African Acquisitions

Regional mobile telecoms players in Africa have been active in seeking out acquisitions, and with questions over the understanding of major global operators of the African market and the low penetration rate in smaller countries, the near future may still hold some surprises. CommsMEA talks to Kristoff Puelinckx, managing partner of Delta Partner Group.

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By  Administrator Published  November 30, 2006

CommsMEA: How have recent acquisitions changed the landscape of the African mobile telecoms market and what are your predictions for the future?

Kristoff Puelinckx: You have seen the big acquisition of Celtel International by MTC. You also have Etisalat with its agreements with Atlantique Telecom. On the other hand you have MTN, the really big African player, which continues to expand and build a position as a reference operator with Celtel. MTN and Celtel seem to be the two players that are coming out stronger. You do see them increasingly going into the same markets, especially the bigger ones, and I think that will continue. I think you have some question marks with regards to what some of the European operators want to do in Africa. Orange has a big question mark over its commitment to Africa, they see the continent as a nice opportunity but it is still very small percentage-wise in its overall strategy.

So in the short-term over the next one to two years you will continue to see consolidation between regional players. I don't think the really big players will get in too soon. The one thing that is interesting is what will happen to smaller countries. What happens to countries like Rwanda, which is under-penetrated? It is hard for the big player to pay proper attention to these smaller countries, because the real upside for them comes from the bigger numbers. So I think there could be a real opportunity for a bridge to be developed, concentrating on smaller countries and then combining those into bigger units.

CommsMEA: Do you see it as a bit of an anomaly that Vodafone did not expand rapidly in Africa? does that flag up any potential risks that might exist?

KP: Vodafone is used to operating in very mature markets. So it is difficult to go from one extreme to the other, if you are used to competing with the newest technologies in very competitive markets, and you are very good at that, then going to a less developed market is a big step. Today I don't think they can add a lot of value if they come to the African market, the local players and the regional guys know these markets much better and it is a very different way of doing business than in a mature market. Three or four years down the road, only then I think it could be an opportunity for Vodafone to come in.

CommsMEA: When you look at pan-regional operators do you see the dynamic as being in tiers, with smaller operators acquiring each other, or do you see it as a case of the larger operators coming in from outside?

KP: I think it is a question of timing and the extent of growth. Consolidation among some of the bigger regional players becomes more difficult because they are starting to compete in the same markets, everyday they overlap in their portfolios so it makes less sense to bring these companies together. One of the top Asian players like China Mobile — by combining the free cash flow that it is generating and the debt it could take on - in the next two and a half years could have around US$80 to 100 billion cash available to go and acquire, if it is willing to use it for acquisition, and the Chinese government has been encouraging companies to go outside and expand internationally. So lets not forget about some of those players, they may pull some surprises.CommsMEA: Do you think the US$5.5 billion price MTN paid for Investcom was fairly valued?

KP: I think the CEO of MTN himself said this is not a cheap deal. This was a deal that strategically made sense to MTN and it will have to make it work. The Investcom properties are very interesting and some of them have high growth potential, this is what MTN is betting on.CommsMEA: Do you have further visibility on the sale of Millicom International Cellular?

KP: Millicom International Cellular's problem is that it has too diversified a portfolio. Basically it is a bit surprising that no one is willing to buy the whole portfolio and then sell off some of the properties, but in Latin America there are not so many buyers available. So there will be a low price and I think that it will have only one buyer. For me China Mobile is a good prospect because it does not have a priority of where it wants to go first, it just want to get bigger faster. Group deals are attractive for a company like that. For regional players the situation is difficult, so I think what several of them are doing is waiting to see if Millicom will break up the company and sell it in pieces. The CEO of MTN Group, Phuthuma Nhleko, has gone on the record as being interested in some of Millicom’s assets.

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