Money Train

What is interesting in this regard is that investment companies such as MEAIC and Mubadala are financial investors rather than telecoms operators, and their criteria for their choice of investment, pay-back period, and expectations for return on investments are likely to be more onerous than those of a traditional telecoms provider.

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By  Tawanda Chihota Published  April 5, 2007

|~||~||~|Last month a private equity fund by the name of Middle East and African Investment Company (MEAIC) announced it had been awarded a universal access licence in the East African country of Uganda. The concession permits the operational entity – Hits Telecom Uganda – to utilise a number of access technologies to deliver fixed, mobile and broadband communications services, which are set to come online before the end of the year. In the same month, another private equity investor by the name of Mubadala Development Company stated it had been inundated with offers of partnership with respect to developing a telecoms operation in the populous African country of Nigeria. In January, the Nigerian communications regulator confirmed receipt of full payment of a US$400 million licence fee for the award of a unified access service licence to Mubadala. MEAIC and Mubadala are quite similar in the fact that they are private equity firms that are both based in the UAE, and have deep-pocketed, mainly Gulf-based individuals and institutions as shareholders. Both firms have identified Africa’s under-penetrated telecoms sector as a target area, and given the growing level of market liberalisation on the continent, further opportunities to invest appear abundant. MEAIC has already identified opportunities in countries such as Nigeria, Niger, the Democratic Republic of Congo and Ethiopia as potential growth markets and appears determined to entrench itself on the continent. What is interesting in this regard is that investment companies such as MEAIC and Mubadala are financial investors rather than telecoms operators, and their criteria for their choice of investment, pay-back period, and expectations for return on investments are likely to be more onerous than those of a traditional telecoms provider. A London-based senior research analyst has expressed his doubts whether the flood of private equity funding into Africa’s telecoms space is a sustainable business model. With countries like Kenya and Botswana joining the likes of Nigeria and Uganda in the offer of universal access licences, he is not convinced that the private equity investors picking up these concessions are set to come to market with any services that clearly differentiate them from the services being offered by the incumbent telecoms providers. In Nigeria the communications regulator introduced a unified licensing regime in March last year, for the first time allowing operators of wireless local loop operations to roam across wide licence areas. Four unified licences were awarded in May last year, with about two-dozen companies having applied for the concessions. And while MEAIC believes access to scarce resources such as spectrum will prove to be a natural barrier to entry with respect to more operators entering a market than it can sustain, the quality of the services the new entrants bring to market will be crucial in determining their success or failure. It is clear that there is a substantial amount of cash flowing from the Gulf looking for homes in high-growth markets, though whether cash in the absence of experience and expertise in operating in specialised areas, particularly in challenging telecoms markets such as those found in Africa, is still to be seen. ||**||

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