Experts - Tom Harden and Daniel Jones: Diverse drivers of telecoms investment
Published: 28 December, 2009
The African telecoms market is attracting a lot of investor interest of late. Privatisations of telecoms operators, including Nigeria’s Nitel and Zambia’s Zamtel, have caught the eye of various potential suitors, including Indian state-owned companies BSNL and MTNL. Essar’s buyout of Warid’s operations in Uganda and Congo also illustrates recent activity emanating from the sub-continent. Another large M&A deal involving an Indian operator, the proposed merger of South Africa’s MTN with Bharti, only failed to materialise because MTN was unable to gain the approval of the South African government.
However, Indian investors are not the only ones interested in the African telecoms industry. The African telecoms M&A field is also characterised by interest from investors from Western Europe and the Middle East. Each group has its own reasons to be interested in the continent.
Western European operators have been keen to expand their businesses beyond their saturated local markets for many years. Vodafone and France Telecom have invested heavily in African operators over the past decade. Vodafone now operates in eight African countries, while France Telecom is present in 16 markets. Activity among Western operators has been somewhat limited in 2009. Vodafone increased its stake in Vodacom to 65 percent in May 2009, while telecoms and media conglomerate Vivendi has been acquiring many former state-owned African operators through its majority stake in Maroc Telecom. Most recently Maroc Telecom acquired Malian operator Sotelma in July 2009 for E275m.
It is anticipated that Western European operators will continue to look to African investments for strong EBITDA growth in the short-term. These operators will need to make significant network investments as African mobile network operators witness strong subscriber growth and roll out 3G networks to take advantage of increased internet usage. Patience may be required to see the payback on these investments, however.
Cash-rich investors in the Middle East and North Africa have been spending heavily in Africa too. Etisalat, Orascom and Saudi Telecom have all undertaken operator acquisitions in recent years. With cash available from the profits of operations that are often shielded from strong competition, they have invested across Africa with fervour. Orascom sold many of its sub-Saharan assets in 2003 but it is now looking again at investing in some of these markets through its Telecel Globe subsidiary. Etisalat has continued to invest in sub-Saharan assets through new licence wins, such as in Nigeria, and has been increasing its stake in pan-African telecoms holding company Atlantique Telecom.
Saudi Telecom has been a latecomer in making foreign investments, but is now studying opportunities in Africa. Currently it is present through its purchase of 35 percent of Oger Telecom in 2008, which owns South African mobile operator Cell C. While other operators, such as Orascom, Etisalat and Zain have been able to enter African markets by winning licences, the lack of such opportunities will mean that Saudi Telecom may have to enter solely through the acquisition of existing operators.
Indian investors provide a further dynamic to the African M&A environment. Unlike Western European and MENA players, Indian operators are well positioned to enter African markets due to their experience of operating in a low average revenue per user environment in their home market. Examples of recent Indian interest go beyond the MTN-Bharti proposed share. Government-owned MTNL is considering participating in the privatisations of both Nitel and Zamtel. It is also reported to be interested in the Zain stake sale, as is the Vavasi Group.
Indian operator Reliance has also expressed interest in a number of deals, while Essar has acquired a mobile operator in Kenya and has tied up a deal with Warid Telecom for operations in Uganda and Congo. Beyond the Indian interest in Africa, Chinese players are also providing investment capital to African operators. Most Chinese investment is currently focused on backbone infrastructure, where Chinese vendors are also providing the network equipment. While Chinese mobile operators have yet to invest heavily in the region, it is anticipated that they will follow the Indian example in the coming years, as they too seek new revenue streams.
The range of interested parties generates a compelling case that mergers and acquisitions are likely to be a key feature of the African telecoms market over the next few years. With so many parties interested in getting their share, not all can succeed. Time will tell whether it is the European, MENA or Indian operators that dominate as African markets mature.
Tom Harden and Daniel Jones are partners at Onda Analytics (www.ondaanalytics.com)