Assembly point

Despite being a largely under-developed telecoms market, there are a number of operators in Africa that are looking to build super-networks across the continent and benefit from the significant economies of scale. A wave of consolidation has already begun, and is set to rise only further as international interest in acquiring the specialist regional players grows.

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By  Published  October 31, 2006

The signs of operators across Africa consolidating their positions in individual markets has already started to occur, and the expectation is that at some point in the short- to medium-term this will spill over into wider scale consolidation of even the larger players.

Last month, Egyptian telecoms giant Orascom Telecom announced it had raised the stake in its Algerian GSM unit by 8% in a US$400million deal.

The shares, bought from Emirates International Investment Company, increased Orascom's holding to 95.6%, the firm said in a statement.

The Algerian business is the largest mobile operator in the country's fast growing market, with over 9 million subscribers at the end of June.

Together with Telecom Egypt, Orascom also secured a licence to operate Algeria's second fixed line network last year.

“This transaction is a continuation of our strategy to consolidate our ownership in our strongest markets by buying out the minority shareholders, to increase growth, profitability and shareholder value,” commented Orascom's chairman Naguib Sawiris.

In West Africa, South Africa's MTN in September announced that it would acquire a further 6.98% interest in its subsidiary, MTN Nigeria from certain minority shareholders.

The total purchase consideration of US$348.9 million will be funded through a cash payment of US$287.8 million and an issue of over 6 million ordinary shares in MTN, bringing the MTN Group's shareholding in MTN Nigeria to 81.87%.

MTN Nigeria launched operations in 2001 and is the leading GSM operator in Nigeria, with a subscriber base of 9.6 million as at end-June.

“The acquisition will enable the minority shareholders to realise a portion of their investment in MTN Nigeria,” said MTN president and CEO Phuthuma Nhleko.

“The acquisition is part of a process that will facilitate a broader spectrum of Nigerians to participate in the performance of MTN Nigeria.”

Earlier this year the market witnessed Comium Mobile double its West African portfolio in just a month, adding two licences to its interests in the region.

The addition of licences in Cote d'Ivoire and Gambia, both agreed on during the month of July, brought its total number of operations across the African continent to four.

With units already in full commercial swing in Liberia and Sierra Leone, Comium, a fully owned subsidiary of the Luxembourg-based Comium Group, received a sizeable boost in a continent in which regional dominance by a few sizeable operators is becoming the order of the day.

The growth of Comium comes at a time when many of the major regional operators from both the Middle East and Africa are looking to the continent in order to tap further growth opportunities.

With greenfield prospects running thin, the focus has recently turned to a combination of going-concern type acquisitions, as well as new licences being acquired at significant premiums, such is the scarcity of such opportunities.

Comium CEO and chairman Nizar Dalloul is fully aware that with fresh licences either becoming scarce or being bought for vast premiums, Comium could well be an attractive target for a larger operator looking for non-organic growth. “Definitely, there's always a possibility,” he said.

“We haven't been targeted yet, but the possibilities are there.”

For now though, he is content with Comium's ability to grow itself, and even successfully compete against titans in the same markets.

Dalloul believes that there is still a roll to be played by small regional players or independent operators in the development of Africa's telecoms sector, and Comium proves, that for the meantime it can withstand the competitive pressures being exerted by more affluent players.

Sierra Leona is a case in point, where Comium commercially launched in the second half of 2005.

“In Sierra Leone we compete with Celtel and Millicom, and in record time we made ourselves number two in the market and are now breathing down the neck of Celtel.

We're not afraid of big players.”

In Cote d'Ivoire, Comium will be the country's fourth operator behind Orange, MTN and Atlantique Telecom.

The latter, in which UAE operator Etisalat has a 50% stake, launched its commercial operations in July and Dalloul predicts that Comium is likely to launch its own service in the first half of next year.

When it launches in Gambia, Comium will be the third operator behind the incumbent Gamcell and Africell, largely funded by Lebanese network operator Lintel.

Speaking at the time of the licence's award Dalloul indicated that the country was in need of a fresh mobile entrant.

“Gambians deserve better access to new and innovative mobile services.”

Last month, Abu Dhabi-based Warid Telecom acquired a GSM licence in Uganda, adding to its concession in Congo Brazzaville.

The operator has already proved adept at building up greenfield operations, having entered the mobile market in Pakistan as the sixth operator, and having built its position up to third with an active subscriber base numbering 5.8 million in a little over a year of operation.

“There is huge potential in markets in Africa, and this is where we intend to concentrate much of our attention,” comments Marwan Zawaydeh, Warid Telecom's chief technology officer.

“Our areas of focus are the Middle East, Southeast Asia and Africa, and we intend to build a presence in these markets.”

The face of consolidation in Africa may also change drastically given the forecasted return of South African behemoth Vodacom to the acquisition trail, following a hiatus some market commentators attribute to the complications it faced in Nigeria some years back.

Vodacom attempted to enter the Nigerian market by taking management control of an entity that was previously known as Econet Wireless Nigeria (EWN) in 2004.

By April that year, the South African operator announced that it had clinched a deal with EWN under which EWN would be rebranded Vee Network Nigeria, and instead of Vodacom paying US$250 million for a 51% stake in the operator, it would instead enter a five-year management deal with the Nigerian operator.

Less than two months after the management contract had been signed, Vodacom beat a hasty retreat from Nigeria with the operator's CEO Alan Knott-Craig terminating the deal that included a US$200 million investment in Vee Network.

The withdrawal also led to the sacking of Vodacom's deputy CEO, Andrew Mthembu, who at the time was also in charge of spearheading Vodacom's expansion into the rest of Africa.

Since that fateful day in June 2004, Vodacom's expansion into other parts of the continent has been a lacklustre affair at best as compared to MTN, with the operator only having built up a presence in just four, relatively unsubstantial sub- Saharan countries outside of South Africa.

Vodacom is a 50/50 joint venture between South African state telco Telkom and the UK's Vodafone, and this ownership structure has been blamed for some of the operator's recent paralysis in taking advantage of investment opportunities occurring across the continent.

This hindrance looks to finally have been lifted with reports that Vodafone has given an “in-principle” commitment to alter its shareholders' agreement to remove “impediments to Vodacom's growth”.

Telkom's existing agreement with Vodafone is said to prevent Vodacom from expanding outside southern Africa, as Vodafone in its own right long-harboured aspirations to expand across the continent.

Thus Vodacom is likely to fall into the fold of operators embarking on a selective consolidation programme.

“We have already seen a little bit of the move towards selective consolidation,” said Marten Pieters, Celtel International CEO.

“Orascom was buying assets in Africa, but they have now changed their strategy, at least for sub-Saharan Africa,” he added.

“I think the strongest trend will be that the strong existing players will pick up the players that are more isolated or have a difficult ownership structure.

And you might see some new players coming in, such as Etisalat.”

“We have a strong African market strategy that also extends into North Africa and the Middle East,” said Chris Kilowan, MTN's country manager in Iran, stating the company is looking at both greenfield opportunities and other acquisitions.

MTN had been lined up to acquire Celtel before MTC moved in with a larger bid, and the mobile market could have looked much different had the Kuwaiti operator been thwarted.

“MTN would have been able to consolidate the Celtel operations into its broader operations, and not leave it as a standalone,” Kilowan said.

Synergies would have been leveraged across areas such as procurement, with benefits accrued to MTN subscribers in the form of lower roaming rates.

Terry Rhodes, co-founder and chief strategy officer of Celtel International has a different viewpoint, suggesting that if MTN had been successful in its pursuit of Celtel, the Celtel brand would have probably disappeared and been replaced by the MTN brand.

Thereby narrowing the choice of operators available to subscribers across Africa.

“I think the fact that we sit within the MTC Group, but operate virtually as an independent entity is an advantage, because our management has the experience of operating in these markets,” Rhodes says.

MTN remains stoical about its chosen route to growth and acquisitions.

“MTN isn't in the process of acquiring assets at all costs, if the price is too high and we cannot see how we're going to extract value, then we will not pursue it,” Kilowan commented.

“I think the experience of MTN's acquisitions over the past few months and our involvement in the Middle East must show that there are other value propositions that countries may be looking at other than just a high price,” he addsed.

“This transaction is a continuation of our strategy to consolidate our ownership in our strongest markets by buying out the minority shareholders, to increase growth, profitability and shareholder value”
“I think the strongest trend will be that the strong existing players will pick up the players that are more isolated or have a difficult ownership structure”
“MTN isn't in the process of acquiring assets at all costs, if the price is too high and we cannot see how we're going to extract value, then we will not pursue it”

 

Marten Pieters’ view of consolidation in Africa

CommsMEA: How comfortable are you with the consolidation taking place in the African telecoms market?

Marten Pieters: We've had this discussion before, and I think when we did, it was before MTN bought Investcom.

So there you see another US$5 billion plus deal done, which is really only about consolidation.

I think we will see more of that.

We see individual operators being sold.

We saw a deal not so long ago in Botswana, you know all these deals that do not make the headlines probably of the Financial Times but there is movement in the market where operators are being sold, and typically being sold to existing bigger groups.

If you now look at the situation in sub-Saharan Africa, then it's very clear that the number 1 and number 2 are actually MTN and Celtel.

So there will be further consolidation, I am convinced of that.

But it's not only between MTN and Celtel, there are other operators like Etisalat, which have been very impressive, also Vodacom, we will see them back in some markets.

I think the names that you will still see are Orange/France Telecom, it will be Etisalat, MTC/Celtel, MTN and Vodacom, and will there be further consolidation amongst these big groups.

However, we cannot say it will not happen.

It is also difficult to say it will happen, but I wouldn't rule it out, and I would say maybe five years from now probably one of these five will have been swallowed by another one.

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