Africa on the line

Middle East-based phone companies have started their assault on Africa's booming telecoms sector. Claire Ferris-Lay reports on the race to win 800 million sim cards.

Africa is the world's fastest growing market for mobile phones, and has become a vital battleground for Gulf-based operators. Phone companies such as the UAE's Etisalat, Kuwait's Zain and Qatar Telecom are expanding across the continent as they face increased competition from rival operators in their home markets.

"Total African mobile penetration rates average just 25% of the 800 million people who live in the continent," says Zain Group spokesman Ibrahim Adel. "Our confidence in our investments and in the potential growth in Africa comes from the fact that there are still over 600 million people who have still not taken up mobile telephony."

Zain and Etisalat are two of the largest Middle East mobile operators fighting it out in Africa.

Zain operates in Africa under the Celtel brand, after paying US$3.4bn to buy Netherlands-based Celtel International in April 2005. The Kuwaiti mobile operator is now present in 14 countries in sub-Saharan Africa including Gabon and Malawi and has spent over US$9bn on the continent through acquisitions and network capital expenditure. It plans to expand operations from Sierra Leone to Democratic Republic of Congo and Madagascar, and also aims to operate in Ghana as early as the second half of 2008.

Zain faces a challenge from Etisalat, the largest phone company in the UAE which now has networks in Eygpt, seven countries in Western Africa as well as Sudan.

"The potential in the market is huge," says Jamal Al Jarwan, chief of international investment, Etisalat.

Etisalat currently operates in 16 countries and boosted its mobile phone lines by 15% to 6.4 million last year. At the same time the number of fixed lines increased 3% to 1.32 million.

Qatar Telecom, the Gulf state's operator that is losing its monopoly, is also looking to Africa to grow its business as it faces competition at home from Vodafone. It paid US$3.72bn last year for a controlling stake in Kuwait's Wataniya, giving it four million customers in countries including Algeria and Tunisia.

Other less established phone companies are also seeking to establish bases on the continent. Friendi Mobile is a mobile virtual network operator with plans to provide a mobile phone service without relying on its own frequency allocation or infrastructure.

So-called MVNOs are already widely used in Europe, Australia and the US. "We have been working on the model for about two years. Africa has a lot of potential for us," says Mikkel Vinter, CEO of Dubai-based Friendi Mobile.

Other Middle East telecoms operators in Africa include UAE-based Warid Telecom which launched its US$79m service in January as the Congo Republic's third mobile phone operator, challenging market leader Celtel. Zain's customers in Africa have grown by about 59% to 26.8 million. In Nigeria the growth has been even stronger with customer numbers advancing 74% to reach 11 million.

"Africa is very interesting from a mobile perspective, the penetration is very low and yes it may have its fair share of problems but macro improvements can be seen," agrees Vinter.

The developed world has reached saturation for mobile phone coverage. Mobile phone connections reached a record 3.25 billion by the end of 2007, almost one phone for every two people in the world, according to research from Mobile World.

About 1000 customers sign up for a mobile phone subscription every minute according the company. In Europe there are more phones than people, encouraging telecom operators and mobile phone makers to look to new markets in the developing world to grow their businesses.

"Generally speaking there is a saturation in the world so the sector is currently working on acquisitions. In terms of penetration rates, Africa is still one of the places with the least which is why they are looking to it as a growing market," says Walaa Hazem, co-head of research at HC Securities & Investment Company.

Milan Sallaba, partner and office head at Oliver Wyman agrees: "[Africa] is very much one of the key battle fields due to low penetration of mobile communications hence the substantial growth compared to the Middle East. It's not necessarily the next battlefield, but the last battlefield."

The telecoms industry in Africa may be in its nascent stages but this does not mean it is lacking in the latest technology applications. Zain believes its most significant investment in Africa is the world's first borderless network, called One Network.

Customers in countries including Kenya, Tanzania, Uganda, Nigeria and Gabon, can now all use the same network without additional roaming charges.

Adel believes Zain is setting the standard for further innovation in the continent: "It is not often we see innovation coming out of Africa and setting a new global standard for the rest of the world particularly in a fast changing technical industry such as mobile telecommunications."

The lack of basic infrastructure has proved challenging for some of the Gulf-based phone companies seeking to expand across the continent.

"We had a number of technical challenges," says Zain's Adel.

"It took us more than a year to launch the service in East Africa then nine months to expand it to Central Africa," he adds.

At HC, Hazem believes that it is the region's low GDP per capita which poses the biggest threat for mobile operators with expansion in their sights. "There is a high population but you must also take into consideration it is one of the poorest areas in the world," he says. "The poor GDP per capita in Africa will act as an obstacle for telecoms in the region."

Making a mobile phone affordable in sub-sahran countries where income levels are amongst the world's poorest will be the big challenge facing the Gulf's big phone companies as they look to stake their claim to the continent.

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