Zain (Africa) Speculation Watch: Episode 11 - Enter Etisalat?

Etisalat's Jamal al-Jarwan: "We are interested in Zain."

Episodes of the Zain Africa Speculation Watch mini-series are not usually aired on consecutive days. A highly relevant news item yesterday from John Irish of Reuters, however, could not pass without comment here.

Irish reports that Jamal al-Jarwan, CEO of International Investments at the UAE's Etisalat has told the news agency that his firm is interested in buying a 51% stake in Kuwait's Zain group. The Etisalat man, however, declined to comment on whether the Abu Dhabi-headquartered group was already talking to Zain about the possibility of taking a stake. Reuters was also quick to pick up a 'no comment' response from Zain spokesman Ibrahim Adel.

Intriguing stuff, then. Given that in the African context, the Zain and Etisalat footprints only overlap in Nigeria, and given that Jamal al-Jarwan has said his company is interested in Zain "as a whole", I suppose we must assume that the UAE telco is equally keen on the Kuwaiti firm's African and Middle Eastern assets. This opens up the possibility of a rather different scenario than the one discussed at length here and elsewhere in recent weeks, i.e. the prospect of a Europe-based group such as Vivendi acquiring just Zain's African operations.

How likely, then, is a deal of this kind? I can't even begin a detailed analysis here today, but perhaps it's worth observing that Etisalat's 2Q results suggest the company is in better health than some might have expected. While the UAE telco's 2Q net profit of USD 656.1 million was down 19% percent from a year earlier, this beat forecasts from analysts surveyed by Reuters earlier this month. The news agency's Firouz Sedarat reported that Etisalat is confident its growth in revenues achieved will help the telco to expand and develop its national and international business units. The company reports reduced operational expenditure in the first half of this year and a strategy of being more selective than before in choosing its international investments. Sedarat writes that Etisalat has been expanding overseas as it faces stiffer competition in its home market, where some analysts have predicted that job cuts could reduce the population, thereby impacting on the company's profits and those of rival telco du.

Acquiring a controlling interest in Zain would certainly be an aggressive continuation of this international expansion strategy.

A more modest - but nevertheless significant - move would be the purchase of a unified fixed/mobile licence in Libya. The availability of this concession was discussed here just a few days ago. At the time, I focused a bit more on the interest that Turkcell is said to have expressed in this opportunity. Now, though, we have more information about Etisalat's potential bid, thanks once again to John Irish of Reuters, who wrote yesterday that the UAE telco would invest at least USD 500 million in the network if it won the competition.

Dubai-based journalist Peter Cooper agrees that geographical diversification into emerging markets could be a powerful counterbalance to the numerous challenges Etisalat faces at home in the UAE. However, Cooper feels there exists the possibility that overseas investments "may not shine or [may] even prove disappointing" and that growth for the company may be difficult to achieve. Cooper reckons "a fair assessment might be that Etisalat is entering a period of stagnation or modest decline" and that the only strategy for safeguarding or raising profits, therefore, is to cut the cost-base. He notes that many large corporations around the world are currently going through this painful process, and after a long period of high growth it would be surprising if useful economies could not be found in any company. Staffing levels are the most obvious focal point for any strategic review at Etisalat, Cooper believes, along with a review of operational efficiency.

Peter Cooper's article was written ahead of the announcement of Etisalat's interest in acquiring a controlling interest in Zain. I wonder how far this development will cause him and others to revise their view of the UAE group's prospects?

Zain (Africa) Speculation Watch: Episode 11 - Enter Etisalat?

See you in Abu Dhabi? I'm afraid not

I am writing this at home, cursing the congestion on British roads. What should have been a 40 minute car journey to Heathrow Airport took nearly two and a half hours, causing me to miss my flight to Abu Dhabi. The outcome of a hasty discussion with senior colleagues was that there was little point in my travelling tomorrow morning (I would have got there too late for the function my firm is hosting) and that it would be too expensive jumping on an Emirates flight to Dubai at short notice.

So, I headed home. Why the clockwise section of the M25 was completely clear while the offending anti-clockwise section was still snarled up is beyond me. This is the first time I have ever missed a flight in my life, and I do feel a bit foolish. So, no report from Monday's Telecoms Leaders conference, I'm afraid. My wife and son are quite pleased to have me around for the UK Bank Holiday weekend, so it's not the end of the world, I suppose. I'm still a bit annoyed though. Deep breaths...

See you in Abu Dhabi? I'm afraid not

MECOM/Telecoms Leaders: see you in Abu Dhabi?

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

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

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

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

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

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

MECOM/Telecoms Leaders: see you in Abu Dhabi?

Mobile price wars in the downturn: time to do battle?

Still reeling from the roaming bill I racked up on my last trip to the UAE in December, I was interested to see the Dubai Chronicle reporting a big cut in international calling prices on the part of Emirates Integrated Telecommunications Company, better known as Du.

For the first time, Du's prepaid customers can now use a AED 200 recharge card and receive AED 320 credit to towards international calling. Other Du recharge card denominations of AED 100, AED 50 and AED 20 will provide instant credits of AED 150, AED 70 and AED 26 respectively, to be used towards international calling.

Farid Faraidooni, EVP Commercial at Du says: "Every dirham counts, and more so in the case of the UAE, with a large expatriate population with the need to stay in touch with their loved ones back home."

This might make me think more seriously about getting myself a prepaid Du SIM for future trips to the Emirates. However, my situation is similar to that of Dean Bubley of Disruptive Wireless, who, in an amusing blog post this week, describes himself a frequent traveller, but to lots of different countries. Writing this Wednesday, Dean bemoaned the costs and complications of staying in touch with work contacts, friends and family while attending next week's Mobile World Congress. "One thing that's immediately apparent," writes Dean, "is that despite all the talk of VoIP, SIM-swapping and the like, I'm going to end up with a large bill for voice and SMS roaming. I've got dozens of meetings, loads of people I'll need to contact (or be contacted by), inevitable changes to schedules and venues, plus all the usual work and personal call traffic I'd normally get in the UK. I'll be paying for both inbound and outbound roaming calls."

"It's clearly not an option just to get a local SIM card - most of the people I need to contact will be outside Spain and there are too many people likely to contact me to inform everyone of a new number." Given that, as Dean says, keeping a Spanish SIM year-round would not work because it would expire after a few months without use, I had to sympathise when I read his remarks about WiFi not being an option due the likely (he says notorious!) congestion on the network provided at the Barcelona Fira (MWC venue). Dean also criticises VoWLAN service providers for having "haphazard support of SMS, which is absolutely mandatory at trade shows where you have back-to-back meetings."

Dean's suggested remedy for international travellers? "What would be good would be a way to get a local SIM or account/number - ideally without physically having to buy one - and for this to automatically propagated to all your contacts when you were in-country. Or for it to somehow be linked to your existing home account in the network."

That sounds useful. Let's see. In the meantime, after reading about Du's reduced international call charges, I noticed a couple more stories about operators slashing prices. Both relate to markets from where a large number of the UAE's expatriate workers originate.

According to an article last week on the Bangladesh news portal priyo.com, the CDMA operator CityCell is "struggling to remain in business... with operating losses escalating to almost double in the first quarter." The company, of which SingTel is the largest shareholder, has apparently suffered as a result of having to subsidise handsets. The article asserts that only market-leading
Grameenphone is profitable, "with other players bleeding for years."

While device subsidies are said to be hurting CityCell, greater pain is apparently being caused by an intense price war. Says Zia Uddin, an analyst with New York-based asset management company LR Global: "Intense competition has led to [an] unhealthy price war in [the] Bangladesh mobile phone market. Most of the companies have to subsidise handset prices to woo clients," he said. "In addition, the ARPU and [tariffs] in Bangladesh are possibly the lowest in the world".

CityCell, the country's first ever MNO, seems poorly positioned to grind it out in this kind of environment, having steadily lost market share to rival GSM operators since Grameenphone, Banglalink (then called Sheba Telecom) and AKTEL entered the market in 1997. The CDMA carrier now has just 4.03% of the subscriptions in Bangladesh.

Meanwhile in India, according to an story carried by Global Mobile Daily last month, the entry of CDMA operator Reliance Communications onto the GSM scene has already triggered rivals Airtel, Vodafone and Idea Cellular into price cutting mode.

This is not surprising if, as reported by the Economic Times yesterday, Reliance plans to slash its GSM rates by 50%. However, the same article cites a recent study by Lirneasia which deduces that such a move is not likely to make a significant dent in telcos' existing subscriber base.

Lirneasia, a not-for-profit ICT policy and regulation capacity building organisation working in nine South Asian countries, conducted a survey on mobile users at the bottom of the socioeconomic pyramid which shows that even the most cost sensitive subscriber segment has reached a stage where it is driven more by service offering, brand loyalty and number retention than by price discounts.

T.V. Ramachandran, head of India GSM operators' trade association the COAI supports the findings of the Lirneasia study. This seems like a sensible response from a body whose members could suffer badly if a price war is escalated and sustained.

It will be interesting to watch developed and emerging markets worldwide to see how many operators feel this economic downturn compels them to cut prices heavily and how many take the view outlined in the Lirneasia report - that it makes more sense to compete on quality and brand value.

Mobile price wars in the downturn: time to do battle?