New telecoms frontier?
Barcelona - Poor infrastructure, fragmented markets and
stiff competition mean Africa poses risks as well as potential rewards for
telecom operators hunting for growth in countries like oil-rich Nigeria and
post-revolution Libya and Tunisia.
With new cheaper smartphones set to drive sales, a growing
corporate market and the fact that most in Africa will use cellphones to access
the internet and do business, many operators are seeking acquisition targets on
France Telecom and Vodafone now present on the continent
could expand, but they would have to compete with new emerging market players
like Russia's Vimpelcom, South Africa's MTN Group [JSE:MTN] or India's Bharti
Chinese companies, which already sell telecoms equipment in
Africa, could move up the value chain by buying operators or licences. In 2010,
China Mobile lost a bidding war to Bharti that saw the Indian operator snap up
telecom units in 16 African countries for $10.7bn.
But making money in Africa, one of the last remaining
emerging telecoms markets not yet sewn up, has proven very difficult, as some
of the existing players have discovered.
The market is fragmented in 56 countries, some of which have
dozens of operators, while consumers in Africa tend to spend between $1 to $10
per month on telecommunications, far less than in Europe or the US but still
more than in India.
Operators have also realised that the cost of running
networks is high due to poor infrastructure, executives told Reuters this week
at the Mobile World Congress in Barcelona.
Operators, including France Telecom, are now looking at ways
to share costs through network sharing deals.
Bharti chairperson Sunil Mittal said Africa is in many ways
tougher than his home market of India, itself marked by ferocious competition
and unpredictable regulation.
"There are two differences between what we saw in India
and Africa," he told a panel session. "One, the cost of operations is
extremely high and that was a big surprise for us. And the second is that there
is no middle class.
"You either have a handful of people in the affluent
part of the society or you have lots of people who can't afford the
Colin Brereton, a telecoms expert at consultancy PWC,
acknowledged that Africa holds promise and peril for operators.
"Africa is where it is," he said. "That
doesn't mean to say it's going to be easy or soluble in the short term. It's
going to take a long time and it's going to be difficult."
Arab Spring aftermath
Two of the most interesting markets are Libya and Tunisia,
which are expected to open up after the Arab Spring.
Libya, which is struggling for stability after a bloody
civil war last year, has two state-owned mobile operators, Al Madar and
Libyana. The new government is expected to open up the sector by selling new
licences or stakes in existing companies.
Gulf operators Qtel and Etisalat as well as Egyptian
businessman Naguib Sawiris told Reuters in interviews that they were interested
in Libya, and others might jump in as well.
Tunisia is also ripe for development since it is affluent
and already has decent fixed infrastructure. Its three mobile operators, two of
which are partly owned by France Telecom and Qtel, are eager to launch
smartphones and new services.
The new government may also revive a planned public listing
of state-owned Tunisie Telecom, which was scrapped in early 2011 amid political
chaos brought on by the revolution.
Meanwhile, Vodafone and France Telecom might be tempted by
Nigeria since the oil-rich country is the third-largest economy in Africa
behind South Africa and Egypt, and offers critical scale with 160 million
Globacom Limited, which operates in Nigeria, Republic of
Benin, Ghana and Ivory Coast, has long been mooted as a target if the Adenuga
family that founded it decides to sell.
Vodafone did due diligence on Globacom in 2009, according to
a banker, but stepped away from a deal .
"There is real potential for a deal in Nigeria,"
said the banker. "If something big happens it will happen there, but
foreign companies have mixed feeling about it because they are worried about
the safety of their employees," the banker said.
Both Vodafone and France Telecom have said they could pick
up small assets to complement their existing footprint.
France Telecom has been beefing up in Africa in recent
years, buying Morocco's Meditel and Egypt's Mobinil, but recently indicated
that it would slow its expansion this year.
"If there is an opportunity that comes up in 2012, we
will look at it, but we don't plan to proactively seek significant deals,"
said Elie Girard, head of strategy and development. He added that "it
would make a lot of sense" for France Telecom to be in Burkina Faso,
Benin, and Togo.
However, despite the obvious appeal of Africa's rapid
growth, there are also many challenges.
In a bid to shake up the market Bharti slashed prices for
consumers, and was again surprised to see that it had little impact in terms of
how many calls were made or texts sent.
"We found that every time we saved money on telephony
(for the consumer) it went on food," Mittal told the congress.
Another issue that causes some pause is the unpredictable nature
Qatar Telecom, which snapped up assets in 16 countries from
Algeria to Indonesia in a rapid 10-year expansion plan, told Reuters it had in
general preferred to operate in Asia and the Middle East.
"We get a lot of invitations to go and operate in
Africa," CEO Nasser Marafih told Reuters. "There appears to be no
control over how many licences are issued. We are amazed."
The challenges are leading some to look for exits.
Gulf-based operator Etisalat is weighing a sale of its weaker operations in
seven markets in the French-speaking west.
"It's not that they want to sell because they need the
money, but they are not that happy with the African market," said a banker
who knows the company.
"A deal process hasn't really been started yet but the
day they launch the sale, they will have bidders."