Coming to Africa

Since the initial wave of market liberalisation in the Middle East and North Africa's telecoms market took place in the late 1990s over 40 new mobile licences have been issued.

As the amount of available greenfield licences in the MENA region have reduced in number, the golden rule of supply and demand has taken effect with many commentators speculating that the US$6.1 billion paid recently for Saudi Arabia's third mobile licence by MTC might prove too hefty a levy for it to be considered a viable expansion strategy.

Not every operator in the region has pockets as deep as MTC, and even so the escalating eagerness of the bidding war that took place in the race for Saudi's third mobile licence is likely to be the exception rather than the rule given the country's opportunity for market expansion.

Market commentators and industry players are uncertain as to what can next be expected in the regional market as the numerous business opportunities prove too lucrative for network operators to resist.

"The huge initial wave of market liberalisation is subsiding now and we are now entering the next phase of market development in this region and a lot of players are wondering what operators are going to lead this phase and where will the bulk of the activity take place," says Ghassan Hasbani, principal, Communications and Technology Practice, Middle East Leadership team at Booz Allen Hamilton. Hasbani also notes that given the current dynamics within the regional telecoms market network operators can be broadly divided into four separate categories: Local players, opportunistic players, international integrators and dormant giants.

Booz Allen Hamilton recently penned a report entitled Beyond Licence Acquistions - The way forward for telecom investment in the MENA region. The report examines the current market landscape with the co-authors suggesting that the heavy premiums invested by some of the industry's big name players, such as Etisalat in Egypt and MTC in Saudi Arabia, may open the door for some of the region's smaller network operators to steal a march in the rapidly expanding African telecoms market.

"Going forward, it is unknown whether operators that dominated the previous expansion wave will continue to do so. In fact, operators that were late to participate in expansion may be well-positioned to lead the next phase, partially because of their untapped financing potential," reads the report.

It continues: "In addition, many of the original pioneers may be busy consolidating their portfolios and trying to realise the expected value of their initial investments. In the future, we may also see increasing interest by global operators in the Middle East and Africa region as their home markets mature even further."

Hasbani also notes that given the lack of new facility-based mobile licence issuances on the horizon in the MENA region, those that are forthcoming are mostly second or third licences in highly saturated markets (Qatar, Kuwait and Bahrain), making the sub-Saharan African market a logical next-step for many operators.

"Several privatisation programmes in the MENA region are attracting various interested operators, but the structure of these programmes is limiting. They typically leave little room for investors to achieve control," claims Hasbani.

Booz Allen Hamilton also highlights that network operators in the Middle East must expand beyond their traditional target geographies of the GCC, Levant and North Africa in order not just to sustain momentum but also to fight for their very livelihood.

"Presently, we are looking at a market where network operators have to live by the maxim: Eat or be eaten," emphasises Hasbani.

"This expansion of target geographies would help telecoms operators grow internationally and avoid paying exorbitant premiums for the few remaining opportunities in the MENA region," reads the report.

The firm also cites MTC's completion of its acquisition of pan-African operator Celtel International for a total fee of US$3.4 billion, as indicative of this trend.

The completion of the Celtel takeover comes after MTC acquired an 85% controlling interest in the operator in April 2005 in a move that was described as a "record transaction between the Middle East and Africa".

In the two years since the transaction, Celtel has proven a valuable asset to the MTC portfolio with MTC's customer base quadrupling from 5 million subscribers to 20 million.

"MTC has built on Celtel's expertise in sub-Saharan markets to continue its expansion plan in emerging African markets. And by acquiring what is now Celtel Madagascar in December 2005, increasing ownership to 100% of Sudan's Mobitel in addition to purchasing 65% of Nigeria's third operator (now Celtel Nigeria) in May 2006, we now have a footprint of 450 million potential customers in Africa," said Saad Al Barrak, CEO of MTC Group.

Booz Allen Hamilton also notes that with Etisalat recently ramping up its holdings in West African operator Atlantique Telecom to 70%, this is further evidence that many MENA telcos are likely to follow suit. Etisalat hailed its move a significant step in the company's pursuit of its goal of entering the ranks of the world's top 20 network operators.