Johannesburg - The global financial crisis could trigger a round of deal-making in Africa's telecoms industry as the biggest mobile operators pounce on smaller players struggling to raise funds to expand their networks.
Analysts say the price of mobile assets on the continent has
dropped amid market turmoil, despite resilient subscriber
growth. At the same time, smaller operators may struggle to
finance network expansion due to tight credit conditions.
That's good news for big, relatively cash-flush operators
like South Africa's MTN, Egypt's Orascom Telecom, Kuwait's Zain
and Vodafone's Vodacom, which are scouring for acquisitions in
Africa's untapped markets.
"I think consolidation is going to be speeded-up because of
the current economic crisis," said Paul Booth, director at
Dubai-based emerging market research firm Global Research
Partners.
Africa's big four mobile phone operators have made
significant investments in their infrastructure networks,
putting them ahead of foreign peers that may be looking for
expansion opportunities.
Kuwait's Mobile Telecommunications Co is sitting on $4.5bn cash raised through a rights issue and wants to spend up to $4bn on 4 to 5 deals in Africa before 2010.
Sub-Saharan Africa's biggest mobile phone operator MTN is
also looking for expansion opportunities. It has snapped up
Arobase Telecom and Afnet in the Ivory Coast this year.
Orascom Telecom set up Telecel Globe in May to look for
investment opportunities in Africa and Asia.
Small deals likely
Africa's telecoms industry, which according to telecoms
industry association GSM World had 270 million subscribers in
2007 compared to 50 million in 2003, has already started
consolidating, with dozens of small deals over the past few
years as well as some mega-mergers.
MTN bought Dubai-based Africa and Middle East operator
Investcom for $5bn in 2006 and Vodafone last month said it
agreed to take control of South Africa's biggest mobile phone
operator Vodacom.
Merger talks between MTN and India's Bharti Airtel and
Reliance Communications earlier this year looked as though they
might spawn another mega-deal, but fell apart. Some analysts
believe MTN may seek another bid target, or even fall prey to a
foreign buyer itself.
For now though, a rash of smaller deals looks more likely,
with operators unlikely to take on a big risky deal in this
environment. They will likely look at smaller operators,
satellite firms and internet service providers.
Vodacom, for example, snapped up pan-African network and
satellite services firm Gateway in August for $700 million.
Vodafone has identified Nigeria as an attractive prospect
and Vodacom says it is cautiously looking for more acquistions.
Emerging-markets telecom advisory firm Delta Partners -
which manages an $80 million Middle East private equity fund -
said in a statement last month it was planning to invest about
$40 million of its fund in African telecoms.
"We are looking to make one or two investments in South
Africa in the next six months and to then spread the equity fund further afield into the rest of Africa," Kristoff Puelinckx, Delta Partners' managing partner said in a statement.
Meanwhile small operators are struggling to raise funds to
roll out networks that can compete with the likes of MTN, making them prime takeover targets.
France Telecom in October acquired a 53% stake in
Hits Telecom Uganda. Telecoms journal Comm said Hits Telecom had been at risk of having its licence revoked because it had not met network rollout requirements.
Limited hit on growth
While the fallout from the global financial crisis will
likely slow economic growth in Africa, the impact will be less
severe than in the West due to the relative isolation of the
continent's economies.
Cell phone subscriber numbers in Africa are expected to jump
36% in 2008, according to telecoms research firm Informa.
"This will take the total number of subscriptions to 400
million by the end of 2008, just nine months after breaking
through the 300-million mark," said Informa's chief research
officer Mark Newman.
MTN CEO Phuthuma Nhleko was quoted this week as saying
mobile spending remained "resilient" in many of MTN's markets
and that mobile firms in developing nations would not take a big hit from a global slowdown because wireless communications are viewed as an essential service not a luxury.
MTN shares have fallen about 28% so far this year,
slightly outperforming the Johannesburg index of blue-chip
stocks, despite taking a knock in recent sessions due to a drop
in the value of Nigeria's naira currency.
The Nigerian cell phone market - the most populous and
lucrative in Africa - is far from reaching saturation. Telkom's
Nigerian private operator Multi-Links, for example, increased
its subscribers by 18.5 percent in one month to 2.11 million at
the end of October.
While a prolonged weakening of the naira would dent the
unhedged earnings of foreign companies already running
operations in Nigeria, it would also make assets cheaper and
could even act as a further sweetener for potential overseas
buyers.
- Reuters