The ever-evolving definition of value in the MEA

Hence despite conditions having become less attractive since Etisalat’s entry into the Saudi market as a result of higher penetration, increased services, and greater value propositions, the kingdom’s latest cellular concession is likely to be sold at a higher price than the last one.

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By  Tawanda Chihota Published  March 20, 2007

|~||~||~|MTC Group managing director Saad Al Barrak is quoted as saying it would not surprise him much if the winner of Saudi Arabia’s third cellular licence would have to stump up as much as US$11 billion to secure the concession. Whether such pronouncements are a ploy meant at emphasising the financial lengths the Kuwaiti operator is willing to go in order to secure the licence, or a candid estimation of the perceived value of such an award, what is evident is that a large amount of cash will be necessary for victory in the process. The financial bids of the short-listed seven remaining consortia are set to be opened March 24, and consensus opinion estimates that the upfront fee for the concession could reach as high as US$6 billion. A price tag anywhere around this level would be a defining moment in the perception of investment value to operators in the Middle East. Just over two-and-a-half years ago when the last mobile licence was offered in Saudi Arabia, Etisalat came away victorious with a colossal winning bid of US$3.4 billion, which at the time was viewed as being a significant premium on the opportunity’s fair value. Etisalat has gone on to add close to 7 million mobile subscribers since it launched in May 2005, and this number is likely to tip 8 million by the time the third licensee launches commercially, perhaps towards the end of this year or early 2008. Hence despite conditions having become less attractive since Etisalat’s entry into the Saudi market as a result of higher penetration, increased services, and greater value propositions, the kingdom’s latest cellular concession is likely to be sold at a higher price than the last one. And while licence bid processes of bygone years often included a strong representation of bidders from outside of the region, such are the premiums currently being paid by Middle East-based operators, that these bidders remain the overwhelming participants in regional processes, and the Saudi award is no different. A recent eComms newsletter poll asked whether the US$2.9 billion paid by Etisalat for the third licence in Egypt represented better value than the US$3.7 billion Qtel has offered for a 51% stake in regional operator Wataniya Telecom. The point of the question was to try and ascertain whether in this period of inflated valuations, there is a propensity to view greenfield opportunities in strategically significant markets as being more or less attractive as going concerns in similarly significant markets. Ironically, it was Wataniya Telecom chairman Faisal Al-Ayyar, who just weeks prior to Qtel’s confirmation of its approach for a controlling stake in the operator, told CommsMEA that he considered there to be a large degree of market euphoria in the telecoms space at this time, and that he “hoped this would not continue for too much longer”. I’m confident he wasn’t overly concerned about the effects of market euphoria when it came to negotiating a selling price to Qtel. ||**||

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