Something to Grin about for Malawi's mobile users?

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

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

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

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

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

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

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

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

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

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

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

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

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





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

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

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

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

Something to Grin about for Malawi's mobile users?

South Africa's Telkom: a fighting chance?

Telkom Direct stores: a vital channel to market as the company faces challenging times?

DevelopingTelecomsWatch is picking up lots of chatter today about Telkom, the incumbent wireline operator of South Africa. This started when this morning's daily roundup from TeleGeography included the news that the company is planning to re-enter the mobile space in 2010 after only a brief period with no cellular presence.

Until almost exactly one year ago, Telkom and Vodafone had each owned 50% of Vodacom, the pan-African mobile operator with 35 million customers in South Africa, Tanzania, Lesotho, Mozambique and the Democratic Republic of Congo. Earlier this year, the UK-headquartered mobile giant secured a controlling interest in Vodacom with the purchase of an additional 15% stake from Telkom. The remaining 35% owned by the South African incumbent was listed on the Johannesburg Stock Exchange and unbundled to the company's shareholders.

When plans for this transaction were first announced late last year, Lloyd Gedye of South Africa's Mail & Guardian reported the stated rationale for Telkom's sale of its stake in Vodacom and noted that many analysts "had expressed skepticism at Telkom's ability to make a success of going it alone in the mobile space and have questioned how Telkom will survive without the Vodacom cash cow."

Back in November 2008, then, Gedye wrote that Telkom CEO Reuben September was arguing that the deal would unlock significant value for the company's shareholders because its fixed-line business had "been undervalued while it clung on to its 50% stake in Vodacom".

How much validity is there in that notion of Telkom's wireline property being undervalued? The notion is, at the very least, open to question according to An Ovum note issued this week in response to Telkom's announced plans to roll out its own mobile services. Ovum examine the background to this strategy and observe that fixed-line penetration (currently under 9%) is continuing to fall in South Africa so "mobile is clearly the communication mode of choice, and this is where [Telkom] needs to be for its customers."

However, the note continues, establishing a new mobile operation in South Africa won't be easy, as mobile penetration is already above the 100% mark and because Telkom will be competing with two large, well-established players in Vodacom and MTN.

A third mobile operator, Cell C, has achieved a 15.57% share (according to WCIS) of the country's mobile market since its commercial launch in late 2001. For other mobile service providers, South Africa has offered a very challenging competitive environment. Back in March, in an article on the prospects for MVNOs in both Africa and India, DevelopingTelecomsWatch noted that Virgin Mobile South Africa had failed to capture even 1% of the country's mobile subscriptions by the end of 2008. The significance of the recently-launched CDMA mobile offering from Neotel, Telkom's principal challenger in the fixed-line arena, remains to be seen.

While Ovum's note politely points out the level of challenge facing Telkom's proposed new mobile offering, others have responded with far less restrained language. An article by Tiisetso Motsoeneng of Reuters today quotes one analyst who certainly pulls no punches.

"To be targeting the retail market in that industry, I think it will be suicide for Telkom," Jan Meintjes, an analyst at Gryphon Asset Management said. "I fail to see how a converged strategy of fixed and mobile is going to be earning significant margins," Meintjes said. "Unless they can show to the market that there's a specific niche that they're targeting and how they can exploit that in terms of earning margins on that business that will give them an accepted ROE on their capital expenditure, I don't see how that can be value enhancing."

The Ovum note, however, reminds us that in South Africa, Telkom claims not to be starting a mobile network operation from scratch. The note points out that the group already has fixed core network assets, which are used by both Vodacom and MTN for backhaul, and an established channel to market through over 134 Telkom Direct shops. Ovum contend that Telkom can choose to "develop a new brand and associated lifestyle concept to target some of the high-spending customers". Also, the Ovum note continues, Telkom could potentially have greater appeal to enterprise customers due to an ability to bundle services across fixed and mobile networks.

Lloyd Gedye's article late last year indicated that another use of the Telkom's Vodacom windfall might be to acquire a number of new mobile licences in numerous African countries. These would be in addition to the company's existing interest in Nigeria. According to Candice Jones of ITWeb, however, Multi-Links, the Nigerian telco in which Telkom has had a controlling interest since 2006, "is in dire straits, knocking Telkom's annual results set with a R1.7 billion net loss."

Let's see if this difficult experience discourages Telkom from further international expansion. My sense all this year is that African mobile markets are more likely to consolidate than they are to offer rich opportunities for new entrants.

While mobility in South Africa offers a new source of revenue for Telkom, Ovum argue that any new revenue streams from mobile - or from enhanced ICT services currently being developed - "are unlikely to significantly bolster its financials in the near term." Of more immediate concern, Ovum contend, is Telkom's rising cost base. Ovum's note expresses the belief that by implementing best-practice approaches in its own transformation, Telkom is giving itself a fighting chance in the challenging times ahead of it.

South Africa's Telkom: a fighting chance?

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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?

Zain Africa Speculation Watch: Episode 10 - Who's rejecting whom?

Today seems to be merger/takeover/tie-up-on-hold-day at DevelopingTelecomsWatch.

We begin with a brief visit to India for a peek at that country's most current mooted-marriage-gone-bad story before turning the gaze of DTW once again on the main subject of our fascination - the future of Zain's assets in Africa.

The deal which has stalled in India is a proposed merger of two state-owned telcos, BSNL and MTNL, which, according to an Economic Times story yesterday, has been put on hold for the time being because, in the words of IT and Communications Minister Gurudas Kamat, "the enabling conditions for the suggested options are not appropriate enough to lead to a successful merger."

OK. Back to Zain Africa Speculation Watch, the mini-series. Now running to ten episodes, is this still a mini-series though? I'd hate to think I'll be visiting this ad nauseum. I hadn't planned for this to run seemingly forever like Cheers, Friends or Seinfeld.

Writing this particular episode, however, could hardly be avoided - yesterday I gave up counting how many news services were carrying the announcement by French telecoms and media conglomerate Vivendi that it was "interrupting" talks about acquiring a majority stake in the African assets of Zain. As Cellular News observed, no reason was given for the break-off of the talks and no hint given about whether they would resume at some stage. The Cellular News article, however, reminded us that when the talks were confirmed earlier in the month, Vivendi said that it "attaches the utmost importance to keeping its credit rating and its dividend at their current levels and will continue to work in the interests of its shareholders." The article speculates whether recent comments from debt ratings agency, Standard & Poor's may have caused Vivendi to back off - the comments amounted to a warning that the company's credit rating could face a downgrade following any investment in Zain.

Staying with this theme for a moment, I'd like to recommend a rather amusing treatment of how Vivendi's credit rating might be affected - rough calculations and quick analysis by 'Somze', whose Telecommunication in Nigeria blog is well worth a read.

Andrew Parker of the Financial Times, meanwhile, asserts that while Vivendi has not ruled out restarting talks with Zain, much could depend on the level of interest from other companies. Parker suggests that France Telecom and Vodafone will be tempted to take a look at Zain's African operations because both have stakes in mobile businesses across the continent.

Elizabeth Judge of the Times, however, seems much more confident that Vivendi will resume discussions with Zain, writing that "people with knowledge of the talks, which would create a combined business with more than 62 million subscribers, indicated it was a temporary breakdown and that negotiations were likely to resume at a later stage."

These reports, then, don't really make any suggestions about what might have gone wrong. Thanks, then, to the good people at Gulf News, for translating into English a much more juicy story (from Kuwaiti daily newspaper Al Qabas), which gets straight to the point with the allegation that Zain has rejected a Vivendi offer mainly on the basis of not liking the terms and conditions of payment. This story also contends that Zain feels its financial position is strong enough to accept only the most beneficial offers.

One person emphatically not attracted to the truth of this is Kuwaiti blogger 'Alpha Dinar', who asks whether Zain rejected Vivendi or Vivendi walked away. 'Alpha' feels the latter is probably correct.

So, it feels like we are still some way from knowing how this saga is going to play out. I daresay what was once a mini-series will indeed run for a few more episodes.

Perhaps, though, we can be a tad more confident about developments in one outpost of Zain's African empire where the group does appear keen to cash in some of its assets. According to George Obulutsa of Reuters, the Kuwaiti group plans to give up its 35% stake in state-run Tanzania Telecommunications Company (TTCL), the largest fixed-line operator in the East African country and the owner of a struggling CDMA mobile service with just 115,000 subscribers, according to an estimate by the World Cellular Information Service from Informa Telecoms & Media. Zain also has its own GSM operator in the country, with an estimated 4.47 million subscriptions, which gives it a market share of 32.27%.

The Reuters article does not state why Zain wishes to end its involvement in TTCL, but I daresay this is not unconnected to the generally shaky state of the Tanzanian telco which has, since the early part of this decade, been in a number of joint management arrangements necessitated by its financial instability. The latest of these came unravelled very recently, with Canadian firm SaskTel International pulling out of a management contract covering the operation, maintenance and expansion of the incumbent’s network to improve its financial, commercial and technical performance. This was meant to run until July 2010.

So, while it seems pretty clear what's going on in that one particular corner of the Zain footprint, the bigger picture remains worth watching. Don't touch that dial. No flipping - etc. etc.

Zain Africa Speculation Watch: Episode 10 - Who's rejecting whom?

Tanzania update: Lucky seven or lucky eight?

Tigo Tanzania - one of seven or one of eight cellcos on the market?
photo from the Daily Nation (Kenya)

A little while ago, I wrote a piece here about the mobile market in one East African country whose title included the phrase 'lucky seven'. The point of that was to ask whether what I took to be that country's seventh cellco - a CDMA network operator using the brand name Sasatel - would be able to make much of an impact.

A anonymous DevelopingTelecomsWatch reader has pointed out that in fact that country, Tanzania, was already home to seven licensed mobile operators prior to the maket debut of new-kid-in-town Sasatel. As the helpful reader pointed out, HiTS Telecom already appears to have a presence in the country, asserting that the company launched GSM services in the Dar es Salaam region last month and is building out its nationwide network over the next two years.

I must be getting old. How did I forget to mention the HiTS Telecom Tanzania operation? Not only have I exchanged correspondence with someone who works for that operation, but I also (briefly) met one of their people at a conference in Nairobi earlier this year. A definite senior moment, then, for DTW.

That said, the HiTS Telecom launch last month does seem to have gone ahead with relatively little fanfare and also seems to have been somewhat behind schedule - in June last year, the group's CEO spoke to CommsMEA and indicated that operations would begin in late 2008. Around the same time, according to the Citizen newspaper, Excellentcom Ltd (which trades as HiTS Tanzania), signed a USD 180 million contract with Chinese telecoms solutions vendor Huawei, whereby the latter would start "building Excellentcom's network to enable it to cover the whole country within 13 months." If the work was meant to start immediately, then HiTS Tanzania would have national coverage around now rather than in the two years from now mentioned by our anonymous reader.

HiTS Telecom clearly has a presence in Tanzania, then, and while perhaps I can't be forgiven for neglecting to mention that in an article profiling the country's mobile market, you can possibly see why I remain a bit unsure of the status of the operation. That said, I definitely should have used the term 'lucky eight' in the title of the article rather than 'lucky seven', though perhaps the former would only make sense for Chinese readers of DTW.

Again, input from readers who really know the Tanzanian scene would be gratefully received.

In other Tanzanian news, the country's oldest and largest fixed-line operator, TTCL, whose CDMA cellular service has a small and dwindling share of the mobile market, is set to be affected by the withdrawal of the Canadian company which signed a three-year deal to oversee the incumbent telcos operations in 2007, according to a TeleGeography article on Monday.

It seems that SaskTel International's three-year management contract covering the operation, maintenance and expansion of the incumbent’s network to improve its financial, commercial and technical performance was meant to run until July 2010. The TeleGeography article states that the Candian company's departure "raises fresh questions over why a series of privatisation plans for TTCL have derailed."

The article goes on to say that SaskTel has reportedly submitted a 45-day notice (ends 12 July) notifying its intention to pull out of the deal citing its inability to raise the funding necessary to transform the operator’s fortunes. It seems that SaskTel has failed to secure government guarantees for a USD 1.5 million loan for TTCL, needed for various projects.

Hopefully the above improves upon my (clearly imperfect) previous Tanzania round-up for any readers interested in the telecoms scene of that country.

Be lucky.

Tanzania update: Lucky seven or lucky eight?

Lucky Seven? Can the Tanzanian market offer solid returns for its (growing) plethora of mobile players?

Via TelecomPaper on Tuesday, I learned that one East African country will soon home to its seventh mobile operator, which will offer services over a CDMA network. With a population of around 40 million, Tanzania is not an insignificant country, but one must wonder if there is room for all players to run profitable operations in a market split so many ways.

How many other markets of about this size support such a large number of MNOs? The answer seems to be... none. Here is a fairly comprehensive sample of nations with populations of roughly the same size:

• Spain - 45m - 4 operators
• Colombia - 44m - 3 operators
• Sudan - 42m - 5 operators
  
• Argentina - 40m - 4 operators
• Kenya - 39 m - 4 operators
  
• Poland - 38m - 4 operators

Even highly penetrated, mature European markets of roughly the same population size, then, are home to fewer MNOs - cause enough, perhaps, to be cautious about the prospects for a brand new entrant in Tanzania. Further, it is already the case that two existing CDMA operators in the country have failed to establish large customer bases. One of these, Benson Informatics, is an ISP and telecoms service provider founded in 2000, which added mobile services to its product portfolio in 2007. To date, according to WCIS, the company has built a market share of just 0.2% - barely 3000 subscribers.

A bit more significant is the mobile network of Tanzania Telecommunications Company (TTCL), with a reported 110,000 subscriptions, down from a high of around 160,000 subs in September 2007. Prior to 2007, TTCL offered a fixed-wireless CDMA WLL service. The decision was then made to offer mobile services. In the two years that have followed, the impact on the market has clearly been very limited.

Once wholly state-owned, TTCL is the oldest and largest wireline telco in the country and operates the PSTN network of mainland Tanzania. The country's name is portmanteau of Tanganyika (the mainland of the present day country) and the Zanzibar achipelago of islands a few miles offshore. In the latter, the fixed-line market is split between TTCL and Zantel, the second basic telephony services provider there.

Given that CDMA mobile operators across Africa are typically pretty minor players in terms of market share, it is perhaps not surprising that TTCL's mobility proposition has not really grabbed the attention of Tanzanian consumers. Further, the company itself is perhaps not ideally geared to compete with the three GSM operators that have collectively established almost a 90% share of the mobile market. While these three are outposts of significant multi-country mobile groups (Zain, Vodacom and Millicom International Cellular), TTCL has, since the early part of this decade been in a number of joint management arrangements necessitated by its financial instability.

The company's rival in the Zanzibar fixed-line space, Zantel, has fared rather better in the mobile space, with a 9.19% market share (about 1.1 million subs on its GSM network).

Overall, the mobile penetration rate of Tanzania has not yet passed the 30% mark, lagging well behind the overall rate for the African continent as a whole (39.19% as of March 2009). Does that mean there is sufficient room for growth for this veritable plethora of mobile players? Perhaps not. In terms of GDP per capita at Purchasing Power Parity, Tanzania appears to rank as low as 50th out of 53 countries in Africa. Further growth of the overall market, therefore, will doubtless by constrained by consumers' ability to afford even very low-cost services.

A discussion of this type is not new territory for Developing Telecoms Watch. In March, I considered the case of Gabon, asking whether a fourth entrant mobile operator could expect to be profitable. Around the same time, I was thinking a bit about how tough the Burundi market appears to be.

Blog posts of this kind are just very quick thumbnail sketches of these markets - a quick look at mobile market metrics (penetration, market share etc.) cross-referenced with some very basic information about the countries themselves. You might be able to guess that for the latter, I am rarely looking further than Wikipedia. So when I raise questions such as whether these markets are attractive to new entrants or likely to see market consolidation, you are seeing nothing more than a bit of pure conjecture. Readers who really understand the markets concerned are warmly invited to correct any glaring errors in my rough analyses or to add some local colour and detail to the stories. Please use the comment function to do so, if you feel so inclined.

I note, for example, that this blog does get visits from Tanzania. Perhaps someone there will be able to offer a view on the prospects of success for the country's latest mobile market entrant which, according to the Citizen newspaper, will trade under the name Sasatel. The company apparently has a licence for voice and data services, Internet service provision and international gateway services and will have a fixed-wireless (CDMA WLL) offering as well as full mobility via a CDMA network.

I would be interested to know the level of this operator's ambitions and to what degree it expects to compete more effectively than Benson Informatics, whose offerings appear to be somewhat similar.

Lucky Seven? Can the Tanzanian market offer solid returns for its (growing) plethora of mobile players?

Zain Africa Speculation Watch: Episode 6

For an entity supposedly up for sale and coveted by a wide variety of interested parties, Zain's African unit has certainly been very busy creating new partnerships and gaining publicity for its various activities.

One example of this, brought to my attention by TelecomPaper this week, is the operator's cooperation with Western Union, whereby the two organisations will work together to deliver mobile money transfer services in countries in Africa and the Middle East through Zain's new Zap platform. The service enables Zain subscribers to manage their bank accounts, top up mobile airtime (and transfer airtime to other subscribers), pay utility bills, pay for goods in retail outlets, and transfer money to friends and family.

The opportunity around providing financial services to the unbanked in Africa and in developing countries worldwide is a certainly a rich one. At the Mobile World Congress in Barcelona earlier this year, GSM Association CEO Rob Conway observed that "there are over one billion people in emerging markets today who don’t have a bank account but do have a mobile phone." Conway feels that mobile operators "are perfectly placed to bring mobile financial services to this largely untapped consumer base" and that "mobile money for the unbanked has the potential to become a USD 5 billion market opportunity over the next three years."

Conway was speaking during an announcement made jointly with the Bill & Melinda Gates Foundation, which provided a USD 12.5 million grant to the Mobile Money for the Unbanked (MMU) programme, the aim of which is to "encourage the expansion of reliable, affordable mobile financial services to the unbanked."

With Rob Conway having set out the scale of the opportunity for MNOs, the Foundation's Bob Christen was keen to stress the humanitarian benefits, noting that "technology like mobile phones is making it possible to bring low-cost, high-quality financial services to millions of people in the developing world so they can manage life’s risks and build financial security."

Mobile financial services then, should surely be a vital component of the strategy of any telecoms group whose operations are, in large part, in developing countries - a nice revenue opportunity plus wonderful CSR benefits around poverty alleviation.

Setting up services of this kind, however, can be challenging. The last time I heard this discussed at a conference (East Africa Com in Kenya this April), delegates were asking questions about regulatory complexity and about to what degree securing the necessary participation of established financial institutions was going smoothly.

Bearing this in mind, it is perhaps worth noting that while Zain's announced partnership with Western Union sounds exciting, much of the text refers to this being a work in progress - not yet fully operational and subject to regulatory clearance in countries worldwide.

This leads me to wonder whether it would be sensible to dedicate considerable efforts to this venture if up to sixteen of the operations in which the service will work are really to be sold in the near future.

Another initiative possibly set to do wonders for Zain's image as an organisation committed to improving lives in Africa was announced only days ago. Dubbed "Weather Info for All", this involves Zain, Ericsson, the Global Humanitarian Forum and the World Meteorological Organization. The aim is to "radically improve Africa’s weather monitoring network in the face of the growing impact of climate change," which is said to be responsible for some 300,000 deaths worldwide each year and over USD 100 billion of economic losses, mainly because of shocks to health and agricultural productivity. As the Weather Info for All announcement indicates, "Sub-Saharan Africa accounts for close to a quarter of these losses, and is the region at the most immediate risk of droughts and floods."

Africa suffers not only from the effects of these adverse weather conditions, but also from a dearth of reliable information about when and where disaster is likely to strike. This is due to the continent having a weather monitoring network eight times below the WMO minimum recommended standard, and less than 200 weather stations that meet WMO observation requirements, compared to several thousand each in Europe, North America, and parts of Asia.

The Weather Info for All initiative is aimed at adding 5000 weather stations across Africa. Zain has got the ball rolling by providing access to tower sites in Kenya, Tanzania and Uganda.

Mobile network infrastructure provides an unrivaled wealth of support for weather stations - connectivity, power supply and security.

Ericsson, meanwhile, will develop mobile applications to help communicate weather information via mobile phones to the vulnerable communities whose lives can be wrecked by adverse conditions.

I know less about the levels of investment and commitment required of Zain with regard to the Weather for All Initiative than I do about the amount of hard work needed to roll out mobile financial services for the unbanked. Both initiatives, however, have in common a sense of being long term endeavours. Again, I ask whether all of this activity might suggest that the sale of Zain's African operations is rather unlikely.

Zain Africa Speculation Watch: Episode 6

Advice for emerging markets cellcos looking to replicate the success of M-Pesa

I am fortunate to be receive, on a regular basis, very insightful reports from the TIME practice of management consultants Arthur D. Little. The most recent of these is upbeat about m-payment services. Some advice is offered to the various value chain players in emerging and developed markets. For the former, the advice seems to be directed largely at mobile opertators, from which we might infer that MNOs have the opportunity to establish themselves as the key players in developing countries.

Mobile operators, attracted into the m-payment space by minimal competition from conventional payment-channels in emerging markets, are advised to take "an active role in shaping the regulatory environment" because the competing financial industry may lobby for policies and regulatory mechanisms designed to keep MNOs at bay. Mobile operators are also urged to "focus on low value/high frequency transactions and have a special focus on remittances". Finally, Arthur D. Little advise operators to continue to build up cross-border partnerships to ensure cross-border interoperability of remittance services across emerging markets.

In March telecoms.com ran a feature which noted that mobile financial services have continued to gain traction, particularly in developing countries.

"Mobile financial services fall into two distinct camps; additive and transformational banking", states that article. Additive banking is defined as "services targeted at markets that already have traditional financial services at their disposal." Transformational banking is defined as "the practice of extending banking and payment services to those people who do not have ready access to banking facilities" - i.e. largely people in developing countries or migrant workforces in more developed countries.

The article notes that transformational banking is currently grabbing a good deal more column inches than additive banking and cites the well-known example of M-Pesa, initially launched by Kenyan cellco Safaricom and later launched in Afghanistan and Tanzania by MNOs Roshan and Vodacom Tanzania respectively.

Advice for emerging markets cellcos looking to replicate the success of M-Pesa

A naked giant in a perfect storm

I enjoyed constructing the title of today's offering. The image of a stoic titan leaning into a howling maelstrom of wind and rain, bereft of protective clothing, is a colourful one, not least on a rare day of hazy sunshine and light Spring breezes here in the north London suburbs (when I started this; the rain is now hammering down). I don't expect it's at all obvious what the title refers to, however. I just looked back at recent post headings and thought they've all been a little too prosaic. That Spring feeling just seems to have me waxing lyrical. Dont' worry. What follows is the usual sensible stuff... and the nude giant in the story makes an appearance before the end of this piece.

The giant concerned is South Africa's former land-line monopolist Telkom, which continutes to adapt to a range of changes in its home market. The managed liberalisation of the country's telecoms sector was catalysed by the Telecommunications Act of 1996 and the Telecommunications Amendment Act of 2001, which paved the way for a second national fixed-line operator. With the exception of full mobility, that second wireline player, Neotel, provides a wide range of products including basic voice and data services, high-speed Internet access, VPNs, and network management and hosting.

The new kid on the block, however, has not found competing with Telkom to be without challenges. South African telecoms and tech news portal MyBroadband yesterday picked up a newspaper article whose broad theme is that although the Neotel provides a "welcome" alternative to Telkom, "it doesn't quite offer all the answers."

Penned by Barrie Terblanche of the Mail & Guardian, the article focuses on particular difficulties faces by Neotel in the business telecoms market. Terblanche writes that "years after Neotel received its license to provide South Africa with an alternative to Telkom, by far the majority of small businesses are still forced to depend on the old behemoth for basic fixed telephony – even those businesses situated in the middle of Neotel’s coverage areas in Johannesburg, Cape Town and Durban."

One reason for this, argues Terblanche, is the lack of fixed-line number portability.

The country's telecoms regulator, ICASA, launched a Mobile Number Portability system in Q4 2006, the first instance of MNP on the African continent. This might have happened even earlier had South Africa's three mobile operators not twice asked the regulatory agency to postpone the introduction of the MNP platform. As my former colleague Matthew Reed (editor of Middle East and Africa Wireless Analyst) noted in a South Africa market update some months later, Cell C, MTN and Vodacom claimed more than once not to be "ready to implement portability" on the earlier scheduled launch dates of March and September 2006. This aroused the ire of no less an individual than billionaire industrialist Sir Richard Branson, whose Virgin brand is used by more than 360 companies worldwide - as I write this, I am still aching as a result of my most recent session in a Virgin Active gym and have yet to pay off the credit card bill for my recent trip to the USA on Virgin Atlantic Airlines.

Branson's interest in South Africa's delayed implementation of MNP stemmed from attempts of the country's Virgin Mobile-branded MVNO to carve out a share of the cellular market. Early last month, when discussing the prospect for MVNOs gaining traction in Africa and India, I observed that this has not been an easy task, noting that Virgin Mobile South Africa had signed up just 600,000 subs by end-2008, of which only 200,000 were active. Back on September 27 2006, a member of Matt Reed's MEAWA team quoted Branson as saying "South Africa's mobile players are dragging their heels on this issue, because it isn't in their best interests... they want to lock their customers in. You shouldn't be held hostage by your mobile phone company."

In the same article, this was refuted by a Vodacom spokesman, who said that the delays had been caused by "the technically complex nature of MNP, which requires new business processes to be designed and implemented."

The article, however, also contended that Cell C, then (and now) the country's third placed mobile operator had lobbied for MNP to be introduced more quickly but that Vodacom and MTN had insisted on a longer delay.

Whichever operator(s) may or may not have been behind any alleged MNP foot-dragging, the MEAWA article of the time raised the question of whether number portability would really have any very significant market impact. "Local analysts have played down the likely effect of MNP on the market," stated the article, which reported the view that fewer than half a million subscribers would be likely to change networks within a year.

I don't have to hand a detailed analysis of to what extent MNP may have driven customer churn in South Africa. There was, however, a little jostling in the year which followed the implentation of number portability. Market-leading Vodacom lost ground a little, but maintained a significant lead over it rivals. The bigger winner over that period Sept. 2006-Sept. 2007 seems to have been Cell C, though not to such a degree that the market changed dramatically. Cell C has, however, coninued to make up ground on its competitors since then - according to the World Cellular Information Service, the Oger Telecom-backed MNO now owns 13.80% of South Africa's mobile subscriptions, up significantly from the 8.61% logged in September 2006. I am absolutely not qualified even to speculate to what degree this is due to MNP. That said, my sense is that number portability has not massively changed the South African mobile market.

What, then, is behind Barrie Terblanche's claim for the degree to which the non-availability of fixed-line number portability has hampered Neotel's efforts to compete with the incumbent wireline opearator? He contends "that only business start-ups really have a choice between Neotel and Telkom, because established businesses can ill afford to give up an existing number."

Terblanche goes on to say that it is not only in the small business space that Neotel is finding the going tough. "Another huge hurdle in the full-scale adoption of Neotel by slightly larger businesses", he writes "is its lack of line-hunting facilities. This provides a business with one public telephone number linked to several lines in the business. When a customer phones the number, the exchange hunts for the first available line and puts the call through." The lack of line hunting, apparently to be solved in the next few months, "means that a business with a PABX still has to rent Telkom lines for incoming calls", continued this Tuesday's Terblanche article.

Tuesday was a good day for commentary on the South African telecoms market. Carried the very same day by MyBroadband was another article taken from the country's Financial Mail. This one, penned by a Duncan McLeod, zeroes in on the former fixed-line monopolist. While Barrie Terblanche contends that Telkom is better positioned than its rivals to compete in the enterprise telephony markets, McLeod constructs an interesting piece around the large number of challenges faced by the incumbent.

The article begins by noting that Telkom is soon to dispose of its 50% stake in market-leading cellco Vodacom, which, despite the advances of Cell C, continues to own slightly more than half of the country's mobile subscriptions. McLeod feels that "the divestiture will reshape SA’s telecommunications landscape for the better" and asserts that "it's sink or swim time for Telkom." Despite Neotel's struggles in the business telephony space, McLeod feels that the incumbent's fixed-line business "is going nowhere fast and, with new competition, it is going to have a hard time defending its top-line revenue and profit margins."

Given the powerful position of Vodacom in its home country, and given its valuable collection of subsidiary opcos in Tanzania, Mozambique, Lesotho and the Democratic Republic of Congo, why would Telkom seek to get rid of its stake in the business?

Let me turn once again to MEAWA's Matthew Reed, who in November last year wrote that the sale would free Telkom "from an unsatisfactory relationship with Vodacom." Matt stated "Telkom had hoped that Vodacom would help it to expand into the fast-growing mobile sector and into new markets in Africa, but it has been disappointed by the level of cooperation."

As Matt noted then, Telkom has begun a wireless play of its own. Earlier this month, as reported by TelecomPaper, the operator launched its new Mobi service, which offers mobile voice over a WCDMA network. The mobile service is currently available in Gauteng and Cape Town only.

My understanding is that the shareholder agreement with Vodacom prevents Telkom from building a national mobile network. Instead, to establish a nationwide presence, Telkom must sign a roaming agreement with with MTN and/or Vodacom. Cell C does not fit the bill, having not yet established a 3.5G network.

Beyond the home country, Telkom may also be working to find its own route into the mobile arena. Matt Reed observed in November that the operator had, in 2007, "acquired a 70% stake in Nigerian CDMA operator Multi-Links... and... is thought to have had separate talks with both Zain and Nigeria's No. 2 mobile operator, Globacom, about the possibility of forging partnerships."

Will Telkom's sale of its stake in Vodacom prove, then, to be a smart move? According to Duncan McLeod's article, one vocal supporter of the decision is the incumbent's CFO Peter Nelson, who has praised CEO Reuben September, saying "it showed a lot of leadership and courage... the new Telkom is standalone — I call it the naked Telkom."

This naked giant, McLeod contends, looks set to be caught in "a perfect storm" with the telecoms sector wide open to new competition. Cellcos MTN and Vodacom are free to compete in the wireline area, McLeod writes, also inviting readers to "consider also that new undersea cables will finally end Telkom’s control of international bandwidth."

McLeod reports that Mr. September is, however, "clearly relishing the company’s imminent divorce from Vodacom and the demands of a competitive market" and expresses admiration for the Telkom CEO's willingness to take tough decisions, such as shutting down Telkom Media, the pay TV unit for which a buyer could not be found.

Duncan McLeod wonders whether September will "take flak" for deciding to postpone a project that was set to outsource 19,000 jobs, questioning whether this has resulted from political pressure ahead of the country's elections. CFO Nelson, however, has defended the postponement thus: "We won’t outsource problematic and poorly engineered areas because what happens is you lock in inefficiency and you pay for it forever." McLeod conceded that this is a fair argument, going on to say that "Telkom is still SA's most important communications operator. It is critical for the economy that it doesn’t stumble and fall. Whatever South Africans might feel about Telkom — and it’s often not flattering — September deserves their encouragement."

A naked giant in a perfect storm