Unsurprising news of the week

India's Communications & IT Minister: summoned to explain falling revenues at BSNL

To my mind, the least surprising news item so far this week comes from Mansi Taneja of India's Business Standard, who reports that state-owned Indian state-owned telco BSNL is likely to exit a consortium that has been aiming to acquire a 46% in pan-MEA mobile group Zain. According to Taneja, MTNL, the other public sector operator party to the consortium, is also likely to exit since it had agreed to follow BSNL’s lead in the deal.

DevelopingTelecomsWatch has no axe to grind with regard to these two telecoms enterprises, but it won't have escaped the notice of regular readers that this blog has observed some pretty strong criticisms of their performance in their domestic market, most notably in an article written in August.

It was partly with these criticisms in mind that DTW was unsurprised when Etisalat rather than BSNL prevailed in the scramble to acquire the Sri Lankan mobile operator previously owned by Millicom International Cellular. It would, then, cause raised eyebrows at DTW HQ were MTNL to win what looks to be a hotly contested scramble to buy a controlling interested in Zambia's soon-to-be-privatised incumbent fixed line operator, Zamtel. As a recent Cellular News item points out, the list of other interested parties contains some formidable names including Orascom Telecom, Telkom of South Africa and Russia's pan-CIS cellco Vimpelcom, which has recently expanded its footprint into Southeast Asia.

Lest anyone feel that this blog returning quite regularly to the troubles of India's two major state-owned telecoms enterprises is somehow unwarranted, it is worth noting that concern about their prospects has been expressed in the highest circles in the south Asian country. Monday's Economic Times, for example, reported that Prime Minister Manmohan Singh is likely to meet the BSNL's management along with Communications and IT Minister A. Raja to look into the causes of the company's falling revenues and to find ways to improve its performance.

According to the Economic Times, BSNL says the loss in net profit and revenue is due to huge wage costs and customers deciding to terminate their fixed line subscriptions. The article states that the company has been struggling with the problem of landlines being surrendered for years now, due to a combination of the increasing popularity of mobile phone and its own service levels falling below customer expectations. In the past three years, the article reports, 6.3 million landline connections have been terminated.

This blog has also documented the company's struggles to capitalise on first-mover advantage in the 3G mobile services space or to take make much of a similar head start with WiMAX broadband services.

In light of all this, DTW remains wary of any claims that BSNL makes about ambitions to grow its business into unfamiliar overseas territories.

Unsurprising news of the week

Canada's 'thirdworldish' policies to stifle wireless competition?

Naguib Sawiris: planning to shake up Canada's wireless market

DTW’s recent article on international ambitions of India’s two major state-owned telecoms operators mentioned that one opportunity they are considering is the acquisition of a controlling stake in Zamtel, the incumbent fixed-line operator in Zambia. It remains to be seen if this joint bid from BSNL and MTNL will succeed and it does look as though some formidable players are also interested.

According to a recent Cellular News article, other interested parties include Telecel Globe (a subsidiary of Orascom Telecom), Telkom (South Africa’s incumbent fixed-line operator) and Russia’s increasingly expansionist Vimpelcom, all of which, the article states, officially began due diligence this week.

Interest in Zamtel is by no means the biggest recent news item about Orascom Telecom and might well have escaped the notice of North American readers whose attention has probably been drawn more readily to the challenges the Egyptian firm is facing in Canada.

Globalive Communications Corp. of Toronto was established in 1998, since which time it has offered competitive long distance plans. Ten years later, the company successfully made a purchase in Industry Canada's radio spectum auction, which paved the way for the creation of a challenger - Globalive Wireless - for the country's established mobile operators, including Telus Mobility, Rogers Wireless and Bell Mobility. The joint efforts of these three major carriers and regional players such as SaskTel have failed to drive national mobile penetration beyond 66.65% according to WCIS. This seems very low for a G8 country that ranks among the world's top ten trading nations. In an interview for Huawei's Communicate magazine earlier this year, Bell Mobility CTO Stephen Howe attributed this state of affairs to three factors: the relatively late licensing of digital wireless spectrum in Canada; Canada' s huge geographical area; the country's robust and unlimited-usage wireline networks.

Globalive Wireless, backed by Orascom Telecom and which had earlier this year announced its intention to launch services under the Wind brand familiar in Italy and Greece, has been led by CEO Ken Cambpell since October 2008. Cambell, whose former roles include a stint running the BITĖ Group, the Vodafone partner network in Lithuania and Latvia, would take issue with Stephen Howe's explanation for Canada's status as a wireless industry laggard. Speaking with Michael Bettiol of Boy Genius Report last month, Campbell lays the blame squarely with the country's wireless carriers:

"Here we’ve got a situation where we pay twice as much as they do in the US, our minutes of use are half of what they are in the US, and wireless penetration is at 65%. Clearly it is a market that is under-developed and where customers simply overpay. The other thing is that in Canada our customer saturation numbers are extremely low. We’ve got a very disenfranchised and very frustrated customer base that is really ripe and in need of competition. The other thing you should know is that this country is dominated by three carriers, but if you look regionally, it is typically two carriers that dominate regional markets. Canada is effectively an oligopoly and in many regions pretty much a duopoly. There is definitely an opportunity with consumers and the numbers speak for themselves."

If, as Michael Bettiol contests, Canadians have "long craved for a new wireless carrier to bust onto the scene and break up what is often described as the anti-competitive practices of [the] incumbents", there must surely be much excitement in the country about the market debut of Wind.

For now, however, any excitement must be deferred a while. Globalive Communications has been in a state of limbo since late last month, when the Canadian Radio-television and Telecommunications Commission ruled that the company is effectively under the control of its Egyptian-based financial backer (Orascom Telecom) and is therefore in breach of rules on foreign ownership and control.

Terence Corcoran of the National Post despairs of the resulting "wireless mess":

"Globalive Wireless has just pumped more than half a billion dollars into the Canadian economy. That includes paying Ottawa $442-million last year for the right to new wireless spectrum, cash now already spent by the federal government stimulating road work in Saskatchewan and writing giant cheques to constituents in Nova Scotia," writes Corcoran, who also notes that "Globalive has also invested another hundred million or more preparing a new Canadian wireless network".

"Having taken Globalive's money", Corcoran continues, "Canada is now telling the company the deal is off."

Corcoran argues that the large spectrum auction fees collected by the Canadian Government would have been far more modest had the participation of Orascom Telecom supremo Naguib Sawiris not been authorised in the first place. Corcoran says that Sawiris has every right to feel mightily aggrieved:

"Whether or not it's possible to sue Ottawa over this thirdworldish policy switch and bureaucratic camel-trading, complete with secret meetings and rule-bending approval processes, it certainly looks like Globalive and its owner, Mr. Sawiris, have a case of some kind, politically and morally, if not legally. Ottawa led Globalive into bidding for spectrum and a major role in the Canadian wireless market, and then it pulled the carpet out from under the company.

This wrangle is a fascinating one for me. In the course of my work, I have spent considerable time networking with telecoms executives from Europe, North America and the Middle East who make their living running operations in less developed countries. I have lost count of the number of times I've heard (doubtless justified) complaints about the complexities and pitfalls of doing business in such markets - regulatory agencies that can be erratic and less than even-handed; taxation policies which stifle growth and innovation; foreign ownership rules which can prove limiting. It is with interest, then, that I read of a company rooted in Egypt encountering in Canada some of the problems I usually hear attributed to much less affluent and developed societies.

Canada's 'thirdworldish' policies to stifle wireless competition?

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

East Africa Com musings: Does it matter which submarine cable lands first?

The socio-economic impact of undersea cables in East Africa: the SEACOM view

Blogger Clement Nthambazale Nyirenda is a lecturer, researcher and consultant in Electronics and Computer Engineering at the Malawi Polytechnic, a constituent college of the University of Malawi. He is currently studying for a PhD in Japan at the Tokyo Institute of Technology. In February Clement wrote about the broadband speeds he enjoys in Tokyo and expressed his hope that a similar service might one day be available in his home country.

Malawi, as Clement noted, while usually considered to be part of Southern Africa, also lies in the easterly part of the continent, which is "the only region in the world that has neither intra-[continental] nor direct access to worldwide international cable networks." The region, Clement observes, "instead relies on expensive satellite communication" with "data costs... among the highest in the world."

Clement discusses the progress of the Eastern Africa Submarine Cable System (EASSy), "the first initiative proposed to connect countries of eastern Africa via a high bandwidth fibre optic cable system to the rest of the world." According to the EASSy website, the level of international telephone traffic per main line in sub-Saharan Africa is the highest in any region in the world, which is proof of there being "considerable demand in East Africa due to insufficient supply for telecommunications within the region." My own single experience of visiting that part of the world - last week's trip to the East Africa Com conference in Nairobi - does lead me to concur, as does the business of simply trying to make calls to other East African countries from the UK. As I noted in my most recent post here, the only frustrating aspect of my short trip to Kenya was finding it fairly difficult to stay on top of my day job via our company VPN. At both my hotel and the conference venue, Internet access was slow and unreliable.

My understanding is that there exists the hope that providing East African countries with improved connectivity could prove to be an effective catalyst for economic development in the region through the expansion of businesses based on the Internet, the provision of call centre services and the outsourcing of other back office functions.

EASSy is set to run from South Africa to Sudan, with landing points in six countries, and will be connected to several landlocked countries. A number of telecoms operators have invested in EASSy via WIOCC (West Indian Ocean Cable Company), which had a visible presence at last week's conference. These include state-owned wireline incumbent operators such as Botswana Telecommunications Corporation, Djibouti Telecom, Telecomunicacoes de Mocambique and soon-to-be-privatised ONATEL of Burundi.

Others in the WIOCC contingent are Orascom Telecom-backed MNO U-Com (of Burundi), Telkom Kenya, Dalkom (Somalia), Zantel, Uganda Telecom, Israel's Gilat Satcom and the Lesotho Telecommunications Authority.

From South Africa, direct investors in EASSy include Neotel, MTN and a consortium of Telkom (SA) and Vodacom. Futher direct investors in the project are Telecom Malagasy, Mauritius Telecom, SUDATEL, Tanzania Telecommunications Company, Comores Telecom and Zamtel (no, that's not a repeat of Zantel). From beyond the region, other backers are BT, Saudi Telecom, Bharti Airtel, Etisalat and France Telecom.

In his February blog post, Clement Nyirenda notes that EASSYy was once expected to be ready for commercial use in Q2 2007 but that construction did not get underway until March 2008. Clement reports (confirmed by a more recent Compterworld Kenya article) that the project is now slated for completion and commercial service in the second half of 2010 - three years behind schedule. "EASSy has not been EASY", comments Clement.

In Clement's opinion, "the major problems hampering the progress of the EASSy project stem from the fact that it is a joint venture of more than 20 largely monopolistic parastatal telecommunication bureaucracies." I shall leave it to individual readers to decide which (if any) of the project's backers fit this rather critical description. "In Africa," says Clement, "the culture of working together in such a large grouping is not common."

Wrangles between partners do seem to have been a feature of the project, at least as far back as June 2006, when a meeting of ICT ministers from Eastern and Southern African countries helped resolve disagreements among project participants, according to Sammy Kirui, the chairman of EASSY's project management team.

Regarding the most recently announced delays, the Computerworld article quotes WIOCC CEO Chris Wood, who said late last month that "the delays have been caused due to optimizing the cost structures and finalizing the agreements between all participating carriers". Wood, states the article, is not worried about the delays because the most important thing is the long-term stability of the financial structure of the cable system. "Time and again", Wood said, "the telecom industry has seen private equity financed companies build cables and then go bankrupt within a few years as their business model, hit by high costs, proved unattainable."

EASSy is just one of three submarine cables set to improve the region's connectivity. Another is TEAMS (East African Marine System). Etisalat appears to be spreading its bets in the race to connect the region, having a 15% stake in TEAMS in addition to its investment in EASSy. The other 85% of the ownership of the TEAMS project is split between a diverse group of interests including the Kenyan Government, Telkom Kenya (another one which is backing two horses) and Kenya's market-leading cellco Safaricom. Also involved from Kenya are the country's largest private data carrier Kenya Data Networks and most recent mobile market entrant Essar Telecom Kenya, whose billboards I saw all over Nairobi last week. The advertising of another TEAMS backer, the cable MSO Zuku, was also very prominent as I caught a glimpse of the city during cab rides between meetings.

Kenyan players dominate the consortium, with ISP AccessKenya and Jammii Telecommunications (which provides access to the Internet Backbone to telcos, ISPs, and large enterprises) also involved.

One more Keynan TEAMS backer is Flashcom, an integrated telecommunications solutions provider offering voice, data and SMS services with a collection of network assets including a CDMA2000 WLL and ISDN services over Fibre. Flashcom's CEO Joe Kimani was on the speaker panel at last week's conference, but unfortunately I didn't get the chance to catch what he had to say. From beyond Kenya, a small stake in TEAMS is held by Africa Fibrenet of Uganda.

The other submarine cable on the East Africa scene is SEACOM, whose investors state that the project will ensure access to low cost bandwidth, thereby encouraging the growth of existing and new industries, as well as education and e-government.

Does the region need three undersea cables? If all of this is thought of as a race to land the cables and start doing business first, will whichever project finishes last find itself out of the game? A Business Times (Tanzania) article of last Friday contends that the answers to these questions are, respectively, 'yes' and 'no'.

In this article, the scene is set with an illustration of the degree to which the current paucity of connectivity impacts upon businesses in the region. The claim is made that a large corporation in Tanzania can pay about USD 3000 a month just to ensure a reliable Internet connection for its network. According to the article, this figure rises to USD 7000 to cover a megabyte of bandwidth per computer in a medium-sized office in Kenya. "A business connection in an urban center in the US," continues the article, "can cost as little as USD 25 a month".

The article compares the economics of the VSAT and undersea cable industries and adds that "fiber optic cables are low latency: they can carry information more than ten times faster than a VSAT to satellite to cable connection."

When making a comparison between the three submarine cables, the article contends that they all have "roughly the same capacity", but notes that "each connects a different combination of countries and ownership."

The article acknowledges that "there has been much hype in the media about which cables will land first" but makes the argument that "the success of one cable does not render the others useless." The view expressed is that redundancy is needed to ensure the security of broadband supply and to stimulate competition, thereby reducing prices for users. "Tanzania will be able to make room for both the EASSy and the SEACOM cables, as well as any connectivity provided by TEAMS", concludes the piece. Plenty of room for all, then, it seems.

East Africa Com musings: Does it matter which submarine cable lands first?