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

Zain Group: all operations up for grabs?

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

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

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

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

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

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

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

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

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

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

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

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

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

'Nationalisation' of Belize's incumbent telco to encourage or discourage telecoms investors?

Does it sound fanciful to suggest that wrangles over the ownership of telecoms businesses in a small country in the western hemisphere could have some bearing on the next General Election here in the United Kingdom?

This may not be too far-fetched, given that the man at the centre of the story is one Lord Ashcroft, a British businessman and politician who is Deputy Chairman (and former Treasurer) of the UK Conservative Party, currently in opposition but widely expected to prevail in next year's election.

Ashcroft, estimated by the Sunday Times Rich List to be Britain's 37th wealthiest person with a fortune of around USD 1.8 billion, is no stranger to controversy. His tenure as Conservative Party Treasurer (1998-2001) was marked by media interest - he was seen to pay little UK income tax and was at the centre of a debate about the openness and accountability of political funding. In 2004 he clashed with the Conservatives' then leader when he offered a GBP 2 million donation on the condition that it should go to his specified candidates, rather than into general Conservative Central Office funds, which is the usual practice.

Ashcroft is also a citizen of Belize, a former British colony and the only country in Central America where English is the official language. However, despite having once served as the country's Ambassador to the United Nations, it now seems that Ashcroft has fallen out of favour with the current Belizean Government.

Earlier this week, the country's Prime Minister pushed through a bill amending the country’s Telecommunications Act and allowing the Government to seize control of the incumbent national telecoms operator Belize Telemedia, with shares to be distributed to domestic investors.

The telco was was incorporated by the UDP Government in 1987 to 'Belizeanize' telecommunications, replacing the control of Cable & Wireless with a national company. According to the current PM Dean Barrow, also a UDP man, it was always intended for the new entity to be majority owned by the citizens of Belize and not by the Government. Barrow claims that the national telecoms operator delivered excellent returns to the many Belizeans who invested in the company in the early years of its life, but became the victim of "the predatory designs of one man" in 1992. The alleged predator? Lord Ashcroft.

Barrow accuses the 1989-93 administration of the rival People's United Party of selling shares in the operator to Michael Ashcroft "at a rate and in a manner that was counterintuitive and counter nationalistic." The Prime Minister states that under the company's UDP-drafted Articles of Association there was a 25% cap on the shares that could be sold to any one person or entity. The point of this, explains Barrow, was so that no single individual could dominate the company and in order to make the ownership as widely Belizean as possible. In violation of this Article, alleges Barrow, the PUP presided over an ever increasing transfer of shares to Ashcroft. This process, says the Prime Minister, was interrupted by the 1993-98 UDP return to power, but restarted as soon as the PUP came to power once again.

Barrow states that Ashcroft secured a very advantageous agreement with the PUP Government in 2006, whereby he was guaranteed a certain level of return on his investment in the telecoms company. According to this agreement, says Barrow, Ashcroft could in any year declare that the telco had not delivered the stipulated return, declare how much the shortfall was "and simply not pay his taxes until the so-call shortfall had been recovered." Barrow claims that this is exactly what happened in 2007, so that thereafter Belize Telemedia "ended up paying no business tax, no customs duties, no imprest of any kind." The Prime Minister also claims that Belizean consumers have been entirely at the mercy of their incumbent telecoms operator because Ashcroft's agreement with the Government prevented the country's Public Utilities Commission (PUC) from regulating Belize Telemedia's rates.

The situation, as described by Barrow, became yet more advantageous for the incumbent operator when all other existing telecoms licences (with the exception of that held by Speednet Communications) were revoked and VoIP was outlawed. Barrow states that Belize Telemedia "is able to refuse interconnection to any and everyone" and that "the PUC cannot, for any cause and no matter what the complaint, in any way touch or alter" the telco's licence. Further, the Prime Minister states, the all Government departments and agencies are bound to use only Belize Telemedia's services "at onerous pre-arranged rates until 2015."

Barrow has also dismissed the idea of Speednet Communications - whose CDMA service has 17.71% of the country's mobile subscriptions according to WCIS -being a meaningful competitor for Belize Telemedia. The Prime Minister claims that 77.38% of Speednet is owned by three companies headquartered at premises owned by Michael Ashcroft, and controlled by two trusts owned by the billionaire.

An article in the UK's Independent newspaper yesterday quotes Lord Ashcroft's spokesman as saying that the peer has not owned Belize Telemedia for some time and that his name had been dragged into the controversy for purely political reasons. Even if there is some truth in this, the article opines that the ferocity of Dean Barrow's attack suggests the Belize Government is out to break Lord Ashcroft's influence in the country, which could lead to more attacks and embroil the Conservative Deputy Chairman in a series of controversies most unwelcome to his party leader, the UK's prospective next Prime Minister, David Cameron.

The same article notes that the attack on Lord Ashcroft by Belize's Prime Minister echoed the feelings of UK Labour MPs struggling to hold on to marginal parliamentary seats against candidates generously bankrolled by the billionaire Conservative. The Labour MP Gordon Prentice, who has campaigned to have Lord Ashcroft banned from making political donations in the UK until his tax status is cleared up, said on Thursday: "I'm delighted that the change of government is bringing a wind of change to Belize. I just hope David Cameron is listening to what the Belize Prime Minister is saying."

Speculation about the UK politics and the outcome of the next General Election here is somewhat beyond the remit of this blog. Speculation about how this development might affect the plans of international telecoms group, however, is more familiar territory.

If we choose to believe Mr. Barrow's allegation about the Belize telecommunications market not really being contested by genuinely competing players,the Central America country is one of the last markets in the Americas where a monopoly situation persists.

Another is Costa Rica, where incumbent telecoms and power company Instituto Costarricense de Electricidad (ICE) currently has no competitors. This is set to change, however, according to the Global Mobile Daily service of Informa Telecoms & Media, which reported in June that the country's Ministry for the Environment, Energy and Telecommunications (Minaet) is planning to offer three new mobile licences by April 2010. It seems that these licences will either be issued via a traditional auction process or by combining a pre-selection process with an auction. The tender will reportedly be launched next month, with the first mobile licence to be awarded in March or April 2010. Companies interested in bidding are said to include including Millicom International Cellular, Telefónica, Digicel and Cable & Wireless.

The latter, which once enjoyed a monopoly position in many now liberalised Caribbean island markets continues to trade without competiton in two tiny territories - Montserrat (population 4,488) and the Falkland Islands (population 3,140). To the best of my knowledge, no one has expressed an interest in competing with the Cable & Wireless operations in those markets.

Possibly more attractive for any prospective new entrant would be the Bahamas, another market dominated by a single operator. The population of these islands is a little larger than that of Belize and a bit smaller than that of Suriname, where the monopoly of incumbent telco Telesur was only broken in late 2007, when Digicel entered the country's mobile arena.

It is Digicel, a company founded by Irish entrepreneur Dennis O'Brien, that has broken the former Cable & Wireless monopolies across the Caribbean, and the company continues to look for new markets in both that region and among the islands of the Pacific Ocean, where it has more recently established a presence. Lavern Clark, Business Editor of the Jamaica Gleaner, wrote in December that O'Brien's company plans to expand into nine more "profitable countries", said to include Belize as well as Costa Rica.

At this point, I'd like to thank a loyal Caribbean-based reader of DevelopingTelecomsWatch for his suggestion that I write something about the situation in Belize. My correspondent wonders whether PM Dean Barrow's recent action will discourage Digicel from investing in the country. That could be the case, but I suppose Digicel might actually look more favourably at the Belize opportunity if it quickly becomes apparent that Mr. Barrow is earnestly trying to break a telecoms monopoly, i.e. rather than just trying to gain somehow from attacking the billionaire ally of his domestic political opponents.

Either way, Digicel may relish the challenge. As Lavern Clark writes, Dennis O'Brien chooses markets where it is notoriously difficult to do business.

Belize is a nation of just 320,000 people. It is intriguing, then, that this small country's internal political battles - and the appetite of its Prime Minister to take on a powerful man he accuses of subjugating the nation - could be of interest to strategic telecoms investors and have an impact on a UK General Election.

'Nationalisation' of Belize's incumbent telco to encourage or discourage telecoms investors?

Ecuador's struggling CDMA MNO set to be rescued by a strategic partner?

Back in late January, I wrote (on my former blog, since handed over to a former colleague) about how Ecuador's struggling state-owned CDMA mobile operator Alegro PCS was the subject of reported offers for prospective strategic partnerships from Uruguay's Antel, and Venezuela's Movilnet, both of which are also owned by the Governments of their respective countries. I noted then that these offers both came from countries which, like Ecuador, have left-of-centre governments. This prompted me to mull over the subject of the possible telecoms sector links between politically sympathetic Latin American countries which I'd learned something about on my own travels in that part of the world. It's a topic I personally find quite interesting, so I took the opportunity to expand on this theme here in March.

Today, thanks to TeleGeography, I received an update on the news item which set this train of thought in motion - the state of play at the ailing Ecuadorean cellco. In January, I'd reported news that Alegro PCS was said to be 60 to 90 days away from reaching an agreement with a foreign strategic investment partner. This has clearly taken a bit longer than anticipated to play out. Today's news from TeleGeography suggests that the cellco is now still "approximately two months away from reaching an agreement" with a partner. The article does not clarify which company this partner is likely to be, simply repeating the ones mentioned at the start of the year, which included Telekomunikasi Indonesia (Telkom) as well as the Venezuelan and Uruguayan parties. The fact that this back on the news wires, however, might suggest that some progress is being made.

If a deal of this sort is not reached, it looks as though the Ecuadorean Government will force the sale of Alegro PCS, according to the country's President, as quoted in the TeleGeograpy article, which also notes that the CDMA operator has had to delay a plan to roll out GSM infrastructure due to a lack of capital and is instead currently using wholesale GSM capacity from larger rival Movistar Ecuador. This move has yet to make a significant impact on the operator's feeble market share. When I first visited this story in January, Alegro PCS had just 1.31% of the country's mobile subscriptions according to December 2008 figures from WCIS. That figure had improved only very slightly to 1.34% by March this year.

With high reported debts and such a tiny share of the market in a country of just 14 million people, I wonder how attractive Alegro PCS is going to look to any prospective buyer if a sale does become necessary in the view of the Government. The toughness of the competitive environment is compounded by the fact that in addition to Telefónica-backed Movistar, the Ecuadorean market is home to an MNO which is part of the powerful América Móvil group, a venture of Mexican multi-billonaire Carlos Slim Helú. It gets worse. The country's 87.15% mobile penetration rate does not leave boundless room for growth, even for the two powerhouse-backed operators currently splitting the bulk of the market between them.

So it remains to be seen what the future holds for struggling Alegro PCS. I can't decide if rescue from a telco owned by the state agencies of some politically sympathetic government will ensure the long term survival of the MNO or just delay, at some cost to the friendly partner, the eventual demise of a company caught between the vastly superior resources of two powerful competitors. I'll have to have a look some time to see if there's a precedent anywhere else in Latin America for a cello successfully competing with both of the region's two dominant telecoms groups in a relatively small market. It sounds like a tough position to be in.

Ecuador's struggling CDMA MNO set to be rescued by a strategic partner?

Report tips China Mobile, MTN, America Movil as 'best postioned to grow' - but does not consider Middle Eastern, Indian players

graphic from Telegeography's GlobalComms Insight

New research from TeleGeography’s GlobalComms Insight includes predictions about wireless and broadband subscriber growth globally for the next five years. A key finding seems to be that "growth in the value of the telecoms services market will not keep pace with subscriber growth." This feels right. As the report authors note, subscriber growth these days largely comes from countries with very low GDP per capita - i.e. emerging markets.

This is all fine. I am curious, however, to know how the people behind TeleGeography's GlobalComms Insight selected the eight leading service providers studied in the report and positioned on the graph above. It is not without value to consider the global competitive position and the growth prospects of China Mobile, MTN, America Movil, Vodafone, Telefonica, Verizon, BT and NTT. But wouldn't this report be a lot more interesting if telcos headquartered in the Middle East were put into the mix? I hear so many people articulating the view that these relatively cash-rish players are among the best placed to take advantage of the current challenging economic climate - in terms of finding and securing acquisition targets at knock down prices from sellers wanting to raise cash ASAP.

Where, then, would Etisalat, QTel or Zain sit on the graph?

One aspect of this report which does seem useful is ensuring that China Mobile is discussed. The authors call the giant cellco "one company that has managed to buck the general trend, thanks to the blistering mobile subscriber growth in its home market" and note that even this company, "the world’s largest wireless service provider by subscribers is feeling the pressure, as evidenced by last week’s news that it will expand its global footprint by buying a stake in FarEasTone of Taiwan."

I'd also be interested to see where the report authors would place Bharti Airtel in their calculations. Back in February, I considered the view that the rapidly diversifying market-leading Indian MNO might likewise be compelled by competitive pressures at home to look more seriously at international growth opportunities.

Report tips China Mobile, MTN, America Movil as 'best postioned to grow' - but does not consider Middle Eastern, Indian players

GSM vs. CDMA: the battle goes on?

One of the most rewarding aspects of being part of Informa Telecoms & Media's Com World Series team was having the opportunity to learn about regions which I had not previously studied or visited. Previously, while creating and hosting telecoms sector conferences for other companies, my travels had taken me to North America, Central & Eastern Europe and to Russia. My Com World Series brief took me further afield. In addition to already familiar territory, regions I covered in the Informa role included the Middle East , India/South Asia and Latin America.

In the last of these regions, my visits began at what felt like the relatively advanced stages of a protracted cellular network standard battle between the GSM and CDMA camps. A key partner in the delivery of the GSM Americas/Americas Com events in which I was involved was 3G Americas, an association founded in 2002, with a mission to unite "mobile operators and manufacturers in the Americas to provide a single voice to represent the GSM family of wireless technologies – GSM, GPRS, EDGE, and UMTS/HSDPA."

The 3G Americas President, Chris Pearson and the association's Latin America Director Erasmo Rojas led an Executive Briefing session at each of the Americas Com conferences delivered under my watch. They did a great job of rounding up CxO-level participants from key South American MNOs. I don't think they would mind me saying that on both occassions Chris's opening presentation really banged the drum for the GSM family in terms of describing advantages over rival standards.

I cannot be sure to what extent 3G Americas has been instrumental to the Western Hemisphere's migration away from CDMA technology in favour of the GSM flavour, but that migration has been significant. The graphic below, taken from the 3G Americas website (and drawn from Informa Telecoms & Media WCIS figures), shows how GSM has prevailed in the opening years of this new century:

It is worth pointing out that the non-GSM subscriptions are now, for the most part, in North America. In the USA and Canada, it is estimated that there currently exist around 153 million CDMA connections. GSM subscriptions across these two markets number around 104 million and W-CDMA lines have just reached the 20 million mark.

Looking further south, Informa Telecoms & Media estimated that in the 'Americas' region (all markets in the Western Hemisphere except the USA and Canada), there were almost 400 million GSM subscriptions and just 40.6 million CDMA subscriptions by the end of December 2008. Of these CDMA lines, the two most significant chunks were the 11.7 million connections in Brazil and the 15.8 million in Venezuela. In the case of Brazil, a single operator, Vivo, accounts for all the CDMA subscriptions.

When I looked up these figures today, I was a little surprised that Vivo, a joint Telefónica-Portugal Telecom operation, still has so many subscribers on its CDMA network. The last time I was looking closely at developments at Vivo, which was back in about May 2008, I was under the impression the company planned to shift all of its CDMA mobile subscribers to its newer GSM network. That process is certainly happening - but at nothing like the speed I imagined.

In Venezuela, the vast majority of the CDMA connections are owned by renationalised Movilnet, which has an estimated 11.3 million subscribers - vs. the 4.5 million CDMA connections of rival Movistar. Unlike Movilnet, the Telefónica-backed Venezuelan MNO has been steadily shifting users to a GSM network since March 2006. However, the state-owned cellco is also, finally, making the move to GSM. In December last year, Global Mobile Daily reported that billing vendor Amdocs has deployed a billing solution to support Movilnet's new GSM network.

We can therefore expect continuing developments in Latin America to impact upon the next version of the above graphic. Look out for further erosion in the non-GSM networks' share of Western Hemisphere mobile subscriptions.

One might infer from all of this that CDMA is a technology in quick decline towards an inevitable demise. However, recent news items from India lead me to believe that the GSM-CDMA battle is very much a live one in that country.

Earlier this week, I spotted that Sistema Shyam TeleServices is potentially looking at more acquisitions in order to gain better access to the Indian market. The company, a joint venture between majority shareholder Sistema of Russia and India's Shyam Group, was among operators to get new licences in early 2008. The nascent cellco is aiming to offer CDMA-based mobile services across the country before the middle of 2010. A Business Line/Hindu Group article dated Jan 30th quotes Vsevolod Rozanov, President and CEO, Sistema Shyam TeleServices, who says "We are open to any opportunities for acquiring a mobile services company in India to speed up our roll out plans. However, there are not too many CDMA operators in the country who are looking to sell their business." Asked specifically about well-established CDMA MNO Reliance Communications, Rozanov said, "Yes we can look at Reliance’s business if they are willing to sell. However, I do not think that is the case." According to the article Reliance was, at some unspecified recent time "considering a merger deal with South Africa-based telecom player MTN."

When the full gravity of the global economic downturn started to become clear to us all last year, I sensed that one casualty might be the international expansion plans of Russia's leading telecoms groups. In that context, Sistema's apparent willingness to spend money on growing its Indian CDMA operation suggests to me not only confidence in the Indian market but also a belief that the CDMA standard is up to the task of supporting attractive, well-priced and future-proof services.

Another sign that CDMA is to be taken seriously in India is the recent, strongly worded response of the COAI (Cellular Operators' Association of India) to reported plans on the part of one operator to make EV-DO data cards available on the market. The COAI is a club of GSM operators, a group that must surely be frustrated by the ongoing delays in the licensing of spectrum for 3G and WiMAX services. Telecoms.com reported today that having already put the spectrum auctions off until this year, because of the government's failure to clear the relevant radio spectrum in all operating regions ('circles' in the local jargon), new delays are anticipated in the wake of proposals to double the base price of the licences.

India's GSM players, then, are clearly concerned about being outpaced by CDMA operators. An article in yesterday's Economic Times says that COAI Director General T.V. Ramachandran has written to the country's telecoms Minister to seek assurances that no private player should be allowed to launch EV-DO service without 3G being made available to all players. The article states that according to the COAI, the launch of EV-DO services would be unfair to the GSM operators as "CDMA operators have ample spectrum to offer both 2G as well as 3G services and this can result in [giving] unfair anti-competitive advantage to CDMA and tilt the playing field to the disadvantage of the private GSM operators".

I daresay Mr Ramachandran and his colleagues will make a strong and persuasive case. During my stint running the Com World Series Indian event I had the pleasure of meeting the COAI Director General several times. One memory stands out. In 2007 I was asked to have lunch with Mr Ramachandran and his guests from various Indian government agencies at the conference. One of the guests, on agreeing with a point made by the COAI head, gave me a useful piece of advice about keeping tabs on telco sector developments in India. "If you want to know," said my neighbour at the lunch table, "watch T.V." I will indeed keep an eye out for more on this story. I am interested to see if the COAI can indeed prevail in their argument that EV-DO gives CDMA operators an unfair advantage over GSM operators struggling with further delays to their own 3G plans.

All of this makes me look back and smile at a very simplistic remark made to me years ago by one of my first bosses at a telecoms sector conference company. It was one of his tasks to set me on the path of cutting through the then-forbidding tangle of telco jargon. "CDMA is dead," he told me. "You only need to worry about GSM". I don't think that can have been true then given that it's abundantly clear that it's not correct even now.

GSM vs. CDMA: the battle goes on?