|~||~||~|Consolidation has been a word used heavily over the past year when discussing the international telecoms market, and rightly so. In the US, mega-mergers have seen recognised names such as AT&T and MCI swallowed up by the domestic powers of SBC and Verizon respectively. In October, Europe’s only independent mobile operator O2 was prey for the ever-expanding Telefonica in a US$31.4 billion takeover, the Spanish incumbent already having bought US operator Bell South’s businesses across South America, among others. The increased purchasing power of operators such as Telefonica and European rival France Telecom, and individuals such as Mexican billionaire Carlos Slim, have made the telecoms world a much smaller market as companies with large reach expand further across the globe.
In the Middle East and Africa, one deal sent a message across the region that perhaps it too would see a similar spate of takeovers. When Kuwait’s MTC Group bought pan-African mobile operator Celtel from under the noses of African operator MTN in June for a staggering US$3.4 billion, it was a sign that Middle East operators were turning their attentions towards the continent.
Flush with cash, more Middle East operators hinted that Africa was the next hunting ground. UAE incumbent Etisalat established Etisalat International, and took a 50% stake in West African operator Atlantique Telecom for US$130 million, along with the nationwide operating licence in Tanzania and the second fixed licence in Sudan.
MTC has publicly stated that it is looking to operate across 20 countries in Africaby 2006. The Celtel acquisition brings its current total to 18 countries across the Middle East and Africa.
“There are two upcoming opportunities, one of them at least will be in Africa,” says Salah Al Fouzan, MTC’s head of mergers and acquisitions (M&A).
The operator has qualified for participating in the upcoming privatisation of Tunisian incumbent Tunisie Telecom. However, it is bidding using the MTC name, rather than Celtel, a decision that would appear at odds with its stated intention of pushing its Celtel brand across the continent.
Upon closer examination, the reasoning is transparent. “We consider North Africa part of the Middle East,” says Al Fouzan. “But we also are getting help from Celtel management.”
“It is a concerted effort, our business development people are working on it (the bid in Tunis),” says Celtel’s CEO Marten Pieters. “But this is something the (MTC) Group will have to finance.”
||**|||~|Marten-Pieters200.jpg|~|Marten Pieters, Celtel International CEO believes the African mobile telecoms market will consolidate substantially in the coming years. |~|Conditions often require that the holding company has to be the bidder and neither Pieters nor Al Fouzan were willing to confirm whether, if successful, Tunisia would become part of Celtel International or be added to MTC’s own branded operations.
“You have to realise that this is one group anyhow. We are very close to MTC. It doesn’t really matter that much,” says Pieters. Celtel itself has been separately eyeing the privatisation of Nigerian incumbent Nitel for some time, having recently qualified to enter the bidding process.
“We have never made a secret out of the fact that we are very interested in Nigeria, it is one of the biggest markets in Africa but it’s difficult to find an inroad.”
Aside from just MTC, the privatisation of Tunisie Telecom has attracted interest from three other Middle East companies; Etisalat, Batelco and Saudi Oger. Competing bids from European operators such as T-Mobile and France Telecom may have once worried Middle East counterparts, but the failure of big names such as Vodafone to beat Etisalat to the second Saudi mobile licence last year have since diminished any concerns.
For Taha Rangwala at Pyramid Research in Massachusetts, the MTC/Celtel deal is a one-off, without any real effect on the African market.
“I don’t see MTC becoming a large African player and competing with the likes of MTN or Vodacom. They can invest but I don’t think they’re going to see much success against these two.”
MTC has been competing in relatively restrictive markets with limited competition. “I wouldn’t read too much into this deal in terms of future expansionary plans for MTC,” Rangwala explains, rating the operator’s prospects across the continent modestly, claiming that without regional knowledge, operators from the Middle East will be hard pushed to compete.
“Their (Middle East operators) financial strength could be used in Africa for investment, but the important point is that they need to partner smartly and carefully with the right players in the market. It’s like sending someone with a lot of money into a market where they have no experience, and if you pour money into a poor market you’re not going to see as aggressive returns you would like,” says Rangwala.
MTC has left Celtel as an independent entity and, for now, an entirely separate brand, perhaps satisfying Rangwala’s need for a partnership approach. However, such a separation may only last for two years claims Al Fouzan, hinting that after this time Celtel could see its brand come under the MTC mantle.
“We seek to be global by 2010 and to be a global operator that means not only expanding your footprint, but having a recognisable brand and unified services across all the operations, and we cannot achieve this without a singular brand,” says Al Fouzan.
||**|||~||~||~|Further movements into Africa by Middle East operators may only occur should opportunities in their own region not materialise in time.
“The Middle East is still a restrictive market with much nationalistic sentiment being imposed by the regulators or the governments within those countries,” says Rangwala, adding that investments in Africa could simply arise “just to satisfy their diversification curiosity.”
The kind of consolidation currently occurring across Europe is not going to happen for another five years, he claims, when markets like Saudi Arabia, UAE, Bahrain and Oman start to open up their third and fourth licences to competitive bidding processes.
There it still scope, however, for pan-African operators, such as Celtel and MTN, to buy out other African operators.
“We have already seen a little bit of that. Orascom was buying assets in Africa, but they have now changed their strategy, at least for sub-Saharan Africa,” says Pieters. “I think the strongest trend will be that the strong existing players will pick up the players that are more isolated or have a difficult ownership structure. And you might see some new players coming in, such as Etisalat.”
While MTC and Etisalat may be moving on Africa, whether it be for “diversification curiosity” or not, South Africa-based operator MTN, with operations in no fewer than six countries on the continent including the highly prized South Africa and Nigerian markets, is moving in the other direction after several failed bids. Despite coming second in the 2004 race for Iran’s second mobile licence, a disagreement between Turkcell and the Iranian authorities appears to have paved the way for MTN to belatedly enter the market.
“We have a strong African market strategy that also extends into North Africa and the Middle East,” says Chris Kilowan, MTN’s country manager in Iran, admitting that the company is looking at both greenfield opportunities and other acquisitions.
MTN were lined up to acquire Celtel before MTC moved in with a larger bid, and the mobile market could have looked much different had the Kuwaiti operator been thwarted.
“MTN would have been able to consolidate the Celtel operations into its broader operations, and not leave it as a standalone,” Kilowan says. Synergies would have been leveraged across areas such as procurement, with benefits accrued to MTN subscribers in the form of lower roaming rates.
“MTN isn’t in the process of acquiring assets at all costs, if the price is too high and we cannot see how we’re going to extract value, then we will not pursue it,” Kilowan reveals. “I think the experience of MTN’s acquisitions over the past few months and our involvement in the Middle East must show that there are other value propositions that countries may be looking at other than just a high price,” he adds.
||**|||~|Salah-Al-Fouzan200.jpg|~|Salah Al Fouzan says MTC Group is in the position to raise up to US$6 billion to fund further investments. |~|A successful move into Iran would not be the end of MTN’s Middle East endeavours. “We have quite a number of opportunities that we are currently looking at. Two or three serious ones and then some odds and ends,” claims Kilowan. He forecasts that in a few years time the operator will be present in around five additional markets in the region, jostling with the likes of MTC and Etisalat in their own backyard.
The future African market will see Celtel, MTN, Vodacom and France Telecom’s Orange as the major players, according to Pieters. “And then you can expect groups such as Etisalat or Orascom to further build out their position in Africa. So you can easily see four to five groups.”
But not everything will be swallowed up, with the local African PTTs (incumbent public telephone and telegraph companies) having their own operations. “These will probably not become part of a group,” Pieters suggests.
Pieters’ prediction of the consolidation of the African mobile telecoms landscape omits pan-continental operators such as Investcom, the Lebanon-based holding company with eight mobile operations across Africa, the Middle East and Europe. Having earlier this year raised US$741 million from an IPO on the London and Dubai financial exchanges, is likely to have a healthy appetite for further growth.
“In my point of view, Investcom could be more subject to acquisition than establishing its own position,” says Pieters. “It’s a typical example of a group that could be taken over or merged with another to form a bigger entity.”
Indeed, rumours were circulating in the African press in October that MTN was looking toward Investcom with an eye to broaden it’s African control significantly in one fell swoop. Having not committed its proposed US$2.67 billion bid for Celtel, there is little wonder speculation regarding the next likely acquisition target is in the air.
Investcom’s operations director, Niam Kawas, is confident the company can hold its own, rather than falling victim to an acquisitive entity.
“We think we can grow on our own, and we’re still looking for new opportunities for us to grow. Today we’re committed to expanding,” states Kawas.
She says that the money raised from taking Investcom public will be spent on either geographic expansion, or expansion in its current markets.
“We will perhaps increase our ownership, depending on what opportunities there are.”
Investcom listing as well as its wide geographic coverage make acquiring such a company potentially complicated.
“It would have been very difficult to add value to such a large organisation spread among different continents,” comments MTC’s Al Fouzah. At the current time, he says that MTC, buoyed by a close-to-debt-free financial position, is looking at individual targets rather than larger acquisitions, and is keeping its eyes open should an opportunity arise.
“We are a highly leveraged company, we can easily raise US$5-6 billion,” says Al Fouzah, adding that high oil prices have increased lending potential in the Gulf. Future prospects for MTC include the upcoming third licences in both Egypt and Saudi Arabia.
Neither Tunisie Telecom nor Nigeria’s Nitel are solely mobile, each having a significant fixed-line business as well, which the winning bidder would most likely have to take on board. The interest by mobile operators such as MTC and Celtel in such opportunities is a possible indication that companies are becoming more prepared to take on businesses outside their usual realm in order to gain access to a country’s mobile market.
Al Fouzah admits that taking on a fixed network is not ideal and is outside of MTC’s general strategy.
“We’ll definitely have to take both the fixed and mobile together (in Tunisia), but this isn’t the core business for us. There is always the possibility of us partnering with another fixed operator,” referring to the operator’s ongoing bid in the country.
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