Attempts by Bahrain's Batelco to offset shrinking earnings at home by expanding abroad have run into trouble as parts of its biggest acquisition have fallen foul of regulators.
Lacking the firepower of Gulf rivals for multi-billion dollar deals, state-run Bahrain Telecommunications Co. bought Cable & Wireless Communications' (CWC) Islands division for $570 million in April.
But an agreement to acquire the firm's Seychelles operations for a further $110 million fell apart early this month after it failed to win regulatory approval.
Now another part of the deal - this time involving Monaco Telecom - has collapsed.
Instead of being able to exercise an option to buy the whole of a company that owns 55 percent of Monaco Telecom, Batelco is now selling back the quarter of that firm which it had bought for $100 million. Batelco said the two parties had agreed to reverse the sale because Cable & Wireless did not expect to win the necessary approvals by next April.
"There is no question of us selling our operator to Bahrain," Monaco's government said in a statement dated Dec. 4.
Batelco had hailed the Cable & Wireless deal as key to diversifying from Bahrain - where it faces competition and sporadic instability that has helped drag profit lower for 15 out of the past 17 quarters. At a record low, its shares are down over 18 percent this year.
The company did not respond to an emailed request for comment on where the collapse of theSeychelles and Monaco aspects of the deal leaves its strategy.
"Batelco still faces the core problem of its domestic market position continuing to deteriorate," saidMatthew Reed, principal analyst at Informa Telecoms and Media in Dubai.
Batelco now appears to have paid $470 million for operations in the Channel Islands, Isle of Man,Falkland Islands, St Helena, Ascension and Diego Garcia, plus a 52 percent stake in the Maldives' Dhiraagu.
But profits at most of the small operators acquired with the Cable & Wireless purchase have also been falling - a contrast with Monaco Telecom, whose operating profit rose 12 percent in the first six months of its accounting year.
The small markets also do little to complement Batelco's existing footprint, which includes mobile firms in Yemen and Jordan and fixed line operations in Kuwait and Saudi Arabia.
Given what it is now left with, Batelco could have paid less for the Cable & Wireless deal, said Shrouk Diab, assistant vice-president for research at NBK Capital in Dubai.
"I doubt there are many synergies for Batelco at an operational level from this deal," Diab said.
Batelco has recently been hit by the departure of some of its most senior executives - a factor which cannot make it easier to court regulators. The company is currently headed by a three-person committee.
Batelco's $1.3 billion market value is dwarfed by the likes of the UAE's Etisalat at $25 billion and Qatar's Ooredoo $12.1 billion. Combined, they have spend the best part of $9 billion on acquisitions in recent years.
At home, Batelco vies for customers with Kuwait's Zain , Saudi Telecom Co unit Viva Bahrain and about 10 internet service providers. It also feels the impact of Bahrain's economic and social difficulties.
Protests led by the island kingdom's Shi'ite majority broke out in early 2011 and discontent has simmered ever since.
"Batelco remains a profitable company, but if you're asking where the company can go from here there are few easy or obvious answers," Reed said.