzania has less direct control of and influence on its airtime distribution channel than Safaricom. Also, Vodacom works directly with just six airtime wholesalers, compared with 300 for Safaricom. Safaricom’s airtime distribution network was a key element in the rapid development of the M-Pesa agent network.
• Marketing and strategy: Initial Vodacom M-Pesa marketing seems not to have communicated the easily understood 'send money home' message we say in the Safaricom advertisement. As a result, writes Rotman, customers were unsure of what the product offered them and if it was really geared at the average Tanzanian.
  

While there are plenty of reasons to be bullish about the success prospects of mobile money services offered by cellcos to unbanked people in developing countries, then, it seems this enthusiasm should perhaps be tempered by an awareness of possible competitive threats from operator-neutral solutions and an understanding that a one-size-fits-all approach might not work effectively across a multi-country footprint.

Cellco-branded mobile banking to thrive without challenge?

Mobile Merger Mania Mystery Tour 2: No Turkish Delight for T-Mobile?

Richard Moat: What's in store for the recently-appointed MD of T-Mobile UK?

We're going a bit off the usual 'emerging markets/developing countries' beat again today, I'm afraid. Bear with me. For a few reasons, this is a story I care about.

Having worried a little, however, about the possible effects of a Vodafone UK-T-Mobile UK merger on the area where I live (the northern bit of London's commuter belt), it now looks as if my fears are not to be realised.

Well, that's if I choose to believe my former colleagues at Informa Telecoms & Media. Informa's telecoms.com news site ran an article on Monday that seems to suggest any buyout of T-Mobile UK now looks unlikely. The article mentions a recent announcement by UK telecoms and media watchdog Ofcom which indicates that the regulator is satisfied with the level of competition in the country's mobile sector. According to analysts, the article contends, this means that the change caused to the UK mobile market by any consolidation would risk drawing regulator attention. One such analyst, Michael Kovacocy, of Daiwa Securities, is quoted: "Assuming rational operator behaviour, we would be inclined to believe that an already weak case for buying T-Mobile has been made weaker for the big three UK mobile players," says Kovacocy.

Although he also features a simular quote from Michael Kovacocy, the tone of an article written on the same day by Dominic White of Mobile News, however, is quite different. Two months ago, White asked whether recently appointed Richard Moat was about to become the shortest-serving MD ever of T-Mobile's UK operation. White feels now that this possibility "seems more likely after it emerged that Deutsche Telekom has hired investment bankers at JP Morgan to explore so-called 'strategic options' for the group." White argues that more often than not, language of this sort is code for putting the business up for sale.

As well as my fears for how a sale of T-Mobile UK might affect my local area (where the cellco has its HQ), I'd also be disappointed to learn of Richard Moat not being given the chance to get stuck into his new job, not least because I found him to be a friendly and helpful contact when I was working more actively in Europe than I am now.

For a long time, I took advantage of my familiarity with Central and Eastern Europe (having lived and worked there in the early-mid 1990s) to organise and host telco sector conferences and networking events in locations such as Prague, Budapest and Bucharest. In the latter, I met Richard Moat for the first time. Richard was then heading up Orange Romania, where, during his four year stint at the helm, revenues grew from from EUR 624 million in 2004 to EUR 1.31 billion in 2008. The cellco also retained its market-leading position, keeping just ahead of Vodafone Romania and dealing with a trading environment made more competitive by the arrival of new entrant in the mobile space RCS&RDS.

While speaking at the 2006 version of the Informa Telecoms & Media CEE region conference in Bucharest did not demand a major time commitment from Richard, I found he was happy to jump on a plane and take a day out of the office when the event moved to Prague the following year. As well as making a great presentation in Prague, Richard made himself available for a chat, during which he shared useful insights about the telecoms sector in Romania and the wider region. My impression is that Richard is the kind of CEO really appreciated by analysts and journalists as well as conference organisers because he is keen to find the time to share his views and contribute to discussions around issues facing the industry. During his stint in Romania, Richard seems to have been similarly generous with his time when talking to local telecoms sector magazine/news portal Comunicatii (which, by the way was always a useful media partner for my events). This interview with Comunicatii's Ion Vaciu, recorded in February, is an example of that:

Of course, Richard Moat - and Deutsche Telekom - may be able to stick rather than twist. As Dominic White of Mobile News notes, Germany's incumbent telco could hold onto its UK mobile business, but he contends that "what is known is that Vodafone has had a peek at the business and is considering making a bid that would prompt a massive shake-up of the UK mobile sector."

White discusses an issue previously raised here at DevelopingTelecomsWatch - that if Vodafone were to try and buy T-Mobile UK, or to merge their UK businesses into a 50:50 joint venture, it would command more than 40% of the UK market, which would be more than enough to attract the attention of the Competition Commission, which typically investigates any deal that gives a company more than 30% of a particular market. White notes, however, that analysts think a deal might get through the hoops, pointing out that in markets such as France and Germany there are operators with more than 40% market share. White also reminds us that the UK is the only major European market with five mobile networks, a throwback to the turn of the millennium when the government raised GBP 22.5 billion selling 3G licences, including one to the new entrant 3, which was mentioned by the telecoms.com article as the only contender for a deal with T-Mobile UK which would not attract a response from the regulators. This point is made, I assume, because of the late entrant having a significantly smaller share of UK mobile subs than any of the other four network operators.

According to WCIS, the UK mobile market is currently split as follows in terms of market share:

1. O2 - 29.27%
2. Vodafone - 21.38%
3. Orange - 21.35%
4. T-Mobile - 21.31%
5. 3 - 6.69%

My feeling is that if 3 UK were somehow to tie-up with T-Mobile UK, it would surely be a case of the latter purchasing the former. I say this because of how much I've read lately about 3's parent company Hutchison Whampoa looking to raise cash rather than spend it. For example, the group has confirmed it is in talks to sell its stake in the Orange-branded Israeli MNO Partner. The group may also sell a stake in 3 Italia to investors from the Middle East, according to a Cellular News story earlier this month.

Dominic White believes that the UK 3G auction held earlier this decade, "and the way it was rigged to generate maximum value for the government" has hamstrung the mobile industry in this country ever since - too many networks and tremendous pressure on each player's profit margins. He notes that Deustche Telekom has already written down the value of T-Mobile UK after a year in which it underperformed the rest of the industry. According to White, Vodafone is considering a bid within the range of GBP 2.5-3.4 billion.

For Michael Kovacocy, these numbers do not look right. In the telecoms.com article, he warns any purchaser against overpaying and argues that only "a bargain basement price" of GBP 1-2 billion makes any sense.

Terry Sinclair of Citigroup, however, likes the idea of Vodafone picking up T-Mobile UK. In Dominic White's article, Sinclair is quoted as saying that the combination could boost Vodafone’s earnings by GBP 200-300 million within three to five years. Needless to say, continues White, that would mean a lot of cost cutting, which is the main reason for the tie-up: "if your revenues aren't growing enough the only way to boost profits is to squeeze your cost base." He feels that Vodafone would also be able to put more customers over one network and would have extra buying power and a greater footprint to roll out new products and services.

If it really is as hard for mobile operators to make good margins in the UK as has been suggested here today, this could provide a rationale for Deutsche Telekom seeking to get out of Britain and into somewhere which offers better prospects and/or a neater complement to the German telco's many operations in Central and Eastern Europe. DTW has previously noted suggestions that a favoured option could be some form of asset swap with Vodafone, whereby Deutsche Telekom would get its hands on Big Red's Turkish operation, which has struggled to compete effectively with market-leading Turkcell.

A fairly wide range of opinions, then, on whether the UK mobile market is about to consolidate. So it remains worth watching.

Mobile Merger Mania Mystery Tour 2: No Turkish Delight for T-Mobile?

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

How many cellcos does it take to deliver quality, choice and value? It depends where you ask...

A number of recent blog posts here at DTW have chewed over the issue of how many mobile operators is the optimum number for a given market. That has usually been 'optimum' in the sense of a number conducive to a level of competition which allows all players to turn a decent profit. It occurs to me now that I've spent less time thinking about the optimum number of MNOs in terms of making up a competitive environment which delivers choice, value and quality to subscribers.

This last point seems to be on the minds of Nepal's new Minister for Information and Communications, Shankar Pokharel, according to a report from Cellular News yesterday.

The Minister has warned the country's two cellcos that the Government might consider licensing a third mobile operator if they do not improve their quality of service. This is despite the fact that the current operators have a guarantee that no new networks will enter the market until September 2010 at the earliest.

This is not the first time this year that the county's MNOs have faced criticism and intervention.

In March, according to the Global Mobile Daily service from Informa Telecoms & Media, the country's telecoms regulator was pressuring operators to lower interconnection rates, the telcos having failed to reduce rates when asked to do so in February. The feeling would seem to be, then, that high prices have been keeping services beyond the reach of much of the population of a country whose economic development is hampered by a number of factors - the country's isolation from the world's major land, air and sea transport routes; hilly and mountainous terrain making the building of roads and other infrastructure difficult and expensive, which means volume distribution of goods is very challenging; a relative lack of tangible natural resources and the importance of agriculture in the economy meaning that over 75% of the workforce is employed in low-paying farm work; around half the working-age population being unemployed or underemployed. Mobile penetration, according to WCIS, currently stands at just 18.23%.

One of the two incumbent mobile operators, Mero Mobile, appeared to be responsive to concerns about prohibitively high tariffs by late March, when it announced substantial cuts to prepaid prices, according to GMD. Mero Mobile is now part of TeliaSonera's Eurasia business unit, the giant Scandinavian telco having acquired a controlling interest last year.

The growth-inhibiting factors described above make for a challenging market for Mero Mobile and its rival in the cellular space, Nepal Telecom, which is also the county's incumbent fixed-line operator. Of these factors, the rugged physical geography of the country presents a number of problems. This is clear from the fact, as reported in yesterday's Cellular News article, that the TeliaSonera-controlled MNO has announced that it will invest USD 120 million in 2009 and USD 130 in 2010 on boosting its network coverage, with some of the investment to go on increasing back-up power supplies to cope with the unreliable national power grid. Nepal Telecom has apparently also recently announced plans to boost its own back-up generators and switch to renewable power supplies where possible due to the same reliability issues.

The nature of the terrain also necessitates the use of satellite communications for cellular backhaul, as demonstrated by the incumbent telco selecting Gilat Satellite Networks earlier this year to ensure coverage in rural communities.

It remains to be seen if the new Nepali IT/telecoms Minister will open the market to a third operator and, if he does, how much enthusiasm this market arouses among strategic investors. Clearly, Nepal is an under-penetrated territory and, with a population of nearly 30 million, could represent a decent-sized opportunity. A new entrant, however, will need to be mindful of the challenges presented by the country's under-developed economy and infrastructure.

From a market in which the government is keen to add another MNO into the mix, we now turn our attention to one where this is decidedly not the case.

According to a TeleGeography article yesterday, the Information & Communication Technology Agency (ITCA) of Mauritius is of the opinion that four MNOs would be to many for the island nation of around 1.3 million souls.

Three cellcos currently compete there. Orange is the clear market leader with an estimated 57.50% share of mobile subscriptions. Next comes Emtel, a company in which Millicom International Cellular has a stake and which claims to have been the first mobile telephony operation in the whole southern hemisphere in 1989.

A much smaller player, founded in 2003, is Mahanagar Telephone Mauritius, a subsidiary of Indian state-owned telco MTNL. This company, which also provides broadband and fixed-wireless telephony services, has just an estimated 2.67% of the country's mobile subs on its CDMA network - Orange and Emitel operate GSM and 3G W-CDMA networks.

The company hoping to join these MNOs to compete in a mobile market with a 83.55% penetration rate is Outremer Telecom, an operator with a presence in the French overseas departments of Guadeloupe, French Guiana, Martinique and Reunion. According to yesterday's TeleGeography piece, this company has been dealt a blow to its plans to extend its footprint to Mauritius, with the ICTA declining its application for a mobile licence. Outremer Telecom says it plans to appeal the decision to the ICT Appeal Tribunal.

The ICTA told the company it had decided not to issue a fourth mobile operating licence, citing the global economic downturn and the need to protect the investment plans of incumbent operators as the reason. ICTA is understood to have received official complaints from Orange and Emtel.

Presumably, ICTA believes that the current line-up of operator delivers quality and value to the mobile consumer of Mauritius.

How many cellcos does it take to deliver quality, choice and value? It depends where you ask...

How far will the merger of Romania's 3rd and 5th-placed cellcos shake up the country's mobile market?

In mid-May, as part of a longer piece about M&A activity potentially changing the competitive landscape in Central and Eastern Europe, I noted that Greek telecoms group Cosmote had reportedly reached an agreement with Oger Telecom regarding the takeover of Romanian CDMA mobile operator Zapp.

According to James Middleton of telecoms.com writing today, this deal now seems to have been concluded, with Cosmote buying Zapp under a share purchase agreement worth EUR 61 million. The Greek firm will also assume Zapp’s debt and other liabilities worth in the region of EUR 146 million.

The country's mobile market, the penetration rate of which currently stands at 135.13% according to WCIS, will therefore be contested by four cellcos once Cosmote's Romanian operation is merged with its new acquisition.

Why was Zapp an attractive purchase for Cosmote? After all, the acquired company has just 242,000 of the country's 28.7 million mobile subs, according to WCIS figures. Further, the CDMA network operator has been experiencing a steady decline in its customer base since June 2007, when its number of subs peaked at around 546,000.

As I said in May, the answer lies in the fact that although Zapp had already got into third generation service provision via the deployment of a existing CDMA EV-DO network, the company decided last year to use UMTS/HSDPA technology for its 2100 Mhz network as opposed to CDMA2000. This solves a pressing problem for Cosmote Romania, which was the lone cellco with no 3G proposition.

"This opens up a new cycle of development and a widening of the customer base for Cosmote in Romania, given that the company is acquiring both a third generation license and infrastructure," Cosmote group CEO Michalis Tsamaz said in a statement issued last week.

Alkman Granitsas, writing for Dow Jones Newswires today, rounds up some analyst responses to to deal. Brokerage HSBC Pantelakis Securities, for example, stated that the company had paid "full price" for the acquisition, paying a multiple of 3.4 times 2008 enterprise value-to-sales.

"The main rationale behind the acquisition was (Zapp's) 3G licence with the network currently covering 23 Romanian cities," said HSBC. "Cosmote Romania was the only mobile operator in the country not owning a 3G licence; hence we believe that OTE had to pay a rather full price to effectively acquire such a licence so as to be able to compete more effectively in this highly competitive market."

Certainly, Cosmote must be hoping that the addition of 3G services to its portfolio will sharpen its competitive edge in a market where the Vodafone and Orange branded cellcos have been much more successful to date, with 33.95% and 35.34% market share respectively. Their Greek-owned rival lags some way behind with 22.90% of mobile subs. Zapp aside, only latecomer RCS&RDS has built a smaller share of the market - just 6.97% when the WCIS folks last crunched the numbers.

Perhaps more serious for Cosmote, and presumably partly attributable to its lack of a 3G offering, is the degree to which is under-performs in terms of ARPU. Monthly ARPU for Vodafone and Orange as of 2Q 2008 was EUR 10.30 and EUR 10.33 respectively, according to the most recent Central & Eastern Europe Mobile Market Analysis and Forecasts report from Informa Telecoms & Media. The same report indicates that Cosmote Romania's ARPU for the same period stood at just EUR 4.9. Cosmote was also doing much worse than its rivals in terms of ARPU decay, it's 2Q 2008 numbers being down a hefty 25.8% vs. the figure recorded a year earlier. While its two main competitors had also seen ARPU decline, this was at nothing like such a rapid rate.

It will be interesting to review the updated figures a year from now and see if the Zapp acquisition has represented good value for money for Cosmote.

How far will the merger of Romania's 3rd and 5th-placed cellcos shake up the country's mobile market?

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

Zain Africa Speculation Watch: Episode 2

My reporting of last week's speculation about Zain selling its entire African portfolio certainly generated a decent number of hits for this blog. I daresay anyone else who blogged about it saw a spike in visitor numbers.

The chitchat on this topic continues this week, with Cellular News feeling around for an explanation for why Vivendi might have been named as a possible buyer, while conceding that we still only seem to have a single report from a Nigerian newspaper as a source for this (non?) story. Undeterred by this, the Cellular News folks wonder whether a Vivendi bid might have something to do with Vodafone eyeing Zain's African assets. The reasoning for this is as follows:

"Vivendi currently owns a 56% stake in French mobile network, SFR - with Vodafone holding the remainder. The joint shareholding in SFR will raise speculation that Vodafone is involved in the talks through its South African Vodacom subsidiary."

Last week, when reports began to surface of a "French company" being involved in all of this crazy hullabaloo, Vivendi was not the first name that sprang to my lips. Instead, I quickly voiced the thought: it has to be Orange. Several days later, with the scribes at Cellular News trying to find reasons for why Vodafone might be the real stalking horse, I am, frankly, none the wiser.

So I looked to my former employers for some inspiration, noting that the good people at telecoms.com have had the time to do a bit of asking around. None of this, however, visits the issue of who might be in the mix to pick up Zain's African operations. Instead the focus is on, why the hell the Kuwait-headquartered would be looking to get out of Africa, a move which the telecoms.com editoral team describe as going "against pretty much every noise the firm has ever made about its strategic ambitions", which is pretty much in line with the thoughts I articulated myself here last week.

The telecoms.com guys asked one of their Informa Telecoms & Media colleagues for her view, quizzing Thecla Mbongue, the firm's senior analyst covering Africa. Thecla was reported to be "bemused" but did reveal that she had picked up on some grumbling from Zain executives about governance problems in certain African countries. This was communicated to Thecla at a "recent ITM event". I guess that must have been the East Africa Com conference in Nairobi back in April, which I attended myself and where I bumped into Thecla and other ITM market watchers. I always seem to miss the real intrigue at these get-togethers. While Thecla was getting useful inside info from Zain-ites, I was merely walking the halls trying to sell my wares.

In last week's chat with telecoms.com, Thecla also suggested "that perhaps the firm is struggling with the low margins on offer in many of its African markets."

Other analysts, according to the telecoms.com article, are divided. One unnamed source claimed that some kind of sale is "extremely probable" because "Zain is highly leveraged and financially constrained"; Angel Dobardziev of Ovum, meanwhile, told telecoms.com that any sale is unlikely because "Africa is very strategic to Zain" and "it doesn’t look like it needs to make the sale" because although "Zain does have a high level of debt... it also has a lot of cash and, if you look at current asset prices, this is not a great time for a seller."

The plot (if there is a plot) thickens. Or this is something we'll have all forgotten about in a few days' time. Take your pick.

Zain Africa Speculation Watch: Episode 2

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?

Refreshing news for emerging markets MVNO proponents?

Kirène Mobile avec Orange: new MVNO on the scene in Senegal; graphic from www.kirenemobile.sn

In March I asked which of India or Africa would be the first to see mass-market MVNOs. I tentatively concluded that perhaps India looked the better bet.

In that discussion, I made reference to a presentation by Carlos Valdecantos of mmChannel, a technology company dedicated to the development and management of digital entertainment services and platforms on a B2B format. In this presentation, Carlos argues that while Africa, taken in the round, might not yet be ready for the wide scale development of MVNOs, certain markets could possibly prove to be more attractive for investors in prospective virtual mobile operators. For Carlos, the high-potential markets are South Africa, Ghana, Morocco, Algeria, Tunisia and Egypt. This is due to their meeting several criteria that he sets:

• good market size (population level, GDP)
• strong economic liberalisation
• dynamic telecom sector

For Carlos, mid-potential African markets for MVNOs are Namibia, Mozambique, Cameroon, Gabon, Congo and Equatorial Guinea. These are described as having a reasonable mix of suitable market size, developing economic policies and economic reform underway. In this model, a further group of low potential markets is defined as being countries which "show an interesting opportunity in some of the key characteristics but completely fail to meet others." These are: Botswana, Tanzania, Kenya, Uganda and Sudan.

This leaves a large number of African countries which Carlos describes as "no go markets" for MVNOs.

Yet it is from one of these "no go markets" that news comes today of an MVNO being launched. According to a Cellular News item, Kirène, a mineral water brand in Senegal says that it has launched an MVNO in the country, running on the Orange Senegal network. The mobile service will be branded as "Kirène Mobile avec Orange", with the Mobile Virtual Network Enabler (MVNE) services being supplied by Transatel.

Quoted in the article is a gentleman I've had the pleasure of meeting more than once on the conference circuit, Philippe Vigneau, Transatel's Director of Business Development: "Being a forerunner for both companies, this project was really important to us. First of all because it was the first partnership concluded in Africa on a brand agreement (with Orange). On the other hand it is the first time that a food-industry brand, turns to a worldwide operator to develop a mobile telephony offer."

I will watch with interest to see how successful this enterprise turns out to be. Is Senegal the right place for such a venture? Or is Carlos Valdecantos right to content that the country is among the "no go markets" for prospective MVNOs?

I am also intrigued by the notion of a food and beverage sector brand getting into the MVNO business. In his presentation, Carlos observes that there is likely to a strong correlation between the long-term profitability of an MVNO and the strategic assets the company/brand brings to its mobile venture. He cites assets and examples including:

• systems + billing + customer base - example: Tele2 using fixed-telephony IT infrastructure to support virtual mobile service offerings across Europe.
• differentiated value proposition/specific target segment - example: ay yildiz, an MVNO aimed at Turkish immigrants in Belgium, with special prices on calls to Turkey and Turkish language customer support.
• access to customers/sales and recharge channel - example: Fresh Mobile, an MVNO offering in the UK from the Carphone Warehouse, the country's leading independent mobile phone retailer.
• access to huge customer base - Tesco Mobile is the MVNO offering of the UK's largest supermarket chain, which has a distribution channel unrivalled in its pervasiveness; the chain also collects rich customer data via discount card schemes.

On my travels in Turkey, I've also heard it suggested that Istanbul's big three football clubs, each of which has a fanatical fan base numbering in the millions, might enter the MVNO space once market conditions make it feasible.

I am much less clear what a mineral water brand brings to an MVNO project, much less in a potentially very challenging market such as Senegal. That said, I have never visited the west African country and could not comment on the degree to which Kirène is a dominant, well-loved brand. Perhaps brand equity alone will be enough to make this enterprise succeed.

Refreshing news for emerging markets MVNO proponents?

MECOM/Telecoms Leaders: see you in Abu Dhabi?

Later today I am getting on a plane headed for Abu Dhabi, UAE. I'll be dividing my time between Abu Dhabi and Dubai from Sunday to Wednesday, heading back home in the small hours of Thursday morning.

If any regular readers of this blog would like to connect for a face-to-face chat about all that's going on in emerging markets worldwide and to establish whether we can help one each other somehow, I'd be happy to see what I can fit between already planned meetings. My day job is as a telecoms sector executive search/selection consultant so I may be able if you're looking to attract new talent for your telecoms sector business (operator, technology/software vendor, regulator) or if you're seeking a new opportunity for yourself. I'm also just keen to get closer to as many markets as I can, learning from new contacts and sharing what I know in return. If any of this is of interest and if you're going to be in Dubai/Abu Dhabi from Sunday 24th to Wednesday 27th, let's see if its worth trying to connect. In the first instance, email me at developingtelecoms@yahoo.com. I will pick it up in real-time.

On Monday, I plan to spend a good chunk of the day at the excellent Telecoms Leaders 2009 conference attached to the annual MECOM trade show held in 25th-27th May at the Abu Dhabi National Exhibition Centre (ADNEC). Telecoms Leaders looks very worthwhile, with contributions from speakers including:

• Khalid Al-Kaf, CEO, Mobily, KSA
• Grahame Maher, CEO, Vodafone Qatar
• Osman Sultan, CEO, Du, UAE
• Mickael Ghossein, CEO, Jordan Telecom Group/Orange Jordan
• Rohit Adya, CEO, Vodafone Essar, India

This is all organised by the lovely people at IIR Middle East, whose support has been truly appreciated as my firm has worked to organise a networking reception we are hosting tomorrow. I know they will be delighted to get further registrations for Telecoms Leaders and/or for the other related conferences and workshops taking place at the ADNEC this coming week. So: roll up, roll up...

I shall try to find the time to blog on the highlights of the conference more-or-less in real time - but the road to hell is, as most of us know, paved with good intentions. So, no promises...

MECOM/Telecoms Leaders: see you in Abu Dhabi?