Knocked back in Sri Lanka, India's state sector telcos continue to eye international expansion opportunities

BSNL: global ambitions?

DevelopingTelecomsWatch has followed, with some interest, suggestions that India's two major state sector telecoms operators - BSNL and MTNL - might be aiming to become international players.

In September, this blog went on a meandering tour of emerging markets M&A rumours, during which it was mentioned that BSNL's bid for Millicom International Cellular's Sri Lankan MNO had been unsuccessful. Tigo Sri Lanka, as reported more recently here, was eventually acquired by Etisalat of the UAE, in a move which prompted some analysts to express fear for the profitability of the island nation's other mobile operators. These commentators have noted that Etisalat tends to compete fiercely on price when coming late to a cellular market.

In the same September M&A tour, DTW also quoted industry watchers who were warning both BSNL and MTNL to steer clear of reported attempts to acquire a stake in Kuwaiti-owned pan-MEA mobile group Zain. A Mint article by Shauvik Ghosh was referenced, in which an anonymous analyst said that BSNL would be advised not to purchase a stake in Zain. "BSNL has a lot of cash on its books but it lacks the ability to execute," said the mystery man. Not shy of the odd split infinitive, the unknown analyst said "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." A previous DTW article discussed at some length the view that the two public sector telcos have perhaps not yet demonstrated that ability to "execute in India" to anything like a satisfactory degree.

There is evidence, though, from as recently as mid-October, that BSNL and MTNL have not been deterred by such criticism and that the two companies continues to investigate both the Zain opportunity and other potential foreign adventures.

Writing on 15th October, Mansi Taneja of the Business Standard reports that a consortium led by Delhi-based Vavasi Group is in discussions with both BSNL MTNL for a majority stake in a special purpose vehicle that is being formed for a bid for Zain.

Taneja quotes "a top source close to the consortium" who has said: "Our talks with BSNL and MTNL are on track, but we don’t have any exclusivity contract with them. We are also holding informal discussions with other telecom companies, including China Mobile, in case talks with BSNL and MTNL do not fructify."

(note to self: attempt to use the word 'fructify' in conversation this week)

Is it unfair on the two Indian operators to venture the suggestion that the giant Chinese cellco might be a far more powerful player to have involved in an audacious bid to acquire operations and subscribers across Africa and the Middle East? Way back in 2002, the Chinese operator stole Vodafone's crown as the world's leading mobile operator in terms of subscriber numbers. Vodafone was subsequently seen to stake out its credentials as the world's largest cellco by revenues. Finally, in September this year, this accolade was also swiped by China Mobile.

If the Vavasi Group does turn out to be more impressed by the credential of the world's most gigantically-huge-mobile-operator-by-every-measurement-ever than by what BSNL and MTNL can bring to a bid for Zain, where else might the two Indian operators look for overseas growth opportunities?

One possibility, again aired by the indispensable Business Standard, is a much more modest foray into Africa, namely the acquisition of a majority stake in Zamtel, the state-owned incumbent telco of Zambia, which competes in the mobile space and is the monopoly fixed-line operator. On 15th September, the Government of the landlocked southern African country announced its intention to part-privatise the telco through the sale of up to 75% of the company’s equity. Industry watchers Buddecomm, in their Zambia profile, describe the country's wireline infrastructure as "at a very low level of development, which in turn has impeded growth in the Internet sector." Zamtel's monopoly in this space is set to be threatened, continues the Buddecomm profile, which notes that "the country’s ISPs are rolling out wireless broadband networks, which will also position them as competitors in the telecoms sector once VoIP is fully liberalised", something which is meant to be "a key component in Zambia's new ICT Policy."

The Zambia Development Agency (ZDA) makes a more upbeat assessment of the Zamtel fixed network, claiming that it connects all major population centres and is undergoing a substantial upgrade, with over 80% of switching infrastructure now digital, and DSL capacity being rolled out. The ZDA claims that Zamtel’s primary fixed-wireless network is also being upgraded and expanded, with coverage and capacity expected to more than double within the next twelve months. Zamtel’s secondary fixed-wireless network, based on WIMAX technology, is designed to cover the whole of metropolitan Lusaka, and is scheduled to go live during 2010, says the ZDA.

In the mobile space, Zamtel lags a long way behind its competitors in terms of market share. The stats, estimated for September 2009 by WCIS look like this:

1. Zain Zambia - 72.17%
2. MTN Zambia - 23.12%
3. Zamtel - 4.71%

Zamtel, then, is struggling to compete effectively against two of Africa's leading mobile groups. There is, however, room for all competitors to grow, with Zambia's mobile penetration rate currently standing at just under 33% according to WCIS. Whether BSNL and MTNL are ideally suited to improving the fortunes of the company, however, could be questioned in light of some of the criticisms aired here about their performance in their home market of India. According to the Business Standard, the two public sector telcos are joined by seven other companies or consortia from in having successfully prequalified to participate in a bid for Zamtel.

Should both the relatively modest aspiration of buying control of Zambia's incumbent operator and the rather more grand designs on Zain both come to nought, MTNL and BSNL do appear to have ambitions to establish a presence in other regions.

Again, I am indebted to India's Business Standard for an update. According to an article of October 23rd, the two operators, along with the Vavasi Group, are planning to set up new operations in Russian and western Europe.

Under this deal, the article states, Vavasi "is acquiring frequency spectrum and licences for Russia and several western European countries" and "the same [special purpose vehicle] that is being formed to acquire a majority stake in Zain will be used to invest in the Russian operations."

Confirming the development, a senior Vavasi executive is quoted as having said: "We are in the process of acquiring a licence for the new generation (NG)-1 technology and have applied in Russia and four other European countries."

This is where I betray the fact that I am not an engineer by wondering about this "NG-1 technology". What is it? The Business Standard article claims that "NG-1 technology is an alternative to GSM and CDMA and was developed in the US universities" and that "Vavasi claims that the network needs lower capital expenditure as well as operating expenses."

I'll hold my hands up. This is a new one on me.

An inspection of the Vavasi website reveals that NG-1 is a proprietary wireless access technology the company has developed itself and which it claims "understands the need of both rural and urban areas". Impressive sounding claims are also made for the spectrum efficiency and eco-friendly credentials of the technology.

NG-1 sounds wonderful - but can proprietary kit from India really prevail against global standards such as WiMAX, HSPA and LTE?

Some grand claims, then, are being made about the ambitions of India's two major state sector telecoms companies. Some of these claims seem to be articulated rather more loudly by the Vavasi Group than by the telcos themselves. I wonder how much there is in all of this. Can two operators that have attracted much criticism in their home market really be set to emerge as global players?

Knocked back in Sri Lanka, India's state sector telcos continue to eye international expansion opportunities

CALA region privatisation, nationalisation and liberalisation: variety is the watchword

Central America and the Caribbean: varied telecoms markets

When I wrote in late August about the quasi-nationalisation of Belize Telemedia, this was in response to being urged to do so by a Caribbean-based regular reader of this blog. That reader also suggested a number of other stories from his part of the world that I might dig into and discuss here. Alas, an extremely busy September prevented me from updating DTW as much as I ordinarily like to - and what I have written has tended to be on subjects about which it's been relatively easier to construct a discursive piece without significant research. To have done justice to any of the ideas suggested by my Caribbean correspondent would have required more thought and time than I can currently spare.

It is fortunate, then, that Tammy Parker of Informa Telecoms & Media, has rounded up some notable news items from around the Caribbean and Central America and built a useful article whose theme is an examination of very varied approaches to competition by governments in the region. I hope Ms. Parker's article, and my own reactions to it here, are of interest to this blog's most regular Caribbean-based reader and to others who visit this blog.

Parker starts with a mention of the situation in Belize, where Dean Barrow, the country's Prime Minister, has seized the 94% of the telco's shares that had been held by companies associated with British businessman and Conservative politician Michael Ashcroft. Parker reports the same twists and turns previously discussed here, but does not give space to the contention that Belize Telemedia is not actually under the control of Lord Ashcroft. That contention, some readers will recall, was made in statement from the Hayward Charitable Belize Fund posted here by an anonymous person, whom I assume to be either an employee of that Fund or of a PR firm working on its behalf.

The DevelopingTelecomsWatch article about the goings on in Belize concluded by considering the question of whether the seizure of Belize Telemedia shares would discourage pan-Caribbean mobile group Digicel (or some other likely foreign stategic telecoms sector investor) from taking an interest in the country. I wondered whether a buccaneering company such as Digicel might actually look more favourably at the Belize opportunity if it were quickly to become 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.

Tammy Parker is not so sure. As she points out, the entire expropriation process, from initiation in the nation's legislature to the actual Government takeover, was amazingly swift, taking just two days. Parker also notes that new Belize Telemedia board members include Anwar Barrow, the son of the Prime Minister, and his mother, Lois Young, as Secretary. The Belizean Government, reports Parker, has said that it hopes the full nationalization of the company is temporary, since it would like to offer shares to other investors, to encourage investment and competition in the nation’s telecommunications market.

Parker feels, however, that potential investors will be wary of entering a country where the government "so wantonly takes command of a private business and places the prime minister's family members on the board, whether for seemingly good reasons or not." She also contends that the Government "still wants individual institutions and people to be limited to a stake in BTL of 25% or less, ensuring that none has majority control", arguing that "the ownership restriction is likely to turn off potential investors, keeping major regional players, such as America Movil, Cable & Wireless and Digicel, far from Belize's shores."

Tammy Parker then takes a look at Costa Rica, which she describes as "moving in a completely different direction by opening its long-closed telecommunications market to new entrants".

The country is apparently set to issue three mobile network licenses, probably in 2Q10, creating, for the first time, competition for the cellular business unit of incumbent monopolist telecoms operator and utilities firm ICE (Instituto Costarricense de Electricidad). As Parker notes, while ICE has excelled in building a basic landline service in Costa Rica (the nation’s fixed-line penetration exceeds that of much of Latin America), the national mobile sector is something of a laggard. According to WCIS, the mobile penetration rate across South America, Central America and the Caribbean stands at 84.45%. The figure for Costa Rica is just 57.29% - and this is not one of the region's poorer countries. Although high inflation and under-investment in the national infrastructure continue to be problems, Costa Rica has consistently been among the top Latin American countries in the Human Development Index, ranking 50th in the world in 2006. It looks, therefore, that the lack of a liberalised mobile sector, rather than any general economic malaise, is what has stifled the take-up of cellular services.

When competition does come, it may be the case that ICE will need to up its game in several areas. The company's management, for example, will hope to have moved on from what seem to be quite serious mobile network quality issues affecting subscribers right now. Two days ago, news portal Inside Costa Rica reported that ICE expects problems with coverage and SMS delivery to continue into next year. An ICE official is quoted as advising customers to make calls and send messages during off-peak hours.

The final stop on Tammy Parker's whistle-stop CALA tour is in the Bahamas, where, "more than a decade after government leaders proposed the privatization of Bahamas Telecommunications (BTC)", a process has finally been launched a process to sell a 51% stake in the company to a partner that will also gain operational control. Apparently, the plan is for fixed-line telecommunications services, including cable TV, IPTV and Internet services, to be liberalised first, with mobile services set for liberalisation two years after the privatisation of the incumbent telco.

The new investor in the Bahamian telcoms firm will face some challenges right away. According to Neil Hartnell, writing last month for local newspaper the Tribune, BTC has seen the revenues derived from its international long distance business fall by 80.7% between 2004-2008. VoIP offerings from local firm IndiGo Networks as well as from the likes of Skype, Vonage and magicJack are blamed for this collapse. This has caused BTC to approach the recently incorporated Bahamian utilities regulator, asking for fixed-line international calls to be removed from the list of services in which the telco is deemed to have significant market power.

"Given the alternatives available to end users with respect to outgoing international long distance services, there is a case to be made to have international long distance excluded from the basked (sic) of price-regulated services," BTC said. "The inclusion of outgoing international long distance as part of price regulated services impedes BTC's ability to compete with licensed and unlicensed operators."

Tammy Parker's article concludes with the observation that "it will take time to assess which of these three countries will be most successful at bringing about the sought-after improvements in its telecoms market." Parker feels that "not only are their different approaches likely to yield vastly different results, but thorough execution of their plans will be paramount to generating the changes that they seek."

For those interested in the CALA region then, I guess it will be necessary to keep watching. DTW will try to do likewise.

CALA region privatisation, nationalisation and liberalisation: variety is the watchword

'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?