Afrique Occidentale & Centrale Com: De retour au Sénégal par demande générale

The Zain-Bharti transaction: How will West African mobile markets be affected?

Mais non! DevelopingTelecomsWatch has not become a francophone blog. The frenchified title of today's offering is in honour of the fact that a noted West African telecoms conference is, after two years in Nigeria, to be hosted in Senegal in June.

Geopolitically, West Africa is defined by the UN as consisting of: Benin, Burkina Faso, Côte d'Ivoire, Cape Verde, Gambia, Ghana, Guinea, Guinea-Bissau, Liberia, Mali, Mauritania, Niger, Nigeria, Senegal, Sierra Leone and Togo. Of these, just four are countries where English is an official language. Of the others, two are Lusophone states and ten are French-speaking.

The organisers of the aforementioned conference have found that this linguistic diversity in the region creates certain challenges for them. Nigeria, as by far the largest market in West Africa, seemed to be the logical place in which to host the event for the last couple of years. Certainly, relocating the conference to Abuja (from its previous venue of Dakar, Senegal) two years ago paid tremendous dividends in terms of boosted attendance numbers and a good buzz of activity at the 2008 and 2009 iterations of the gathering. This was achieved, however, at the cost of making the event a tad less attractive for delegates from the numerous French-speaking markets. This effect was somewhat mitigated by ensuring that simultaneous English-French translation was available during all conference sessions, but perhaps not as much as was hoped given that this year Informa Telecoms & Media have moved the show back to Dakar again.

Given that delegates from telecoms operators attend for free, Informa monetises its Com World Series events (of which West & Central Africa Com is one) largely by selling sponsorship packages and exhibition space to the telecoms technology vendors that do business with those operators. These vendors will doubtless remain keen on the potential of the large (and fragmented) Nigerian telecoms market and might be concerned about not having a good tradeshow route-to-market to address this now the conference has headed back to Dakar.

With this in mind, I guess, Informa are also running a specifically Nigerian event in Lagos this year. This will make its debut in September.

In the meantime, what can we expect to be discussed at the Dakar gathering?

I guess one hot topic - addressed via offline chitchat if not via presentations and panel discussions - will be the effect of Zain's withdrawal from the region. The Kuwaiti group currently controls opcos in Burkina Faso, Ghana, Niger, Nigeria and Sierra Leone - as well as others in markets elsewhere in sub-Saharan Africa. As discussed ad nauseum in DTW posts passim., all of these are now set to be in the hands of giant Indian cellco Bharti Airtel. DTW's most recent article, mainly a brief exploration of whether India's mobile market is set to consolidate, did a little to talk up the ways in which Bharti Airtel might be able to reinvent Zain Africa by introducing the low-cost business model which it has empoyed on home turf. So let's see how much tougher sub-Saharan markets are set to become for Zain/Bharti's competitors.

This acquistion, however, may yet take a little while longer to conclude. One reason for this could be resistance from the governments of the countries in which the Zain-owned opcos are set to change hands. That said, there have been recent signs of these obstacles being overcome.

Back in March, for example, as reported by India's Economic Times, the Government of Gabon said it "disapproves" of the sale of Zain's Gabonese assets to Bharti Airtel and reserves the right to take "all necessary measures". Late last week, Reuters was reporting that this objection had been resolved.

It will be interesting, then, to see how long it takes to deal with any further problems of this kind. If the difficulties do continue into June, it should be interesting to connect with Tiemoko Coulibaly, Vice President of Zain's Western Africa operations at West & Central Africa Com in Dakar.

There will be many other reasons to attend the event - but connecting with the likes of Mr Coulibaly could be motivation enough for anyone who does business with Zain in Africa and now needs to keep on top of how the change of ownership is set to change the game.

Afrique Occidentale & Centrale Com: De retour au Sénégal par demande générale

East African opportunities unclear as cellcos remain coy about data ARPU

Kenyatta Int'l Conference Centre, Nairobi: venue for this year's East Africa Com

Last year I had the pleasure of visiting Nairobi, Kenya for the first time, building meetings around the excellent East Africa Com conference and exhibition.

This year, given that my day-to-day commercial activity now does not give me much exposure to Africa, I will not attending. Were I still more active in Africa, however, I would certainly want to be there - and I would encourage anyone who does business with the telecoms operators of the East Africa region to head for the Kenyatta International Conference Centre on 27th-28th April.

This year's event will be graced by the presence of the Hon. Samuel Poghisio, the host country's Minister for Information & Communications and by Charles J.K Njoroge, Director General of telecoms regulatory agency the CCK (Communications Commission of Kenya). I don't recall the Kenyan Government and authorities being represented at such a high level at the 2009 event, so the organisers are to be congratulated for the upgrade.

Sponsors and exhibitors will doubtless also be impressed by the number of operator CEOs to whom they will have access during the two days of discussions. Of these, two of the biggest hitters are Michael Ghossein, CEO of France Telecom-controlled Telkom Kenya, the country's incumbent fixed-line operator and Michael Joseph, the long-standing CEO of Kenya's dominant (78.8% market share, according to WCIS) mobile operator Safaricom.

This may be one of the final conferences appearances for the latter, Joseph having announced his impending retirement. He joined the Kenyan operator in mid-2000, when Vodafone first invested in the company. Since then, he has guided the company from a subscriber base of fewer than 20,000 to over 15 million today. Along the way, Safaricom has become renowned for its M-Pesa mobile money transfer service, which has brought the advantages of financial services to very large numbers of Kenya's largely 'unbanked' population. Safaricom also attracted praise this week from Alexander Grouet of Mira Networks, a leading provider of connectivity and billing tools between business and mobile networks in Africa.

Grouet asks: "Would you plan a trip to a foreign destination if you didn't know what the place looked like, what there was to see, how much a hotel room cost and what local transportation was available?" Having concluded that most readers would not, Grouet then invites us to imagine that what we’re talking about is not your vacation, but your business. "Well that’s pretty much what it’s like for most content providers wanting to penetrate the SSA [sub-Saharan Africa] market", he continues. "Despite the hype, the market metrics WASPs crucially need in order to make the next step, such as data ARPU or WAP traffic, are virtually inaccessible. Even traditional market data resellers don't offer it, as optimistically named Africa VAS reports almost exclusively include blended indicators rather than content-specific ones." I don't recall if this is a fair accusation to direct towards the good folks at the reports business of Informa Telecoms & Media, the organisers of East Africa Com.

Even if it is, Grouet suggests that the fault for the scarcity of these vital data lies with operators. "Out of the 26 operators in the 5 countries I worked on last year (Nigeria, Kenya, Ghana, Senegal and Cote d'Ivoire) only 2 to my knowledge," he writes, "publicly released their data ARPU." The two cellcos in Mr. Grouet's good books are Safaricom and Starcomms, a Nigerian CDMA carrier.

"The most likely explanation for this", ventures Grouet, "is that the data figures are still so low on most networks that operators simply don’t want to release them at this stage." According to Grouet, even Safaricom's data ARPU, including M-Pesa, stands at just USD 1 monthly, while the figure for Starcomms, including EV-DO dongles, is just under USD 2 per month. "But at least, we know where they stand, and we will be able to measure their progress when they next update those figures," Grouet continues.

Grouet hopes that other African operators will break their silence on the topic of data revenues, not least because that unwillingness to share data "only has the counter-productive effect of making it harder for international content companies, who precisely could help operators boost their data traffic, penetrate their markets."

Let's see how many cellco attending East Africa Com agree with these sentiments. Were I to attend this year, I would probably like to pursue that line of questioning, not least because I have received marketing emails from Informa which suggests that the region's operators are somewhat focused on data services.

A speaker likely to turn in an entertaining presentation is Noel Herrity, CEO of Tanzania's Zantel, an operator in which the UAE's Etisalat owns a 51% stake. Mr. Herrity delivered a compelling, nicely paced talk at the 2009 iteration of the conference and delegates will be hoping for more of the same. Perhaps we can be optimistic about that - Herrity may be in buoyant mood in light of recent reports indicating that the operator has begun recording net customer additions again, following two quarters of net loss.

One speaker for whom it could be challenging to stay 'on message'? Bashar Arafeh, the COO of the East Africa Region for MEA mobile group Zain.

This might arise as a result of delegates' curiosity about the future of Zain's African operations. Subject to takeover speculation for many months now (see DTW articles passim.), these assets could well be the property of giant Indian cellco Bharti Airtel before too long. The most recent developments in this long-running saga may soon prompt a revival of the popular mini-series (well, it generated more hits than usual) which appeared here on-and-off for much of 2009, rejoicing in the clunky title 'Zain Africa Speculation Watch' (and variations thereon).

Other CxOs appearing on stage at next months event include:

• Hans Paulsen, CCO, Uganda Telecom
• Themba Khumalo, CEO, MTN Uganda
• Ali Bin Jarsh, CEO, Canartel, Sudan
• Julius Kinyua, CEO, Flashcom, Kenya
• Geoff Goss, CEO, Celsys, Zimbabwe
  

I'm sure this year's event will once again be a useful place to do business, gain market intelligence and enjoy the company of a crowd who always seem very open to networking and making new contacts.

East African opportunities unclear as cellcos remain coy about data ARPU

South Africa's Telkom: a fighting chance?

Telkom Direct stores: a vital channel to market as the company faces challenging times?

DevelopingTelecomsWatch is picking up lots of chatter today about Telkom, the incumbent wireline operator of South Africa. This started when this morning's daily roundup from TeleGeography included the news that the company is planning to re-enter the mobile space in 2010 after only a brief period with no cellular presence.

Until almost exactly one year ago, Telkom and Vodafone had each owned 50% of Vodacom, the pan-African mobile operator with 35 million customers in South Africa, Tanzania, Lesotho, Mozambique and the Democratic Republic of Congo. Earlier this year, the UK-headquartered mobile giant secured a controlling interest in Vodacom with the purchase of an additional 15% stake from Telkom. The remaining 35% owned by the South African incumbent was listed on the Johannesburg Stock Exchange and unbundled to the company's shareholders.

When plans for this transaction were first announced late last year, Lloyd Gedye of South Africa's Mail & Guardian reported the stated rationale for Telkom's sale of its stake in Vodacom and noted that many analysts "had expressed skepticism at Telkom's ability to make a success of going it alone in the mobile space and have questioned how Telkom will survive without the Vodacom cash cow."

Back in November 2008, then, Gedye wrote that Telkom CEO Reuben September was arguing that the deal would unlock significant value for the company's shareholders because its fixed-line business had "been undervalued while it clung on to its 50% stake in Vodacom".

How much validity is there in that notion of Telkom's wireline property being undervalued? The notion is, at the very least, open to question according to An Ovum note issued this week in response to Telkom's announced plans to roll out its own mobile services. Ovum examine the background to this strategy and observe that fixed-line penetration (currently under 9%) is continuing to fall in South Africa so "mobile is clearly the communication mode of choice, and this is where [Telkom] needs to be for its customers."

However, the note continues, establishing a new mobile operation in South Africa won't be easy, as mobile penetration is already above the 100% mark and because Telkom will be competing with two large, well-established players in Vodacom and MTN.

A third mobile operator, Cell C, has achieved a 15.57% share (according to WCIS) of the country's mobile market since its commercial launch in late 2001. For other mobile service providers, South Africa has offered a very challenging competitive environment. Back in March, in an article on the prospects for MVNOs in both Africa and India, DevelopingTelecomsWatch noted that Virgin Mobile South Africa had failed to capture even 1% of the country's mobile subscriptions by the end of 2008. The significance of the recently-launched CDMA mobile offering from Neotel, Telkom's principal challenger in the fixed-line arena, remains to be seen.

While Ovum's note politely points out the level of challenge facing Telkom's proposed new mobile offering, others have responded with far less restrained language. An article by Tiisetso Motsoeneng of Reuters today quotes one analyst who certainly pulls no punches.

"To be targeting the retail market in that industry, I think it will be suicide for Telkom," Jan Meintjes, an analyst at Gryphon Asset Management said. "I fail to see how a converged strategy of fixed and mobile is going to be earning significant margins," Meintjes said. "Unless they can show to the market that there's a specific niche that they're targeting and how they can exploit that in terms of earning margins on that business that will give them an accepted ROE on their capital expenditure, I don't see how that can be value enhancing."

The Ovum note, however, reminds us that in South Africa, Telkom claims not to be starting a mobile network operation from scratch. The note points out that the group already has fixed core network assets, which are used by both Vodacom and MTN for backhaul, and an established channel to market through over 134 Telkom Direct shops. Ovum contend that Telkom can choose to "develop a new brand and associated lifestyle concept to target some of the high-spending customers". Also, the Ovum note continues, Telkom could potentially have greater appeal to enterprise customers due to an ability to bundle services across fixed and mobile networks.

Lloyd Gedye's article late last year indicated that another use of the Telkom's Vodacom windfall might be to acquire a number of new mobile licences in numerous African countries. These would be in addition to the company's existing interest in Nigeria. According to Candice Jones of ITWeb, however, Multi-Links, the Nigerian telco in which Telkom has had a controlling interest since 2006, "is in dire straits, knocking Telkom's annual results set with a R1.7 billion net loss."

Let's see if this difficult experience discourages Telkom from further international expansion. My sense all this year is that African mobile markets are more likely to consolidate than they are to offer rich opportunities for new entrants.

While mobility in South Africa offers a new source of revenue for Telkom, Ovum argue that any new revenue streams from mobile - or from enhanced ICT services currently being developed - "are unlikely to significantly bolster its financials in the near term." Of more immediate concern, Ovum contend, is Telkom's rising cost base. Ovum's note expresses the belief that by implementing best-practice approaches in its own transformation, Telkom is giving itself a fighting chance in the challenging times ahead of it.

South Africa's Telkom: a fighting chance?

Mobile industry nicely balances profit motive with improving lives: not everyone agrees...

It has been a tendency of this blog to eulogise the ways in which telecoms companies with business units in developing countries are able to reconcile efforts to alleviate poverty and misery with their need to turn a profit and grow shareholder value.

I therefore tend to be very encouraged when I read articles such as that written in April by Rohit Singh of the Overseas Development Agency (ODI), a British think tank focused on international development and humanitarian issues. Singh writes about the numerous studies which support the idea that a rapid increase in mobile penetration contributes significantly to economic growth. He discusses the incremental, tranformational and production benefits brought by mobile phones:

• Incremental benefits: improving what people already do – offering them faster and cheaper communication, often substituting for costly and risky journeys.
• Transformational benefits: offering something new such mobile banking, enabling the unbanked to store value.
• Production benefits: resulting from the creation of new livelihoods, not only through professional telecommunications jobs but also through activities like re-selling airtime or phone cards.
  

Much praise, then, has been directed by DevelopingTelecomsWatch at the efforts of mobile operators worldwide, notably in Africa. None of what has been written here suggests that there might be a possible downside to the rapid growth of mobile infrastructure and services in the places where the world's least affluent people live their lives.

There are those, however, who voice precisely that concern. Notable, I think, is Steve Song, who spent ten years working on ICT for Development issues at the International Development Research Centre (IDRC), a Canadian state-owned enterprise whose role is to help developing countries use science and technology to find practical, long-term solutions to the social, economic, and environmental problems they face. Song is now based in Cape Town, where he has taken up a fellowship with the Shuttleworth Foundation, an organisation which works to drive social and policy innovation in the fields of education and technology through policy dialogue and practical projects.

I was very interested in Steve Song's reaction to Kenyan cellco Safaricom winning a UN-HABITAT award for its M-Pesa mobile money services. This got a mention in the recent discussion here about whether mobile banking and money transfer services branded and run by cellular operators in developing countries might be vulnerable to a competitive threat from apparently operator-neutral solutions such as the one recently announced by Monitise. My own reaction to a cellco being lauded for how its services improve the lives of poor people is always very positive - it makes me pleased to make my living in and around an industry whose technologies can be a force for good. On hearing about Safaricom's award, Steve Song, however, was prompted to consider, not for the first time, "the effective monopolies/oligopolies" that mobile operators in Africa have become.

While Song acknowledges "the miracle that mobile phones are" and says that "there can't be many people who still doubt the direct value that mobile phones provide to people", he is concerned that the wealth that is being generated by cellcos in Africa is being distributed too unevenly. To support this assertion, he cites the case of South Africa's MTN apparently acknowledging that is subsidises 3G data traffic with revenue from its core voice and SMS business. This means, says Song, that when it comes to communication, "the poor in South Africa are effectively subsidising the wealthy".

Song also invites us to consider "the microeconomics of the edge cases of mobile access" - the case of a remote village served by a single cell tower. He contends that in this scenario, the majority of calls made would be to other users in the same area, i.e. local calls. Song also asserts that people in Africa "are spending substantial amounts of their disposable income on access." So, he argues, if, say 50% of the phone calls made in a remote village are local and if people are spending 50% of their disposable income on mobile access, "that means that 25% of their disposable income is being siphoned out of that village."

Perhaps with my own mobile bill in mind, I initially wondered whether it could really be true that even very poor people could possibly be spending as much as 50% of their disposable income on voice and SMS. Apparently so, according to a 2008 report from Research ICT Africa, a twenty-country network hosted by the EDGE Institute in Johannesburg and funded by Steve Song's former employers, the IDRC.

We can see from the table below that the report has indeed identifed African countries where consumers spend more than 50% of their disposable income on mobile services. These include Kenya (52.5%), Nigeria (52.4%) and Zambia (60.3%). According to this study, for the same three countries, the percentage of disposable cash spent on cellular services for the bottom 75% of the population by disposable income rises to 63.6%, 60.9% and 73.9% respectively.
Is this phenomenon - people spending such a major chunk of their incomes on mobile phone charges - purely an unavoidable consequence of how poor these people are? Or might more competitive mobile markets deliver considerably lower prices, thereby freeing up African consumers' cash to be spent on other items?

Several times, a DevelopingTelecomsWatch piece has focused on a particular country and voiced the idea that perhaps that state's mobile market is currently contested by too many cellcos - too many in the sense of not all of them being able to turn a profit and justify further investment. In the few months since this blog's inception, that question has been raised about Cambodia and Sri Lanka and about Tanzania, Burundi and Gabon.

Along the way, I've sometimes been quite critical of operators with aggressively low pricing. Metfone (the Cambodian subsidiary of Vietnamese MNO Viettel) is one example. I have expressed the view that Metfone's distribution of free SIMs and airtime is a "disruptive" market entry strategy which is "very nice for quickly building a subscriber base, but taken to its logical conclusion this can seriously erode overall market value for all players."

What I've had in mind is an idea I've heard articulated countless times at many, many telecoms industry conferences - that telecoms groups will only invest in and improve the communications infrastructure of those countries where good profits can be earned; that most operators naturally settle around a band of prices which enable profitable operation and happy shareholders for all competitors; that operators which sell their services below the lowest end of that band of prices can be accused of destroying martket value and threatening the ability of others to keep investing; that regulators/governments which allow any market actors to do this are not acting responsibly.

Steve Song would presumably not sympathise with these sentiments because he rails against the failure of telecoms regulators in Africa either to license enough new market entrants or to curb the excesses of incumbent players with significant market power. He feels that this has led to a situation where existing operators "collude to maintain high profits", citing the global price of SMS per byte vs. the true cost of delivering text messages.

The ODI's Rohit Singh also deals with the role of telecoms sector regulatory agencies in developing countries. He writes about how governments should oversee such issues as interconnection between the operators, spectrum allocation, and access to the international gateway. He argues that the importance of this role is shown when, in the absence of regulated interconnection tariffs, dominant firms charge high prices for connecting calls from other networks. Singh asserts that this limits effective competition, with dominant firms earning monopoly profits, keeping their prices high, and having little incentive to expand or innovate.

Without effective regulation, Singh continues, ownership of bottleneck infrastructure by dominant firms can diminish the developmental impact of the mobile sector by pushing up prices and restricting coverage.

When Singh reaches for an example of this kind of failure of regulation, he thinks of Zambia, where he says international calls are very expensive because the state-owned fixed-line operator charges high tariffs to private operators to access the international gateway. This distortion, he argues, then affects the domestic calls market, because private operators have to subsidise their international calls to compete with the public sector firm. In this characterisation, private sector mobile operators are the good guys of the piece, forced rather than inclined to charge high prices for their services. My feeling, then, is that Rohit Singh and Steve Song have quite different views of the optimally desirable interplay between telecoms operators and regulators.

Going beyond the issue of pricing, in an earlier blog post, Song expresses concern about how mobile operators in developing countries might conceivably take advantage of the ways in which cellphones have become indispensable in people's lives. Drawing on a March 2009 presentation by Nathan Eagle, the developer of crowdsourcing application txteagle, Song observes that no one in Kenya can afford not to have a mobile phone because "even if you are digging a ditch by the side of the road, day labour is now organised via SMS." Song feels that this means that mobile operators have Kenyans by the throat. To support this argument, he discusses another anecdote from Nathan Eagle's talk, which concerns a water pump manufacturer in Kenya that, by combining an M-Pesa-enabled, solar-powered metering system with their water pumps, has completely changed its business model. This company is apparently now giving water pumps away for free and then making a profit by selling access to water through the M-Pesa service. In his presentation, Eagle observes that Michael Joseph, the CEO of Safaricom, "loves this because you have to have a Safaricom account to get water."

Steve Song ask whether he is alone in finding this a little disturbing and feels that there is something wrong about a single mobile operator acting as the gatekeeper to water supply. Song argues that "for any village in this situation, Safaricom can charge whatever they like".

When I stumbled upon Steve Song's blog, I felt it would be interesting to draw attention to the uncomfortable questions which he raises. After all, DevelopingTelecomsWatch was never intended as a cheerleader for a particular view of the role of the communications sector in developing countries and emerging markets. So, for anyone else who has so far been unaware of Song's writing, I hope it has been refreshing to consider the ideas of someone who observes the actions of mobile operators with a critical eye. What I like about Song's writing is that his arguments are not weakened by an unattractively shrill tone. However, if you're curious to hear from someone who really doesn't mince his words about cellcos, I'd suggest you read a recent article by Llewellyn Kriel about South African operators and the country's telecoms regulator.

Mobile industry nicely balances profit motive with improving lives: not everyone agrees...

Zain (Africa) Speculation Watch: Episode 13

Anil Ambani, Reliance Communications: eyeing Zain's African operations?

The newswires have been humming with more than enough Zain-related information over the last few days to justify this thirteenth episode of our mini-series following the summertime rumours around the Kuwaiti telecoms firm.

On Sunday, Eman Goma of Reuters reported that the pan-MEA mobile group has asked shareholders to vote on removing certain ownership restrictions, a move that would pave the way for selling a large stake. This seems to have prompted a Sunday surge in Zain's shares on the Kuwaiti stock exchange, as speculation rose that the move could allow an outside investor to take a large stake in the company.

In the most recent chapter of the Zain (Africa) Speculation Watch story, we considered the possible sale of the 24.61% stake in the operator held by the Kuwait Investment Authority (KIA) (the Gulf state’s sovereign wealth fund) - Kuwaiti newspaper al-Rai, had reported that "the KIA has no objection to discussing any offer to buy its stake in Zain whether made by the UAE’s Etisalat or others under the condition that the offer would be serious and with attractive returns."

Without expressing an opinion about possible purchasers of that stake, it now seems that Zain's management would welcome the opportunity to part ways with the KIA. As a Cellular News article reported this week, Zain CEO Saad al-Barrak has said that he wants to see the sovereign wealth fund sell its stake in his company as soon as possible. "I wish they would leave tomorrow, and I am working on this," he said. He added that the motivation was to ensure the company could operate without political interference.

Whatever the future holds for the group as a whole, stories continue to bubble up about Zain's African portfolio. Only yesterday, that man Eman Goma was reporting comments made by Barrak to al-Rai, to the effect that the company is in talks with three major telecoms firms, including one from India, to sell all or part of its African operations.

Which companies are being referred to here? One of them might be France Telecom. Ten days ago we noted here that in a recent Reuters note on the French incumbent telco's need to limit margin erosion, Finance Director Gervais Pellisier was quoted as saying that the company "might look at some of the African assets of Kuwait's Zain if the latter decided to sell them in parts."

What about the unnamed Indian party? Could that be Bharti Airtel? Back in February, I would not have hesitated to offer that name as my best guess. An article by a former colleague of mine, Nick Jotischky of Informa Telecoms & Media, prompted me to write my own piece about whether India's market-leading cellco might be driven to more aggressive international expansion by the numerous competitive pressures it faces in its home market.

Since then, of course, the Indian mobile operator has been involved in lengthy talks with South Africa's MTN group about a possible tie-up between the two. Given the apparent complexity of those discussions, is it naïve of me to assume that simultaneous talks with Zain would not be feasible? After all, my understanding has always been than an exclusivity agreement has been locking Bharti Airtel and MTN out of discussions with other prospective bedfellows. Earlier this month, the Bharti Group announced the extension of this exclusivity period through to 31st August, and the Economic Times has reported in the last few hours that Bharti Airtel is now very close to raising the funds needed for what would India’s biggest cross-border deal to date, surpassing Tata Steel’s acquisition of Corus for USD 12.2 billion in 2007.

Even if it were possible for India's leading mobile operator to discuss any interest in Zain's African assets at the same time as working on its mooted tie up with MTN, another complication would be that the Kuwaiti group and the South African group have somewhat overlapping footprints. The two companies compete with each other in Congo, Ghana, Nigeria, Uganda and Zambia.

As Eman Goma's article noted, this issue of overlapping assets would also have to be taken into account in any approach Etisalat may make for Zain. Goma quotes Prime Holdings analyst Sleiman Aboulhosn, who says that the Emirati group may be content to cherry pick some of Zain's assets in the region, given regulatory restrictions on a wholesale purchase. "Etisalat cannot buy the ones that co-exist with its own assets, for example in Nigeria," he said in Dubai. "So they might be interested in some parts."

If Bharti Airtel is currently an unlikely suitor for Zain, which other Indian companies might be making the enquiry mentioned by Saad al-Barrak? One possible candidate is state-owned telco BSNL. In June, Reuters reported comments made by the company's Chairman, Kuldeep Goyal, who said the the public sector telco is looking to expand to Africa by acquiring new licences or stakes in firms. "We are looking into various options there... getting into new licences, which are being issued, or partnering with existing licencees (and) taking a stake," Goyal told reporters. Asked whether BSNL, which has cash stockpile of more than USD 6 billion, was ready for a big acquisition, he said: "Yes, why not?"

The positive assessment of the state of BSNL is not shared by Kunal Kumar Kundu of consulting and IT services firm InfoSys. In our most recent article here at DTW, I quoted Kundu's recent Asia Times article, which is nothing short of a gloomy assessment of the health of the state-owned operator, which he feels is set to go the way of struggling government-run Air India, "which has had to crawl cap in hand for a state bailout to survive."

If Kundu's analysis is correct, and if this would prevent any ambitious foreign adventures by BSNL (rather than perhaps actually making it imperative to consider them), perhaps Reliance Communications is a more plausible prospective purchaser of some or all of Zain's African assets? Towards the middle of last year, the Anil Dhirubhai Ambani Group-owned operator withdrew from inconclusive talks of its own with MTN. Another Economic Times article written in the last few hours suggest that the Indian operator's interest in Africa has not waned since then. Amrita Nair-Ghaswalla writes that "sources" have named Reliance Communications as the Indian company currently in discussions with Zain.

The last time DTW visited the topic of all this speculation about the future of Zain, much was made of the impresssive performance of the company's stock since the rumour mill really got churning around mid-May. I even considered whispers passed to a loyal DTW reader - and then to me - to the effect that "the whole Zain thing" has merely been a highly successful attempt to manipulate the Kuwaiti group's share price. If there is anything in that suggestion, the success of any such ruse would appear to have come to a halt around a week after we discussed it here, should we choose to heed the warning noises emanating from Dubai-based investment bank Shuaa Capital. Late last week, Ramya Dilip of Reuters noted that the bank had downgraded Zain to "sell" from "neutral," saying the risk-reward profile of the shares were no longer attractive at current levels.

Around the same time, another Reuters piece carried quotes from analysts who could see the logic of selling the African assets and predictions about Zain's ongoing strategy in the wake of any such sale.

"The African operations are the major contribution to the revenues and subscriber base," said Jithesh Gopi, head of research at Bahrain-based Sico Investments. "But as far as net profit ... they have not been a contributor to the group."

According to this article, African markets account for about 62% of Zain's 64.7 million customers, but only 15 % of the group's net profit, as of the end of March. Seven out of 16 African operations, the article states, made a first-quarter net lost. In the Middle East, only the Saudi Arabian operation was loss-making.

"It's going to be a company that's refocused on the Middle East with a series of very strong franchises," said Simon Simonian, a telecom sector analyst at Shuaa Capital.

If Simonian is correct, Zain's growth plans would be downgraded as the majority of the Middle East markets served by the group are mature to the point of saturation, the exceptions being Jordan and Iraq, where operators face security issues, a relatively unpredictable regulatory/licensing environment and the prospect of a new entrant in the mobile space.

In that scenario, Zain would presumably focus primarily on upgrading existing networks and increasing revenues from mobile broadband multimedia services.

Work of this kind is naturally ongoing across the group's Middle Eastern operations. The Saudi opco, for example, last week announced that it had secured a USD 2.5 billion Islamic loan facility (Murabahah), which will be used to repay an existing Murabahah facilitating network expansion and future growth.

In Bahrain meanwhile, writes Roger Field of ITP, Zain is planning to upgrade its network with LTE technology in a bid to "future proof" its operation and gain an advantage over rival operator Batelco and the new entrant cellco owned by Saudi Telecom. Field observes that Zain Bahrain has failed to provide a timeframe for the network upgrade, but notes that similar projects in other parts of the world are expected to take more than a year to complete, from the time they were announced.

This wraps up another episode in this ongoing saga. Perhaps the fact that Zain's own Saad al-Barrak seems to revealing snippets to the Kuwaiti press suggests that the story is moving beyond the speculation stage. Whether this means we can expect to see imminent announcements about the future of Zain and of its African operations remains to be seen. Keep watching.

Zain (Africa) Speculation Watch: Episode 13

Zain (Africa) Speculation Watch: Episode 12

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Zain (Africa) Speculation Watch: Episode 12

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

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

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

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

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

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

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

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

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

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

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

Zain Africa Speculation Watch: Episode 3

Zain-branded retail store in Uganda: needing a new paint job soon?

(image from Honeysun blog)

Telecoms media news sources, analysts and bloggers continue to be divided on the issue of whether there is much substance to the rumours about Zain looking to sell its African assets. Some commentary about this story, which, for me at least, popped up seemingly out of nowhere last week, continues to express a high degree of skepticism. The tone of some writing, meanwhile, seems to present Zain's desire to offload the former Celtel International operations pretty much as a given, focusing on quite detailed analysis of particular challenges that will have to be faced during the process.

Zambian journalist Michael Malakata, for example, writes in terms of how "Zain's efforts to sell its African operations" are likely to be hampered by problems such as a move by Econet Wireless Group to block the Nigerian element of the deal. Just as Malakata's article seems built on the assumption that Zain's exit from the African scene is actually going to happen, he also seems very sure that Orange/France Telecom is set to acquire the sixteen mobile operators supposedly up for sale - rather than Vivendi, whose name has been bandied about very freely these last few days.

Adam Durchslag of Reuters, conversely, seems more interested in examining the case for Vivendi being involved and gets a big thumbs up from me for making a pun of the word za(i)ny in the title of the blog post he wrote yesterday. I avoided the temptation to do so myself, but only just.

In his article, Durchslag picks up on widespread bemusement about how getting out of Africa would make sense in the context of Zain CEO Saad al-Barrak's recently stated ambition for the business to a top-ten global mobile operators by 2011.

With this in mind, Lesley Stones of South Africa's Business Day offers some useful thoughts on what could drive any sale, asserting that while Zain’s African operations accounted for 65% of its subscribers and 56% of revenue in 2008, "they absorb more than 75% of its capital expenditure, yet only account for 15% of net income." Stones states that "while Zain’s net income rose just 6% last year, if Africa had been excluded it would have been up 34%."

Adam Durchslag, meanwhile, considers the idea of a rather different kind of Zain-Vivendi tie-up potentially being on the cards, such as Zain taking a minority stake in the larger French group. If there is any substance to rumours of these two companies being in talks, perhaps that scenario is more likely than Vivendi simply buying operations from Zain. As Durchslag notes, it is worth considering Vivendi's ability to afford a USD 12 billion transaction. He points out that the French group has about EUR 8.3 billion of net debt and, "according to some analysts, has only EUR 1 billion for manoeuvre without jeopardising its investment grade BBB credit rating."

Durchslag then considers another possibility - that of Vivendi, through its Maroc Telecom subsidiary (which owns telcos in Mauritania, Burkina Faso and Gabon) buying only some of Zain’s African operations.

This raises of the question of whether Zain could conceivably be open to the possibility of breaking up its African operation and selling assets piecemeal to groups looking to fill gaps in their pan-African footprints - rather than a single transaction in which the whole lot are sold to a single buyer. Kenyan newspaper the Daily Nation carried rumours on Tuesday that Zain's Kenyan outfit "could end up in the hands of MTN Group, the powerful South African transnational." The article asserts that "MTN has for years been known to covet the Kenyan market", having previously tried and failed to buy the operation now known as Zain Kenya.

Writing for another Kenyan newspaper, Macharia Kamau considers MTN as a possible suitor, but spends more time considering the Vivendi option. In the spirit of Alanis Morisette, Kamau feels that if Vivendi succeeds, this would mark an "ironical" return of the company to the Kenyan market. Kamau reminds us that Vivendi sold a 60% stake in KenCell (the predecessor of today's Zain Kenya) in 2005. Any loyal Kenyan subscribers of this operator's services, therefore, are already on third brand name in a four year period. A further transaction could mean four brands in four years - that's almost as confusing as the regularity with which my favourite football club hires and fires managers.

Even this high degree of brand name turnover, however, would be trumped in Nigeria. Writing for that country's Vanguard newspaper, Prince Osuagwu, notes that if "Zain Group finally agrees to sell its Celtel Africa unit to a bidding French media conglomerate, Vivendi SA this week, the Nigerian operation of the company may be heading for the 6th... name change."

Osuagwu spoke with Zain Nigeria subscribers and reports some discontent at the prospect of yet another rebranding, feeling that some might switch to rival service providers because of "fears that the network might not catch up with competition after going through [the] image crisis that may possibly follow."

Thanks for bearing with me on another long-ish ramble through the Zain empire as I try to figure out whether this is a hot story, a non-story or something in between. There's bound to be a least one more episode in this mini-series. Don't touch that dial. No flipping.

Zain Africa Speculation Watch: Episode 3

CDMA to GSM migration: another one jumps ship in Africa

Reports of the death of CDMA have been greatly exaggerated. That has been the theme of of few articles I've posted here. In March I blogged on claims made about the standard being in rude health in Nigeria. A month earlier, I was writing about operators betting on CDMA in India. That article, however, did report on the seemingly unstoppable rise of the GSM family and the constantly eroded global market share of CDMA. Contributing to this trend is the phenomenon of former CDMA operators migrating to the more successful technology. An example of this is currently underway in Africa.

I learned via Telegeography yesterday that Rwandan mobile operator Rwandatel is continuing to switch users from CDMA mobile phones to 3G-enabled GSM handsets.

According to the article, which quotes RwandaTel CEO Patrick Kariningufu, the MNO is handing out new GSM handsets to an estimated 20,000 subscribers mainly located in rural areas. The move is said to be part of the company's response to increased competition.

The country's mobile market is currently split two ways - but the slices are very differently sized. MTN's Rwanda outpost has 82.61% of the country's subscriptions according to WCIS. Until late last year, Rwandatel, as a purely CDMA operator, was doing OK in terms of slowly chipping away at MTN's dominant position. The decision to migrate to GSM/W-CDMA was made some time ago, however. A Global Mobile Daily note of December 5th indicates that while the new network was launched around that time, the operator, a unit of Libya's Lap Green, had hoped to make the move to GSM earlier last year but was prevented from doing so by equipment shipping delays caused by the post-election violence in Kenya.

Both cellcos will be preparing for the impact of a new challenge to the status quo. This comes in the form of a soon-to-be-launched Tigo-branded MNO, the newest part of the Millicom International Cellular empire.

In November, GMD reported that Millicom had been awarded Rwanda's third mobile operating license by the Rwanda Utilities Regulatory Agency, which reportedly rejected competing bids from Zain and Telecel Globe, a company owned by Orascom Telecom. Millcom's new operation will offer mobile and fixed-line services.

Market-watchers will be interested to see if Rwandatel's migration to GSM will be enough for the operator to compete effectively vs. this new entrant and the well-established MTN operation.

CDMA to GSM migration: another one jumps ship in Africa