Out of Africa

Africa’s telco sector is set for massive change, with some firms clamouring to enter and others looking to exit

Tags: Bharti AirtelEtisalat International - UAEOrascom Telecom HoldingVimpelCom (www.vimpelcom.com)
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Out of Africa Other telcos may follow in Zain's footsteps and look to exit some African markets.
By  Roger Field Published  December 5, 2010

Just a few years ago, many of the region’s operators viewed Africa as the next frontier.

Operators from the Gulf, including Zain and Etisalat, bought licences and stakes in telcos in Africa at often exorbitant prices, before realising that extracting a profit from some of the world’s lowest ARPU markets was a more daunting task than they realised.

While the heady pre-recession days prior to 2008 now seem a long way off, it appears that a new wave of companies is prepared to take on the challenge of Africa, and these firms are often starting from where their predecessors left off.

India’s Bharti Airtel is the most obvious example, having steamrolled into the market with its $10.7 billion acquisition of 16 of Zain’s African assets in June.

Bharti Airtel has wasted no time in stamping its mark in Africa. The firm has already rebranded its operations to Airtel, and has declared a new price war by launching an ‘ultra low cost’ handset package. While price wars can cause a fair amount of damage in any market, Bharti Airtel’s forte lies in lean, mean operations.

It is a model that has worked in the huge, diverse, multilingual market of India, and Bharti will probably make it work in Africa.

France’s incumbent operator, Orange Group, is also making a strong play in Africa, albeit with a more measured approach than Bharti.

Earlier in the year, Stephane Richard, CEO of Orange Group, which is now present in 18 countries in Africa and the Middle East, said the company may invest up to US$9.3 billion over the next five years in the region. 

Orange has certainly been making inroads in Africa throughout the year. The company launched a converged fixed and mobile service in Tunisia in May, announced an upgrade to its satellite IP services in sub-Saharan Africa in September, and plans to open an R&D centre in Ivory Coast by the end of the year.

But just as companies such as Bharti Airtel and Orange are planning their expansion in Africa, other operators appear to be following Zain’s lead and are looking for an exit strategy.

Naguib Sawiris, the Egyptian entrepreneur who owns Weather Investments – which in turn owns Italy’s Wind and 51.7% of Orascom Telecom - is one example.

It seems likely that Sawiris, who remains in merger talks with Russian operator VimpelCom, was motivated to look at options such as a merger or sale because of the debts that some of his companies have racked up.

Wind has net debt of some $11.2 billion and Orascom Telecom has net debt of $4.2 billion. These are debts which would pass to the balance sheet of VimpelCom, should the deal go ahead.

Last month, Orascom Telecom also sold its 50% stake in Orascom Telecom Tunisie to a consortium comprising Wataniya Telecom and Princesse Holdings.

With Zain and Orascom Telecom on the retreat, analysts are keeping a close eye on UAE telco Etisalat, which has operations in African countries including Egypt, Sudan, Nigeria, Tanzania, Ivory Coast, Benin, Gabon and Togo.

Despite the success of Etisalat’s operation in Egypt, the majority of the group’s profits still come from its home market of the UAE, a country with a population of less than 5 million people.

With Etisalat now conducting due diligence on Zain Group, with a view to acquiring the company in a deal worth about $12 billion, it will be interesting to see how its African strategy evolves.

With an enlarged Middle Eastern empire, the vast majority of profits from a combined Etisalat-Zain entity would emanate from the Middle East. And in such a scenario, many of the African operations could come to be viewed as little more than a costly distraction.

Etisalat has already confirmed that it has been in talks with a number of Indian operators, including Reliance Communications, regarding some kind of deal. With Bharti set to unleash a price war in Africa, Etisalat may well find even greater motivation to find an Indian partner with expertise at extracting profits from notoriously difficult African markets. The sale of some operations could make even more sense.

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