Telenor: good news from India; troubles continue in Russia/CIS

Telenor HQ: India, Pakistan and Russia issues on the agenda

A recent DevelopingTelecomsWatch article went into the likelihood of mobile market consolidation in Pakistan. I was prompted to write this by a rumour doing the rounds, according to which Telenor is considering selling its operation in Pakistan to China Mobile, which already has a presence in the market in the form of the MNO Zong. I noted that Telenor's presence in Pakistan was worrying the authorities in neighbouring India - worrying them to the extent that it could make it impossible for the Scandinavian telco to increase its stake in start-up Indian cellco Unitech Wireless. Such is the level of tension between the two countries, it seems.

I moved on to speculate (wildly, I admit) that Telenor's thinking might be along the following lines:

• We can't play in India and Pakistan...
• India (population 1.15 billion, mobile penetration 34.47%) presents massively richer opportunities than Pakistan (population 173 million, mobile penetration 55.58%)...
• so, if being in Pakistan prevents us from maximising the opportunity in India, let's get out of Pakistan...
  

Last week, however, came news of a possible way for Telenor to maintain a presence in both markets. An Economic Times article of 30th July indicates that India's Home Ministry is set to give security clearance for Telenor's hiking its stake in Unitech Wireless up to 74%, but on the condition that none of the staff who have worked at the Norwegian firm's Pakistan operation, are employed in India.

The Indian authorities are not only concerned about Telenor's Pakistan connections, it seems. Security agencies apparently also had reservations regarding the Norwegian company's presence in Bangladesh, where Telenor is the largest shareholder in market-leading cellco Grameenphone. The Economic Times article notes that both the neighbouring countries not only have a history of strained ties with India, "but have also served as a launchpad for various terror attacks". In the case of Bangladesh, investigations into serial terrorist blasts that killed 80 and injured 216 in the northern Indian tourist city of Jaipur last year pointed to the involvement of Bangladesh-based terrorist group Harkat-ul-Jihad-al-Islami, according to local reports.

The Economic Times piece notes that Indian authorities have had to take into account the concerns of the security agencies while also keeping in mind the reputation and stature of the Norwegian firm and how it has revolutionised rural telephony in Bangladesh via Grameenphone. The Bangladeshi MNO takes its brand name from that of Telenor's local partner Grameen Telecom, a non-profit sister concern of the internationally acclaimed microfinance organisation and community development bank Grameen Bank. A Grameenphone-Grameen Telecom partnership operates the national Village Phone programme, which puts mobile phones in the hands of very poor women who then operate a business, offering access to communications services to their neighbours.

This programme is not purely altruistic and has been an important component of an encouraging growth and profitability story for Grameenphone - and in a market where other cellcos have struggled to succeed. In this blog's most recent previous article, we heard from the CEO of rival Banglalink, which is owned by Egypt's Orascom Telecom. Ahmed Abou Doma explained in a recent statement that apart from the market leader (Grameenphone), "others are continually posting losses".

The Economic Times article also states that the Indian Government is keen not to send out the wrong message to foreign investors and has therefore "come around to the view that the Norwegian giant should not be held back from picking up up to [a] 74% stake in Unitech Wireless simply because it has a successful presence in Pakistan. " Keeping the human assets of the Indian and Pakistani arms of Telenor separate is expected to take care of risks such as spying and subversion, the article suggests.

For Telenor, good news from India comes at the same time as much less encouraging news from Russia. Within the last few hours, Reuters has reported that the Norwegian group has lost another round of its legal battle over its stake in Russian cellco Vimpelcom. The latest development in a long-running and acrimonious saga sees a Moscow appeals court rejecting Telenor's latest attempt to delay the enforcement of a USD 1.7 billion fine owed to Vimpelcom. Telenor faces the prospect of losing its stake in the Russian company after bailiffs ordered the sale of its shares to cover the fine that a Siberian court imposed for allegedly holding back Vimpelcom's expansion in Ukraine. Maria Kiselyova of Reuters writes that the case is being closely watched as a guide to the climate for foreign investors in Russia, coming after the shareholder battle last year that forced management and personnel changes at BP's Russian oil joint venture, TNK-BP. Kiselyova asserts that analysts watching the case, brought by Farimex, a small shareholder in Vimpelcom, say the forced sale of Telenor's stake in Russia's second-biggest mobile phone company by subscriptions "would further undermine confidence in the rule of law in Russia." She continues by saying that Telenor views the case as part of a protracted dispute with the powerful conglomerate of Russian billionaire Mikhail Fridman, Alfa Group, the other strategic investor in Vimpelcom. Alfa, as Kiselyova notes, has denied any links to Farimex.

These developments follow a Q2 performance which beat the expectations of analysts polled by Reuters. The Norwegian telco posted a bigger-than-expected 6.8% rise in Q2 core earnings and curbed investments to protect against a potential fall in mobile revenues amid global economic hardship. EBITDA rose to USD 1.24 billion.

Telenor also cut its CAPEX target, excluding investments in India, to 13-15% of its revenues from an earlier prediction of 15-17%. An impairment charge for its Serbian operation, linked to a poorer outlook for that country, hit its bottom line, driving earnings per share down from last year's figures.

It remains to be seen, though, how a bigger stake in India's Unitech Wireless and possibility of losing its foothold in Russia and the wide CIS (where Vimpelcom has numerous subsidiaries) will affect Telenor going forward.

Telenor: good news from India; troubles continue in Russia/CIS

Millicom's withdrawal from Asia to prompt (much-needed?) market consolidations?

Russia's Beeline brand comes to Cambodia - and set to drive consolidation in the wake of Millicom's withdrawl? Picture (C) Roger Barlow.

Millicom International Cellular, the Luxembourg-based company which provides cellular telephony services to more than 30 million customers in across Latin America, Africa and Asia recently announced that its assets in the latter of these three regions are up for sale. The company's announcement mentioned that during Q1 2009, these Asian operations and joint ventures generated UDS 68 million in revenues and USD 4 million net profit for the group.

Even more recently - on Tuesday last week - the company announced its 2Q 2009 results, encouraging highlights of which were:

• mobile subscribers up 25% vs. 2Q 2008 - bringing total subscribers up to 30.8 million
• reported revenues up 5% to USD 814 million (2Q 2008: USD 774 million)
• EBIDTA up 14% to USD 371 million (2Q 2008: USD 326 million) - this beat the USD 361 million forecast in a Reuters poll of twelve analysts
• EBIDTA margin of 45.6% (+340 basis points vs. 2Q 2008)
  

These results excluded "discontinued operations" - this means Tigo Sierra Leone and the three Asian operators. This, then, certainly leaves little doubt that the group is committed to its exit from Asia. The three Asian operations concerned are in Cambodia, Laos and Sri Lanka.

Why is Millicom looking to get out of these markets? Zacks Investment Research offers the following explanation: "The major concerns in these markets for Millicom are increased competition and an extremely tight credit market." According to Zacks, the Asian region contributed just 8% of the company’s total revenue and its EBITDA contribution was even lower at 6% of the total. The Zacks commentary also notes that overall ARPU in Asia was just USD 6.2 in the first quarter of 2009, compared to USD 6.6 in the previous quarter and "a massive" USD 8.7 in 1Q 2008.

According to Millicom CEO Mikael Grahne, increased competition certainly does seem to have affected the profitability of Cellcard, the Cambodian cellco in which Millicom has a 58.4% stake. Steve Finch, writing on Friday in the Phnom Penh Post, observed that Millicom's Grahne appears very critical of the "disruptive market-entry strategies" of new entrants into Cambodia's increasingly crowded mobile sector. On the other hand, Finch also observes that another major shareholder in Cellcard does not agree with Millicom's assertion that this is negatively impacting profitability: "[There are] no concerns on profitability from our side," said Mark Hanna, CFO of Royal Group, which owns a 38.5% stake in the cellco, denying that margins had become tighter. As well as investments in property development and the media sector, Royal Group is very active in Cambodia's telecoms sector. In addition to its stake in Cellcard, the group has shares in Royal Telecam International (the second licenced international gateway in the Kingdom; also a joint venture with Millicom) and teleSurf, a broadband service provider.

Whichever side of this argument is the more valid, it seems undeniable to me that Cambodia is currently supporting an incredibly large number of cellcos. Millicom-backed Cellcard, which is by some margin the market leader (43.65% of subs according to WCIS) is one of three well-established players, the others being Hello (an Axiata company with 13.28% of subs) and Mfone (19.84% of subs). From 2007 onwards, a number of further entrants have piled into the market. The most recent of these is Beeline Cambodia, owned by Vimpelcom, one of Russia's big three cellcos. The arrival of this new operator, whose services were launched very recently and whose subs are not yet recorded by WCIS, brings the grand total to nine MNOs vying for business in a country of just 14.2 million people.

To me, this feels like a vastly excessive number, particularly in light of the fact that mobile market consolidation has been a recurrent theme here at DevelopingTelecomsWatch this year - we've discussed whether even a relatively large African market such as Tanzania can possibly sustain the numbers of licensed mobile operators currently competing there - and have asked the same question about much smaller markets such as Burundi and Gabon. Moreover, we have discussed this issue in broader terms, i.e. whether/when we should expect a wave of market consolidations across Africa, prompted to do so by the stated belief of MTN CEO Phuthuma Nhleko that this is set to happen.

Mobile penetration in Cambodia currently stands at 34.41%, according to WCIS. So there is room for growth. How many of this large number of cellcos, though, will be equipped to take full advantage of that opportunity? I suppose that will partly depend on their resources and the quality of their management teams - but even very solid companies could struggle if there is any truth in the Millicom allegation about the effects of new players' disruptive market entry strategies. As Steve Finch of the Phnom Penh Post explained, these strategies involve the distribution of free SIM cards and airtime - very nice for quickly building a subscriber base, but taken to its logical conclusion this can seriously erode overall market value for all players.

Has this kind of strategy worked for any of the new players in terms of rapidly building market share? The answer seems to be a resounding 'yes' in the case of one particular new entrant, Metfone, which is the Cambodian subsidiary of Vietnamese MNO Viettel. According to WCIS, Metfone has quickly carved out an incredible 17.47% of the market since its launch late last year. The current WCIS estimate for Metfone subsriber numbers is 900,000. There may be precedents elsewhere in the world for an operator arriving in an already fragmented market and amassing subscribers at something like that rate - but none spring immediately to mind for me.

How is Viettel able to do this? The answer might be that the company is simply not working to the same commercial logic as its rivals in the Cambodian mobile market. Viettel itself is owned by the army of Vietnam, a state officially committed to the creed of socialism and where all organs of government are controlled by the country's Communist Party. In a March essay here on the global links between the telecoms organisations of countries with left-leaning regimes, Metfone got a mention. That piece referenced a Saigon Times article on Viettel's foray into neighbouring Cambodia, which indicated that the new cellco would target low-income subscribers with a wide range of low-priced services and packages. Viettel Deputy General Director Nguyen Manh Hung was quoted as saying that this approach is not only about customer acquisition but is also intended to "contribute to society". Perhaps we should take that to imply a quite different interpretation of the for-profit motive than the one most of us in market economies have to live with in our jobs and lives.

Have any of Metfone's fellow recent market entrants been able to build a subscriber base at anything like the same speed? There answer here appears to be a resounding 'no'.

In terms of market share and subs, the other newcomers have fared as follows:

• Star-Cell (GSM) - 3.27%, 168,400 subs; part of the TeliaSonera group; commercial launch in 2007
• qb (W-CDMA) - 1.20%, 62,000 subs; commercial launch in 2008
• Latelz (GSM) -0.97% 50,000 subs; launched in 2009; owned by Time Turns Telecom, which is also an investor in telecoms operators in Burundi, Tanzania, Nepal and Sierra Leone
• Excell (CDMA) - 0.31%, 16,000 subs; launched in 2009
  

In September last year, Morten Eriksen, the CEO of the second operator in the above list was interviewed by AsiaLife Guide Phnom Penh, a monthly lifestyle magazine for expatriates living in Cambodia. Eriksen, who also explained that qb is funded by international venture capitalists and local Cambodian partners, expressed the belief that there is a good opportunity created by the country's very limited fixed line telecom infrastructure and the eagerness of its people of "to experience new technologies." He also asserted that rather than focusing on competing, the company is focusing on the people of Cambodia and how it can provide the best benefit to them. Specifically, Eriksen expressed his company's commitment to serving the youth segment with "packages and services to help students in the pursuit of education as they are Cambodia’s future." In an earlier interview - with the Bangkok Post in June 2008 - Eriksen reported that when he was first invited to get involved a 3G project in Cambodia, his initial reaction was that "they must be crazy". He explained that only after reluctantly travelling to Cambodia did he see the potential in a market with three incumbents providing bad, expensive service and where a 256Kbps ADSL line cost over USD 600 a month. The article indicates that the project formally started in 2004, with the company getting a licence in 2006 and then signing a turnkey network agreement with Ericsson in June 2007. Groundwork started in October 2007 and the first test call was made a month later. Finally on March 15 2008, qb was launched "with over 57,000 subscribers signing up on launch day courtesy of a huge concert and free SIM packages."

If that figure of 57,000 initial subs is accurate (and WCIS does reflect this), then further growth has certainly been very slow indeed.

Of the late entrant mobile operators, it would seem, then, that only Viettel's Metfone operation has really made a major impact on the Cambodian market.

So, if Millicom, as market leader, is going to withdraw from this market, which telecoms groups have looked at this seemingly very challenging competitive environment and expressed an interest in acquiring Cellcard? Two names which have surfaced in recent weeks are ones already competing in Cambodia. Consolidation, then, would appear to be on the cards already, even ahead of any of the smaller players potentially having to withdraw.

The first interested party, according to a TeleGeography article earlier this month, is Axiata, the Malaysian-owned mobile group formerly known as TM International. Axiata is said to be considering offering a total of USD 700 million for both Cellcard of Cambodia and Millicom's Sri Lankan operation. Were this bid to be made and accepted, Sri Lanka would also see market consolidation - Axiata owns the island's market-leading cellco Dialog Telekom. According to the TeleGeography article, Axiata has declined to confirm or deny the talks, but said "in-country consolidation is of strategic importance in some of our markets." This does seem to be something of a trend in Asia - and for Axiata - of late. Cellular News reported last month that Aktel, the Axiata/NTT DoCoMo joint venture in Bangladesh is rumoured to be in merger talks with rival Banglalink, which is owned by Egypt's Orascom Telecom. Banglalink CEO Ahmed Abou Doma explained in a statement that apart from the market leader (Grameenphone), "others are continually posting losses" and that "in order to sustain in this fiercely competitive market, and in line with [Orascom's] growth ambitions", his company is "considering many strategies of which consolidation is an option."

In Cambodia, the other potential bidder for Millicom's Cellcard operation seems to be Russia's Vimpelcom. Again, this is another existing competitor, albeit one whose Cambodian launch was very recent. According to a Reuters report earlier this month, Vimpelcom spokeswoman Yelena Prokrova was conceded that potentially the Asian assets of Millicom could be interesting for for the Russian telco because they are located in the region which the company views as strategic in its international expansion. The report notes that Vimpelcom would also be interested in Millicom's operation in Laos.

My sense is that, as we have seen here, Cambodia is one of a number of Asian markets in which mobile sector consolidation seems very likely. I am wary of the notion that low penetration rates alone mean that any given emerging market or developing country offers telecoms groups a licence to print easy money. The low ARPU inherent in serving relatively poor people and the challenges of rolling out infrastructure to under-developed regions, often in challenging physical environments, can make for unattractively thin margins. If destructive levels of price competition are thrown into the mix, it surely becomes difficult for large numbers of competing operators to survive in all but the largest markets. The withdrawal of Millicom International Cellualar from Asia, then, may stimulate much-needed market consolidations in at least two of its three existing Asian territories. Rumours from Bangladesh also suggest that similar developments may be in the offing elsewhere across the continent.

Millicom's withdrawal from Asia to prompt (much-needed?) market consolidations?

Pakistan: 5 (really 6 [or 7?]) becomes 4 (or 5 or 6?)?

China Mobile: keen to drive consolidation of Pakistan's mobile market?

With a population of around 173 million and a mobile penetration rate of just 55.01% (according to WCIS), Pakistan would appear to be an attractive place to be for multinational telecoms groups. Some very significant individuals, however, have recently expressed the belief that market conditions are too tough to support the current number of mobile operators competing in the country. A specific suggestion about a possible merger between operators has also surfaced in the last few days.

According to Pakistani news portal Dawn.com, Telenor is considering selling its operation in Pakistan to China Mobile, which already has a presence in the market in the form of the MNO Zong. The Dawn.com article contends that the Norway-headquartered international telcoms group has been deliberating a withdrawal from Pakistan for some time because of "security issues".

Shortly after this report surfaced, Reuters was carrying a 'no comment'/denial from Telenor. The Reuters snippet notes that ARPU at Telenor Pakistan was the lowest of all its operations around Europe and Asia but that the number of subscribers grew by nearly 20% year-on-year. Why, then, would the Norwegian group consider this move?

Let me put forward a possibly outlandish theory, which also relates to security concerns - but security concerns in India rather than in neighbouring Pakistan.

A few days ago, the Economic Times ran an article about how the Indian Government has withdrawn approval for ByCell, a company "promoted by Russian businessmen", to offer telecoms services in the country. The company had planned to set up as a GSM mobile operator in areas including Assam, Bihar, Orissa and West Bengal, but seems to have endured a long struggle to get the green light to do so. As far as I can make out from this and other articles, the Indian Foreign Investment Permission Board (FIPB) has been concerned by the security implications of ByCell's ownership structure and its sources of funding for some time.

The same Economic Times piece also indicates that the FIPB is uncomfortable with the idea of Telenor increasing its stake (currently 49%) in cellco Unitech Wireless. Again, "security concerns" are the cause of the problem - in this case to do with the fact that Telenor operates in Pakistan, with which India has long had an uneasy relationship.

This, then, is my possibly highly simplistic and implausible theory: Telenor sees India as a far richer prize than Pakistan and therefore considers selling its Pakistani operation to China Mobile in order to pave the way for establishing a full controlling stake in Unitech Wireless. Crazy? Maybe. Or maybe I'm onto something. This is just a wild stab in the dark, so who knows?

Either way, China Mobile certainly seems keen to accelerate the growth of its share of Pakistan's mobile subs (currently estimated at 7.20% by WCIS) by acquiring a rival player and consolidating the market. Well, certainly if the Dawn.com article is to be believed. This contends that "before the merger talks with the Telenor group... China Mobile had offered to buy the management shares of Warid Telecom Pakistan" but could not settle on an acceptable price.

The article also claims that Pakistan's five leading mobile operators - Mobilink, Telenor Pakistan, Ufone, Warid Telecom and China Mobile's Zong - have reportedly all told the Pakistan Telecommunication Authority (PTA) that there is room for only four players. The further claim is made that a PTA official has said that by 2010 the country may indeed have just four mobile operators.

I have no idea of the source of this assertion, but it does now seem clear that Telenor Pakistan, at least, feels that the market is currently split too many ways. According to Mehtab Haider of the Pakistani newspaper the News, writing today, the cellco's CEO Jon Eddy Abdullah predicts market consolidation. In an interview with the News, Abdullah said Pakistan had the lowest call rates in the world and a continuous reduction in charges, as seen in the past, to attract customers was no longer viable. "This means that in the long term, having five operators in a market with intense competition and low prices may not remain feasible anymore," said Abdullah. "This can result in anything from mergers and acquisitions to [players] dropping out of the market," he added.

Abdullah mentioned two other significant challenges faced by operators in Pakistan - double-digit inflation affecting consumers' ability to afford services and the "overall law and order situation" limiting network expansion, restricting maintenance activity, increasing security-related expenses and dampening investor confidence.

The security situation in the country certainly does seem to present challenges for cellcos. Orascom Telecom-owned Mobilink, for example, has suffered damage to its network due the military opetation in Swat and Buner, where the army has been fighting with militant insurgents.

The Telenor Pakistan CEO was a little more upbeat about recent tax measures made by the country's Government - lower General Sales Tax; SIM activation tax slashed by 50%; the elimination of regulatory duty on handsets; lower customs duty on imported handsets.

"Although we consider these tax measures positive," said Abdullah, "we feel that there is more to be done. We are all aware of the impact of high tax rates on the industry, which depress growth in subscriber numbers, divert investments and ultimately discourage mobile usage."

"We also understand that when this industry flourishes," he continued, "it helps the economy by attracting foreign direct investment, contributing heavily to the national exchequer, generating employment and increasing productivity of almost every sector. Therefore, it is imperative that the taxation structure for the mobile industry is rationalised further."

Another telecoms industry leader seeminly keen to see cellular sector consolidation is Walid Irshaid, President and CEO of PTCL, Pakistan's incumbent wireline operator, in which the UAE's Etisalat owns a minority stake (but with management control), and of which MNO Ufone is a wholly owned subsidiary.

Farhan Sharif of Bloomberg, writing late last month, states that PTCL is in talks with several domestic companies to make acquisitions this year. "We’re already in discussions with various carriers and operators," Walid Irshaid said in an interview with Bloomberg News on June 16th during the CommunicAsia 2009 conference in Singapore. "The market must surely consolidate", continued Irsaid because he feels that Pakistan doesn’t need more than three GSM operators. He declined to name the companies with which he is in talks.

Between the Zong-Telenor takeover rumour and the comments of the CEOs quoted here, there does seem to be a body of evidence to suggest Pakistan's mobile market is set for consolidation.

So, how many cellcos would that leave? Thus far, this article has mentioned five currently in operation. There is, however, at least one more doing business in the country (which is why this article has a title that looks like a confusing equation).

One of these is rather unusual - the Special Communication Organisation (SCO), set up by the Government of Pakistan to provide services in Pakistan-occupied Kashmir and Northern Areas. According to one article I found, Pakistani army officers, both serving and retired, hold critical positions in the SCO.

One other cellco confuses me. Instaphone, a US TDMA network operator, was once part-owned by Millicom International Cellular (as was Paktel - sold to China Mobile and rebranded Zong). A slew of articles going back at least as far as January 2008 suggest the MNO had its licence terminated some time ago by the PTA for failing to make outstanding payments. However, the operator's website remains live and it still seemed to be fighting the PTA as recently as April this year. According to WCIS, the US TDMA operator currently has around 50,000 subs on its network - a market share of just 0.05%.

Pakistan: 5 (really 6 [or 7?]) becomes 4 (or 5 or 6?)?

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?

Opportunities and challenges for mobile players in Iraq and Libya

A number of telecoms news services this week picked up a story from Waleed Ibrahim of Reuters, who writes that Iraq's Finance Minister Bayan Jabor has announced the approval of two new mobile phone licenses for auction soon, one of them for a 3G network.

So, which telecoms groups might fancy setting up shop in what is the world's sixth most unstable country according to the 2009 Failed States Index produced by Foreign Policy magazine and the Fund for Peace?

A Cellular News piece, reporting the same item, states that Etisalat and Turkcell would be interested in bidding for a mobile license in the country. The Turkish cellco certainly seems to have a taste for adventure, having established an operation in Belarus, a country which under the leadership of President Alexander Lukashenko has been barred since 1997 from membership of the Council of Europe for election irregularities, and which has also attracted criticism for its record on human rights and freedom of the media.

Turkcell, then, is not shy of a challenging environment, something which is also evidenced by the operator's thwarted attempt to enter the Iranian market in 2004-2005. Earlier this month, DevelopingTelecomsWatch visited the issue of whether involvement in the Iranian market - and in the Syrian market - could derail South African telco MTN's mooted merger with giant Indian cellco Bharti Airtel. This is because banks involved in the transaction might fall foul of restrictions on dealing with these two countries which are set by the U.S. Treasury's Office of Foreign Assets Control (OFAC).

One country which might have proved problematic in these terms until quite recently is Libya. Now, however, relations between the USA and the North African country have improved to the point where such concerns should not be an obstacle to companies seeking to invest in Libya - and it seems Turkcell are keen to take advantage of this improved investment climate. According to a recent TelecomPaper story, the operator plans to bid for a licence to provide fixed and mobile phone services in Libya, announcing that the country's stable economy and per-capita income indicates the domestic telecoms market has high growth potential.

In February, the Global Mobile Daily service from Informa Telecoms & Media reported on the availability of this new licence, noting that the General Telecommunication Authority (GTA) of Libya had launched an international tender for a mobile and fixed-line concession in the country. As this report indicated, the Libyan telcoms market is currently monopolised by state-owned incumbent fixed-line operator General Posts and Telecommunications Company (GPTC), which owns 100% of mobile operators Libyana and Al-Madar. According to the GMD report, the GTA hopes the entrance of a new player will stimulate the country's telecoms market. That said, the status quo does not seem to have discouraged Libyans from embracing mobile technology and it should be stressed that the country is not under-penetrated. According to the World Cellular Information Service, Libya's mobile penetration rate is currently a hefty 141.58%. I am therefore a little uncertain what Turkcell might mean when it refers to the country's high growth potential. Perhaps the relatively low take-up of 3G services to date offers a nice opportunity. Or perhaps Turkcell is most excited about the chance to challenge the incumbent telco in the fixed-line voice and broadband space.

The Iraqi mobile market would appear to offer a lot more room for growth for Turkcell and any other companies keen to pick up one of the two new licences. Mobile penetration there stands at 67.47% according to WCIS.

However, aside from the general instability of the country mentioned at the top of this article, Iraq offers a challenging environment for mobile operators in some other ways. The imposition of fines by the authorities, for example, seems to happen on a fairly regular basis. Global Mobile Daily reported on 28th May that all three of the country's mobile operators had been fined for poor service, with Zain Iraq, facing the heftiest fine (USD 18.6 million) and Asiacell and Korek Telecom each being fined a little more than USD 1 million. The report notes that this is not the first such penalty for Zain, which had previously been fined USD 9 million.

This, however, does not appear to have prompted Zain to consider withdrawing from Iraq. A Reuters article last month quotes the group's CEO Saad al Barrak as saying the company will continue to operate in Iraq: "It's not a crisis at all. It's normal... to get some penalties here and there," Barrak said. According to Zain, the poor quality of service which caused the imposition of the fine is due to jamming by U.S. forces trying to prevent insurgents from setting off bombs.

Asked by Reuters whether Zain planned to halt its operations in Iraq in response to the fine, Barrak replied: "never."

This is not to suggest, however, that we can expect Zain Iraq's management to accept Government criticism and intervention in meek silence. A week before his group CEO's comments, Ali al-Dahwi, who heads up the operation in Iraq, used strong language to protest how his company is treated by the Iraqi authorities. "We kept our mouths shut for a long, long time from speaking the truth because this has something to do with the safety of the Iraqi people. One hundred percent we are sure (it is) interference and jamming," he told Reuters.

Dahwi said Zain Iraq tried to talk to the Government to explain why the service was suffering but met "deaf ears." He claims that the decision to impose the fine was based on "hearsay," rather than scientific proof. "The more we played Mr. Nice Guy, the more we were abused," he said. "It seems to me there are many members of this government who talk the talk about encouraging investment but when it comes to walking the walk, the only thing they care about is their political position, not Iraq, how to get reelected."

Iraq, then, is a market not without challenges for those courageous enough to invest there. I will be interested to see if Turkcell, a company I've followed closely for some time, will indeed make this move - and make the move into Libya, where it's less obvious to me that there is good room for growth.

Opportunities and challenges for mobile players in Iraq and Libya

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