Zain Africa Done Deal Watch

Former Zain CEO Al Barrak - exit from Africa caused his departure?

During 2009 DevelopingTelecomsWatch became somewhat preoccupied with the fate of the African assets of MEA mobile powerhouse Zain. As speculation mounted about whether these operations were up for sale and, if so, who the prospective purchasers might be, DTW managed to churn out no less than thirteen Zain-themed articles, the first of these appearing on 12th June. Scratching away at persistent rumours like a mutt with fleas, this blog was still whining on about the story on 18th August.

The whole series of ramblings rejoiced in the clunky title 'Zain Africa Speculation Watch', which has been revived and paraphrased here with today's offering.

Along the way, a number of potential suitors for Zain's African opcos got a mention. These included France Telecom and Vivendi plus Indian operators Reliance Communications and BSNL.

All these months later, it seems fairly safe to assert that the speculation stage is finally over, with shares in another Indian cellco, Bharti Airtel, edging higher on the back of news that it will sign a USD 10.7 billion deal to acquire the Zain's African telecom assets later today.

If, as now appears to be virtually certain, the Indian MNO does manage to conclude this deal, it will be a case of third time lucky, as noted recently by Shalini Singh of the Times of India, who reminds us of Bharti Airtel's two fruitless attempts to engineer a tie-up with South Africa's MTN, another saga which had some coverage here at DTW. As well as observing that the Zain Africa purchase will "catapult Bharti to the rank of the sixth-largest telecom service provider in the world by number of subscribers", Singh feels that it is "an ironic twist of fate" that one of the Indian firm's major competitors in its new markets will be MTN.

With this mega-deal now on the brink of proceeding, perhaps the time is right to ask that Bharti Airtel has to gain (and lose) from competing in so many new markets at once, and to ask what motivated Zain to quit Africa less than five years after entering the continent's mobile arena via the acquisition of Mohamed Ibrahim's Celtel International.

James Middleton of telecoms.com writes that "for Zain, the deal represents a retrenchment of the company's strategy as well as good value." Middleton argues that while the company has succeeded in transforming its brand and in building up an impressive customer base across sub-Saharan Africa, it has struggled to operate profitably.

Quoted in James's article is his fellow Informa Telecoms & Media employee Nick Jotischky, a principal analyst with the firm. "Perhaps it turned to the managed services model too late in the day and failed to leverage its supplier relationships so as to build in sufficient economies of scale", says Jotischky, who suggests that this is where Bharti Airtel will focus its efforts.

"Whilst it will, no doubt, be confident of controlling its costs, Airtel will aim to build up its brand equity characterised by reliability very quickly," says Jotischky. "But reliability alone will not be enough – the newcomer will have to show itself to be innovative as well. In an already competitive marketplace, Bharti will not just be competing with other mobile operators for a share of wallet but with other brands in adjacent consumer goods sectors. This means that Bharti will be under pressure to offer services that are directly relevant to end-users and this will differ from market to market."

James Middleton talks up the chances of the Indian cellco maximising the value of this large new investment. "Bharti has a heritage in making network sharing and outsourcing deals work and will not be afraid of being aggressive on per minute pricing," he writes. "The company is also well versed in addressing the difficulties of serving a largely rural, high-churn, low-revenue market."

Inspired by this transaction, Informa's telecoms.com is currently running a series of articles offering 'ten tips for investing in Africa'.

Informa offer their first tip, that operators need to be innovative on pricing, while noting that mobile tariffs in much of Africa are high compared to those in some other emerging markets. "For example", runs the telecoms.com article, "Zain Kenya’s lowest tariff is about [USD] 0.04 per minute, for on-net calls.. compared to India, where Reliance Communications offers tariffs that are as low as [USD] 0.01 per minute, for both on-net and off-net calls." The article continues by pointing out that the fact that tariffs in Africa are relatively high is reflected in ARPU levels: "In 4Q09 blended monthly ARPU across Africa as a whole was [USD] 10.49 – but in India blended monthly ARPU in 4Q09 was much lower, at just [USD] 2.73, and falling.

However, the article observes that mobile tariffs have already come down in many African markets in the past couple of years as competition has intensified, often because of the market entry of new operators. Usage in Africa, meanwhile,  the article contends, has increased over the past couple of years too. African MoU, however, remains "half that of India's, which does suggest that there is potential for substantial further growth."

This growth opportunity notwithstanding, the gist of Infoma's 'tip' is that "African operators are probably best advised to avoid getting into the kind of price wars that are taking place in the Indian market", where ARPU halved during 2009, creating a big squeeze on  operators' profits.

Rather, Informa advises, "African operators should aim to demonstrate more of the innovation in pricing that is already evident on the continent through plans such as Zain's One Network, which allows subscribers to pay local rates when roaming, and MTN's MTN Zone, a dynamic tariff plan that charges lower rates when the network is not busy."

Let's see whether Bharti Airtel considers this to be sage advice as it embarks on its African adventure.

On a personal note, I will be interested to see whether the Indian cellco will make many changes to the management teams running its numerous newly-acquired opcos - and to listen out for a sense of how far Zain's people around Africa welcome the change of ownership. One opco CEO apparently quite upbeat about all of this is Zain Zambia MD David Holiday:




Presumably less positive about Zain's sales of its African assets is the man who masterminded their acquisition for the Kuwaiti group, former CEO Saad al Barrak, who resigned in February.

At the time, Emeka Obiodu, a senior analyst at Ovum, said: "Al Barrak championed this expansion push – buying Celtel, and aiming to make Zain one of the top ten mobile operators by 2011. But his whole ambition was blown to pieces by the owners who wanted to sell off in Africa."

While Al Barrak and his strategy do appear to have some detractors, Obiodu does not seem to be among them: "He’s taken MTC, this small company from Kuwait and transformed it into Zain, a global mobile powerhouse. He didn't bite of more than he can chew, but his vision diverged from the vision of the owners. When we did some financial analysis on Zain, the company wasn’t doing particularly badly. It wasn’t like he ran the business into the ground, although you have to concede that some of the small markets in Africa were seriously under-performing."

Now we will see whether Bharti Airtel has the patience and vision to stay in these numerous African markets for longer than Al Barrak's former company elected to do.

Zain Africa Done Deal Watch

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

Zain (Africa) Speculation Watch: Episode 12

Zain share price: massive spike since the rumour mill started turning

One loyal reader has suggested it's high time that this blog revisited its most regularly explored theme - the ongoing not-so-mini-series that is Zain (Africa) Speculation Watch.

Note the parentheses around the word 'Africa', a set of punctuation marks that, for good reason, crept into the title of this series in Episode 11. Bracketing 'Africa' in this way was to denote that while this continuing investigation into developments at the Kuwaiti MEA telecoms group was initially focused on the rumours about the sale of Zain's African operations, the focus needed to become a bit wider, i.e. speculating about the future of the whole company. This was due to the UAE's Etisalat informing reporters of its interest in buying a 51% stake in the Kuwaiti group.

Since then, that loyal reader I mentioned has urged me to take note of a couple of possibly quite significant elements of the Zain story.

The first of these is the news that a major Zain shareholder is likely to consider selling its stake in the telecoms company if it receives the right price. That shareholder, the Kuwait Investment Authority (KIA) (the Gulf state’s sovereign wealth fund), owns a 24.61% stake in the operator. According to Kuwaiti newspaper al-Rai, "the KIA has no objection to discussing any offer to buy its stake in Zain whether made by the UAE’s Etisalat or others under the condition that the offer would be serious and with attractive returns."

That, then, looks like pretty positive news for the Emirati telecoms group if its interest in Zain really is very strong.

The other bit that my friendly reader brought to my attention is much more cloak-and-dagger.

My friend tells me he's heard whispers that "the whole Zain thing" has been a ruse set in motion with the sole intention of driving up the Kuwaiti group's share price. By way of support for this assertion, my pal urged me to take a look at Zain's stock chart from March to July. "It's quite amazing what transpired", my correspondent reminds me. Kuwaiti blogger 'Alpha Dinar' concurs, having noted back on July 13th that Vivendi’s USD 12 billion rumored proposal to acquire Zain’s African operations "has stolen headlines for the past few weeks, sparked large volumes, and resulted in a huge spike in Zain’s stock price."

I asked my correspondent whether he felt that the likes of Vivendi (and other rumoured Zain Africa suitors like France Telecom) could really be tempted into declaring their interest and thereby enabling any such ruse to succeed. My friend's response: "If the new buyers weren't really aware of the game, and if the game was well-played, I don't think they would have been able to keep the genie in the bottle. In any case, if Party A wanted to manipulate the share price, they would be the ones leaking and Party B wouldn't have been able to stay in stealth mode. I don't know how likely it is. I'm not saying that's what happened. I'm just saying that the price did indeed jump up quite a bit, and despite the talks having failed, it hasn't gone down that much at all."

My correspondent concedes that games of the kind being alleged here are not terribly common in Bahrain or Kuwait. He asserts, however, that this is a game often played in other parts of the world and that the fact remains that "the stock was even and then - BOOM - a ninety degree angle."

Who knows? Not me, that's for sure.

One company whose talks with Zain could be said to have "failed" is Vivendi, which announced on July 20th that it was "interrupting" the discussions. No reason was given at the time. Since then, however, Kui Kinyanjui, writing for Kenya's Business Daily Africa, has alleged that the French telecoms and media conglomerate's interest cooled following a disappointing trip to her home country. Kinyanjui writes that "a dozen senior Vivendi officials jetted into the country to view close hand one of the Zain operations their company hoped to purchase" and that "they came, they saw, were disappointed, and in the process, a multi-million dollar deal was scuttled." The article describes Zain's struggle to compete with Kenya's market-leading cellco Safaricom and cites unconfirmed information from Kenyan sources which indicates that Zain is "keen to sell its Kenyan, DR Congo and Sierra Leone units, and could consider separate bids from disparate telecommunications firms for those operations."

Such rumours of Zain breaking up its African portfolio and selling off operations piecemeal have been far less prominent than stories of that whole portfolio being sold to a single buyer. One prospective purchaser, however, has expressed an interest in buying up only those Zain-owned opcos which would complement its own existing African footprint.

In a recent Reuters note on France Telecom's need to limit margin erosion, Finance Director Gervais Pellisier is quoted as saying that the French incumbent telco "might look at some of the African assets of Kuwait's Zain if the latter decided to sell them in parts." Any willingness on the part of Zain to consider a piecemeal sell-off of some African assets - as alleged by Kui Kinyanjui - would presumably, then, be music to the ears of Mr. Pellisier and his colleagues.

Were a sale of Zain itself or just of Zain's African assets to go ahead, one stumbling block could come in the form of legal action brought by Econet Wireless, the telecoms group led by Zimbabwe-born businessman Strive Masiyiwa. As a recent Guardian article reminds us, in late 2000, Masiyiwa led a consortium that won a licence to operate a mobile phone network in Nigeria. Econet Wireless had a 5% stake in the consortium and claims it had a right of first refusal to buy out the rest of the network in the event of any bid emerging. A bid did emerge from Mo Ibrahim's Celtel International, but, writes the Guardian's Richard Wray, "a series of legal obfuscations blocked Econet from ever getting the chance to bid."

Celtel was, of course, subsequently acquired by Zain and Wray states that the fast-growing Nigerian mobile phone business now accounts for about half of all the Kuwaiti group's African revevnues. In court, says Wray, "Masiyiwa's lawyers are arguing he should be allowed to buy back Zain's Nigerian business at the price set in 2006, in effect blasting a hole straight through Zain's plans to sell its whole African operation with Nigeria as the jewel in its crown."

Well, another episode of Zain (Africa) Speculation Watch has probably left you not much the wiser. It was ever thus. Let's see what happens in the next installment. Don't touch that dial etc.

Zain (Africa) Speculation Watch: Episode 12

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?

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?

Zain Africa Speculation Watch: Episode 9 - Can Vivendi do it?

Zain CEO Saad al Barrak:
thumbs up to the sale of Zain's African operations? You'd have to ask the shareholders...

DevelopingTelecomsWatch celebrates its 100th blog post with another episode of Zain Africa Speculation Watch. Will that turn out to have been a future-proof title for this mini-series? Maybe not, because for the first time since DTW started visiting this theme, one of the companies rumoured to be interested in acquiring the African assets of the Kuwaiti telecoms group has actually confirmed that interest. It seems, therefore, that we are now moving beyond the speculation stage.

That said, perhaps for now we can stick with the term 'speculation' in the title of these musings. The speculation today, however, will move from wondering which prospective suitor looks the most plausible to wondering whether one particular suitor really has the wherewithal to do the deal.

That suitor is one whose name seems to have been in the mix since day one - Vivendi, the French international media conglomerate which is active in music, TV, movies, publishing, video games and telecoms.

Last Thursday, the group confirmed that there is indeed some interest in acquiring Zain's African operations. James Middleton of telecoms.com, reporting the story the next day, concluded his article with the caveat that the French firm has cautioned that at this stage there is no certainty that the discussions will lead to an acquisition.

This last point is echoed by a Financial Times article written the same day, which notes that Vivendi Chairman & CEO Jean-Bermard Lévy has "a track record of walking away from deals he regards as too expensive", something that has provided "some reassurance to analysts that the company will not over-pay."

The last time we looked at this story here, sums of USD 10 billion and USD 12 billion were mentioned as possible prices for Zain's collection of African MNOs. This is not far off the money from a Vivendi perspective according to the FT article, which cites "people familiar with the matter" who apparently say that the French group values Zain's African unit at USD 10-11 billion. A big concern for Vivendi, however, according to the company's statement of July 9th, is "keeping its credit rating and its dividend at their current levels".

This last point was mentioned in Episode 3 of Zain Africa Speculation Watch, when I noted that Reuters writer Adam Durchslag had expressed doubts about how Vivendi, with net debt of around EUR 8.3 billion, would be able to afford such a significant acquisition without putting that all-important investment grade BBB credit rating in jeopardy.

This concern about maintaining the group's credit rating notwithstanding, were this purchase to go ahead, it would, as the FT article notes, be Mr Lévy's fifth large acquisition in less than four years. The same article reports the opinion that the purchase of Zain Africa makes good strategic sense, giving Vivendi wider exposure to fast-growing markets at a time when its domestic telecoms and pay-TV businesses are facing stronger competition and its music business is in decline.

While it is pretty clear that Vivendi has pretty compelling reasons to consider a purchase of this size and nature, it is worth asking once again why Zain might be prepared to make the sale. According to the FT, Zain CEO Dr Saad al Barrak simply felt obliged to alert the Kuwaiti group's shareholders to the approach by Vivendi.

"If we are approached by big players with clear value creation we have to pass this to our shareholders. This is not a decision for us on the management level. It is all up to the shareholders to decide," the Zain CEO told the FT. He also revealed that only Vivendi has made an offer for the African assets.

Those shareholders have already felt the effects of the speculation. Matt Smith of Reuters reported yesterday that Zain's shares jumped 9.8% after news broke of Vivendi's confirmed offer for the company's African unit. Sounds good? Sure, but the very day that Vivendi was confirming its offer, Saad al Barrak had denied a deal was on, causing a fall of almost 9% in Zain shares, according to another Reuters article.

It remains to be seen whether that means that no other groups are likely to come forward to trump any offer from the French group - if such an offer does ever happen. Doubts are likely to remain for now. As Cyril Altmeyer of Reuters wrote late last week, analysts have expressed the view that it would be possible for Vivendi to take full control of Zain's African operations without endangering its BBB rating. Altmeyer's article quotes an unnamed banker who contends that with Vivendi having put something on the table, Zain and its advisers are probably figuring out whether to have targeted discussions with other interested parties." The same banker feels that potentially interested parties would be France Telecom, China Mobile and Vodafone.

This article also states that one way for Vivendi to make the Zain Africa acquisition without risky capital raising at group level would be to make the approach though Maroc Telecom, which is not in debt and in which the French group holds a 53% stake.

More twists and turns, then. Keep watching.

Zain Africa Speculation Watch: Episode 9 - Can Vivendi do it?

Double A Side: Zain Africa Speculation Watch: Episode 8 + Iran 3rd Mobile Licence Saga Update

Vivendi's Lévy: no comment on Zain Africa rumours
Picture: ⓒ 2008 The IBTimes Company

Intrepid reporters from Reuters can often be relied upon to grab telecoms big hitters on the sidelines of conferences and other events. Reuters people seem to be well trained in the dark art of thrusting a mic at the luminaries and bagging a headline-worthy quote.

Last month, for example, the ambitions of Russian cellco MTS were revealed to a Reuters scribe on the sidelines of the of the St Petersburg Economic Forum.

This week, however, the news service has done quite so well. A Reuters reporter sprang on Jean-Bernard Lévy, Chairman of French media and telecoms conglomerate Vivendi, who was present yesterday at a forum in Aix-en-Provence, France. Regular readers of this blog, particularly those gripped by the drama of Zain Africa Speculation Watch the mini-series should be able to guess which question was asked. The answer? Not too illuminating.

Levy declined on Saturday to say whether his company is interested in acquiring the African operations of Kuwaiti telecoms group Zain. "I have no comment to make on this," was Lévy's reply.

So we are none the wiser - unless you're the kind of conspiracy theorist who infers something significant from such a minimal response.

I was one of those for whom the notion of Zain selling its African operations popped up out of nowhere. I remembered colleagues returning from a pan-African telecoms sector conference and reporting that Chris Gabriel, CEO of Zain's African unit had spoken in terms of having a war chest for further acquisitions. Much had also been made of Zain's stated ambition of being a major global player and of the strategic important of Africa in that context.

Zain Africa Speculation Watch kicked off on on 12th June, almost as soon as I had started to hear rumours. Another reason this was all rather surprising was that only days before that, there had been suggestions that Zain might be looking to acquire a significant asset on the African continent -France Telecom's stake in market-leading Egyptian cellco Mobinil. Readers interested in that part of the world cannot have failed to notice the long wrangle that has gone on between France Telecom and the other major shareholder in Mobinil, Orascom Telecom, itself a Cairo-headquartered company.

This tussle seems to have been initiated when the two sides found themselves at variance over strategy for Mobinil. According to Alastair Sharp, the Egyptians were keen to invest more heavily than the French wished to, disagreeing over Mobinil's budget and expenditure, marketing strategy and start up of 3G services. Since kicking off in April, this has become quite a heated business, with famously outspoken Orascom Telecom Chairman Naguib Sawiris accusing France Telecom of being "in the business of value destruction".

Sneaking onto the end of today's musings - by virtue of being Zain-related - is the matter of Iran's third national mobile licence. In common with Zain Africa Speculation Watch and the Sawiris-France Telecom battle, this is another fairly long-running story to which it is probably not unfair to apply the label 'saga'.

The saga started with the UAE's Etisalat and local partners winning the valuable Iranian concession, which comes with a useful period of exlusivity regarding the provision of 3G services. This later went sour and by mid-May, I was noting here that Zain appeared to be waiting in the wings to pick up the licence and get into the large, growing and still helpfully under-penetrated Iranian mobile market.

This is now looking unlikely.

On Friday, TeleGeography was picking up reports from an Iranian newspaper which indicated that a new tender will be held to find a strategic investor to launch the country’s third national mobile network. Iran’s telecoms minister Mohammad Soleimani was quoted as saying that Zain had been offered the third operating licence in May, but had "not fulfilled obligations".

A Cellular News take on the same story talks in terms of confusion about whether Zain had not only been "offered" this licence but had also actually secured it, mentioning reports from mid-May about the Kuwaiti company having been "awarded" the concession.

The article continues, however, by noting that Zain said it had only been invited to renew its negotiations as the leader of the consortium that came second in the original bid process. As the article states, "if Zain was formally awarded the license, then it has kept very quiet about it."

For seasoned Iran watchers, this is all a bit déjà vu. As the Cellular News piece reminds us, there was also controversy over the country's second national mobile licence. This had been snapped up by a company 51% owned by Turkcell in 2004, but the deal fell foul of a clamp down on foreign investments by conservative forces in Iran. The Turkish cellco was accused of having links with Israel - clearly a complete no-no. After a year of wrangling, the licence was reissued to South Africa's MTN, which was happy with a minority stake in the new operator.

Two sagas, then, that I enjoying watching. Happily, a little news about both was breaking at around the same time. Hence this Double A Side update from DTW.

Double A Side? Use of that term betrays the fact that I'm old enough to have been brought up on vinyl. Having turned over a chunk of Sunday to writing this, perhaps I'll slap something mellow on the turntable and just leave the sagas to one side for now.

Double A Side: Zain Africa Speculation Watch: Episode 8 + Iran 3rd Mobile Licence Saga Update

Zain Africa Speculation Watch: Episode 7

Dr Bahabri of HiTS Telecom: 'highly leveraged' Zain has been in talks with Vodafone, China Mobile - (photo from Comm.ae)

It's a matter of policy here at DevelopingTelecomsWatch not to write anything actively inflammatory. Controversy is not the watchword. There's no harm, however, in merely repeating contentious statements made by others. Is there?

One man seemingly unafraid of rattling cages is Dr Sultan A. Bahabri, Chairman of HiTS Telecom, the self-styled 'new opportunity communications company' that has invested in Brazil, Spain, Saudi Arabia and in several African markets.

Late last week, Bahabri spoke with the telecoms sector's very own man of mystery 'the Informer', offering his hard-hitting opinions on a range of issues. One of these was the recently much-discussed question of whether pan-MEA mobile player Zain is really going to flog its supposedly strategically vital African assets to some lucky punter.

Bahabri alleges that last year Zain was in serious talks with both Vodafone and China Mobile, claiming that the Kuwait/Bahrain-headquartered group is "highly leveraged and that leverage is going to be heavy on their shoulders for years to come."

The HiTS Telecom Chairman went on to make some fairly critical remarks about the manner in which Zain entered the Saudi Arabian market two years ago. The price paid for the country's third licence to operate was a whopping USD 6 billion, at a time when mobile market penetration was close to 80%. As Gavin Patterson of Informa Telecoms & Media wrote in his recently-penned Zain Group Q4 2008 update, mobile penetration in Saudi Arabia had passed the 100% mark by the time the third operator launched services. Patterson also saves us the bother of working out the cost of the licence per inhabitant of Saudi Arabia - USD 226: the world's most expensive on a per capita basis.

According to the Informer, Bahabri claims that his company also bid just over USD 4 billion in the Saudi Arabian auction, but that he could not have justified the bigger sum which Zain ended up spending.

Zain's management have not failed to notice sceptical remarks about their Saudi operation. In February last year, the firm's Chief Communications Officer Ibrahim Adel was interviewed by Mobile Communications International magazine, acknowledging that the move had been dismissed by some as one which that simply did not justify the expense. Adel noted that some observers had dubbed his firm's actions as a case of "crazy Kuwaitis, spending crazy money".

Adel argued, however, that the licence win was essential: "Saudi is a key strategic market for us. We couldn’t not be there."

Keep that word in mind: strategic - and fast-forward to the more recent critical remarks made by Dr Bahabri of HiTS Telecom. In last week's no-holds-barred chat with the Informer, Bahabri joked that "when you can’t think of a reason to justify that sort of spend, you just call it 'strategic'" - using the word as a barb, it seems to me. Many operators, he went on to add, have "a very dangerous combination of ego and cash. That leads to many mistakes."

Tough talk. Does it invite others to watch HiTS Telecoms closely and speak in similarly strong language should Dr Bahabri's organisation ever make moves which leave it open to criticism?

Returning to Dr Bahabri's suggestion that "highly leveraged" Zain was in talks with potential purchasers of parts of its business as far back as one year ago, fresh rumours were circulated yesterday that a sale of some sort is now on the cards - Bloomberg's Ambereen Choudhury writes that the telco has asked Swiss bank UBS AG to consider a possible sale of its African division, which it values at about USD 10 billion. The source? "Three people familiar with the plans."

These mysterious people told Choudhury that UBS "will oversee a review that may lead to a sale of all or part of the unit" and that "Zain is yet to decide on a sale, which would exclude its Sudanese operations."

In previous episodes of Zain Africa Speculation Watch we have considered the merits of various suitors that could step forward should Zain indeed decide that a sale is the best way forward. Of these, I noted that French telecoms and media conglomerate Vivendi has been dismissed by some analysts as being unlikely to be able to raise the necessary funds for an acquisition as significant as Zain's African unit.

Bloomberg's Choudhury, however, takes the time to consider a Vivendi bid and his unnamed sources allege that the company has actually approached Zain in recent months for exploratory talks about the latter's African division. According to Choudhury, Vivendi, which owns 53 percent of Maroc Telecom, has said it wants to revisit the idea of expanding its presence in emerging markets, having scrapped previous discussions about buying a stake in Dubai-based Oger Telecom in 2007.

Of the rumours feeding into Zain Africa Speculation Watch the mini-series, Ambereen Choudhury's are about the most specific. I have no idea, however, if they are the most reliable or credible. So, again I invite you to watch this space. Don't touch that dial. No flipping. etc. etc.

Zain Africa Speculation Watch: Episode 7

Zain Africa Speculation Watch: Episode 2

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

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

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

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

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

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

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

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

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

Zain Africa Speculation Watch: Episode 2