Sri Lankan mobile market: one way or another, consolidation looks likely

Sri Lankans queue to get their hands on Airtel 's low price offers earlier this year

When Bharti Airtel's Sri Lanka operation Airtel Lanka launched its cut price services in January this year, the new cellco became the fifth operator competing for a share of the country's mobile market. The number of mobile service providers in the island nation, however, may soon be set to fall back to four. This will depend, though, on which party comes forward to snap up one operator currently sporting a 'for sale' sign.

Up for grabs is Tigo Sri Lanka, one of the Asian operations that Millicom International Cellular is keen to sell. When this blog first commented on Millicom's planned withdrawal the three Asian markets in which it has done business, Axiata (formerly Telekom Malaysia International) was mentioned as a possible purchaser of two of these operations - Tigo Sri Lanka and Cambodia's Cellcard. In both cases this would lead to market consolidation - in Sri Lanka, Axiata has a controlling stake in market-leading cellco Dialog Telekom; Cambodian MNO Hello is a wholly owned subsidiary of the Malaysian group. As discussed in the most recent DTW article, however, it was another existing shareholder in the Cambodian cellco (the Royal Group) which eventually relieved Millicom of its stake in Cellcard. Given that other organisations have been more recently and more regularly touted as potential purchasers of Tigo Sri Lanka, Malaysia's Axiata also seems to be out of the running with regard to that opportunity.

One potential suitor mentioned very recently is state-owned Indian operator BSNL, whose management committee approved a proposal to submit a bid to acquire the Sri Lankan operator company last week, according to Manoj Gairola of the Hindustan Times.

The public sector telco seems to have attracted considerable criticism of late, some of which has been reported here. Quite striking was the August 12th article written by Kunal Kumar Kundu, who feels that BSNL is crippled by political interference, poor demand forecasting, lack of effective budgetary control and a bloated payroll. This blog has also reported the very modest take-up of BSNL's wireless broadband offerings and negative feedback about the company's preferred franchisee business model for the development of both 3G mobile and WiMAX services. Almost as often, however, the state-owned operator has been linked here with possible overseas investments. Perhaps the competitive pressure from India's numerous private sector mobile players is felt so keenly by BSNL's management that foreign opportunities are seen as a much better bet in terms of realistic growth opportunities. This may explain the fact that in the few months since the inception of this blog, the Indian operator has been mentioned in connection with a stake in pan-MEA mobile group Zain and with a new telecoms licence in Tunisia. BSNL's interest in Tigo Sri Lanka, then, is perhaps not very surprising.

Also connected in media reports with the sale of Tigo Sri Lanka is the UAE's Etisalat, which in August was reported to be considering an investment in the country now that the long civil war seems to have finally reached a conclusion. Priyantha Kariyapperuma, Director General of Sri Lanka's telecoms regulator, reportedly met with a visiting official from Etisalat last month and told journalists that "with the war over in May, there is ample scope for investments into telecom services and infrastructure facilities, especially in the north and east," referring to the area of the island that was most affected by the conflict. Few of the reports on Etisalat's possible interest in Sri Lanka have stated explicitly that the UAE company's route into the country's market would be via the acquisition of the Tigo-branded MNO. All of these reports, however, mention the availability of Millicom's Sri Lankan operation, so perhaps it's not unreasonable to infer that the Emirati company might have had Tigo Sri Lanka in its sights.

The most recent name floated in connection with the opportunity, however, is one from India rather than from the Middle East. As with an Axiata purchase, this move would also lead to market consolidation - because the company concerned is Bharti Airtel, already present in the Sri Lanka market since January, as we noted at the top of this article.

It seems, then, that the management of the giant Indian telecoms firm is not completely absorbed by the ongoing negotiations about the proposed mega-merger with South Africa's MTN. That saga has been notable for the repeatedly-extended deadline for concluding the talks and for various parties weighing in with opinions about the desirability of the mooted deal. One recently expressed opion comes from South Africa's Communications Minister, Siphiwe Nyanda, who voiced caution over the proposed tie-up in an interview yesterday. The Minister told the Sunday Times that any deal should take into account that MTN was a "South African company with a footprint in Africa." I take this to mean that there exists concern over MTN potentially losing its identity as a telecoms group with its roots - and the bulk of its business - in Africa. The Minister's comments are certainly of relevance given that South Africa's Government-owned Public Investment Corporation holds a 21% stake in MTN.

Bharti Airtel's interest in Tigo Sri Lanka came to my attention earlier this week, when R. Jai Krishna of the Wall Street Journal reported comments from an unnamed person close to the development. Suggesting that any deal would be worth USD 100-120 million, the mystery source said "in Sri Lanka, if you need to be a significant player in the market, you need to do an acquisition... greenfield, you will not be successful," by way of explaining the rationale behind Bharti Airtel's rumoured move.

A strengthened presence in Sri Lanka on the part of the Indian cellco could be welcomed by consumers - certainly if the company continues to compete aggressively on price, a strategy that has yielded impressive subscriber growth. Since going to market in January, the new entrant had 900,000 subs by the end of June, according to WCIS market intelligence. Another Informa Telecoms & Media service, Global Mobile Daily, reported in late July that Airtel Lanka claimed to have reached the one million subs mark.

The Bharti-owned cellco, however, has seen some of its competitors crying foul over its tariffs. Late last month, for example, Duruthu Edirimuni Chandrasekera of Sri Lanka's Sunday Times, reported that some operators have threatened to cut their interconnection with Airtel Lanka to retaliate for the the Indian-owned company failling to withdraw tariffs not approved by the country's telecoms regulator.

This sounds oddly familiar - the most recent article here covered a very similar wrangle over tariffs and interconnect agreements in Cambodia. Competition in Asia's mobile markets, then, certainly seems to be brutally fierce right now. Again I find myself voicing the view that there may well be casualties when the going gets this tough.

What price on mobile market consolidation in Sri Lanka then?

Sri Lankan mobile market: one way or another, consolidation looks likely

Zain Africa Speculation Watch: Episode 5 - the Indian Connection

Here's an exciting new bump in the roller coaster rumour ride that is Zain Africa Speculation Watch the mini-series: today's Economic Times chucks Indian cellcos Bharti Airtel and Reliance Communications into the mix, citing a scoop from South African publication Business Day.

Of these two companies, my feeling is that it would be a major surprise if the former really is in contention when it comes to acquiring Zain's African business - not least because my understanding is that Bharti Airtel's mooted (and much discussed) link up with pan-African mobile group MTN exludes the possibility of either company approaching alternative partners/acquistion targets for some time yet.

What about Reliance Communications, then? The cellco, which operates both a CDMA network and a newer GSM network in India, is part of the Reliance-Anil Dhirubhai Ambani Group, which includes companies in the energy and financial services sectors. I'm not aware of this operator having previously made attempts to look beyond India for growth opportunities, but I've written here before about how intense competitive pressures at home might drive Indian MNOs to consider foreign adventures more seriously than in the past. Bharti Airtel aside, however, I'd only heard about the possibility of state-owned BSNL considering (and then dropping out of) plans to bid for a telecoms licence in Tunisia. If Reliance Communications were to expand its business into emerging markets/developing countries beyond the subcontinent, I would certainly understand the logic of it. Whether such a move would be on the scale of bidding for Zain's African operations, however, is something about which I could only make a guess.

Zain Africa Speculation Watch: Episode 5 - the Indian Connection

Refreshing news for emerging markets MVNO proponents?

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

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

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

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

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

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

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

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

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

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

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

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

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

Refreshing news for emerging markets MVNO proponents?

Arab world and India: investments to flow in both directions?

Towards the end of February, I asked here whether 2009 would be the year that a prominent Indian mobile operator will make major moves on the world stage. I noted that the cellco I had in mind was facing a number of competitive pressures on the home front that might soon drive international expansion.

The operator I had in mind was Bharti Airtel, the country's mobile market leader (with 26.24% of the subscriptions on a highly fragmented market, according to WCIS). To date, the company's only significant foray beyond India has been the recent establishment of a subsidiary in Sri Lanka. In the February discussion, I noted that Bharti Airtel had failed in a previous bid to acquire South Africa's MTN. With no particular evidence to support it, I'd developed the gut feeling that if the big Indian cellco were to make a bold move into new territories, somewhere in Africa would be the likely target.

I was surprised, therefore, to read in a recent TotalTelcom article that a quite different Indian operator has turned its gaze to the African continent.

Apparently, state-owned BSNL (Bharat Sanchar Nigam Ltd.), India's oldest and largest communication service provider is likely to get involved in a bid for a telecoms licence in Tunisia. The operator's partner in the proposed bid is consultancy firm TCIL, a fellow state sector enterprise.

The TotalTelecom article contends that BSNL sees overseas expansion as an opportunity to increase revenues, having lagged behind private sector operators on the domestic market. The Tunisian licence, says the article, is of the unified variety, enabling a new entrant to offer mobile and fixed-line services.

A degree of skepticism is reported, with Jithesh K. Gopi, Head of Research at Bahrain-based investment bank Securities & Investment Co. B.S.C. saying "with the current level of penetration [in Tunisia], it won't be an easy market for a new entrant."

In the African context, Tunisia does have a high rate of mobile penetration - currently at 82.73% according to the World Cellular Information Service (vs. 40.16% for the continent as a whole).

In the cellular arena, any new entrant will be seeking to shake up a duopoly situation. The mobile market is presently split very evenly between state-owned Tunisie Telecom and Tunisiana.

My understanding is that it will become known quite soon whether BSNL will take the plunge in the possibly quite challenging Tunisian market.

In the meantime, I spotted news of monies being set to flow in the opposite direction, i.e from the Arab world into India.

I have, of late, been taking advantage of an excellent newsletter from Blycroft Publishing - Africa & Middle East Telecoms Week. The latest edition carries an article about the UAE's Etisalat, currently a minority stakeholder in Swan Telecom, planning to invest a further USD 1 billion in India's telecoms sector. The Etisalat Chairman is quoted as revealing that the company's investments in India "would complement its investments in other countries having growth potential, such as Pakistan, Afghanistan and Indonesia" and that "the current economic meltdown has provided an opportune time for investing in different areas, and Etisalat is ready to exploit the situation and bolster its global presence." For some time now, I've held the belief that the current downturn is set to stimulate acquisition activity on the part of well-funded telecoms groups from the Middle East. This latest tip about Etisalat's plans seems to be in line with that.

Arab world and India: investments to flow in both directions?