By Daniel Jones
With Asian operators increasingly eyeing assets in Africa, Daniel Jones, partner, Onda Analytics, questions whether 2010 will be a turning point for Asian investment in African telecoms.
Investment in Africa’s telecoms industry rarely seems out of the headlines at the moment, with new licences, privatisations and talk of major multi-country M&A activity.
The biggest story so far this year has been the potential sale of Zain’s African assets to Bharti. The $10.7 billion deal looks likely to be concluded as long as due diligence is successfully completed. Bharti, and other Indian operators such as Reliance and Essar have been keen to enter the African telecoms market. India and Africa share characteristics that make entry into African markets sensible for Indian operators; managing low ARPU subscribers and high subscriber growth in largely rural environments.
The acquisition of an existing portfolio of assets is a strong strategic move by Bharti. For an operator without existing African assets, acquiring individual operations or new licences would be a time-consuming process. Acquiring new licences means starting without an initial subscriber base, while acquiring individual operations may mean having to buy smaller players that are in trouble. Investors will often consider whether a number one or number two player by market share is available in any given market when looking at adding to their portfolios.
Whether New Generation Telecom, the consortium that won the auction for Nigerian incumbent operator, Nitel, for $2.5 billion can be described as having a cautious approach is questionable. It seems to be paying a very high price for an entity with a string of problems including network infrastructure suffering from chronic underinvestment, a negligible market share, an extremely strong competitive environment and staff striking over unpaid salaries.
Only time will tell whether the bid, valuing Nitel at over $1.5 billion more than the next highest bidder, was the result of an undervaluation by other bidders or overvaluation by the winners; current consensus favours the latter explanation.
The Nitel consortium was originally thought to have included China Unicom, though this was denied by the company. Many believe Chinese operators will get involved in African telecoms operators to plough domestic profits into foreign expansion.
Indeed, until China Unicom’s denial, there was little scepticism that they were indeed behind the Nitel consortium, so expected is Chinese investment in Africa. Chinese vendors Huawei and ZTE have been winning an ever-increasing number of contracts on the African continent in recent years with the support of project finance from China’s Eximbank for local operators.
Actual and potential interest from Asia does not mean that Western European operators have stopped looking at the continent. Vodafone, France Telecom and Portugal Telecom have been major investors in Africa, but are now being more selective in the opportunities they look at. Certainly the prospect of strong subscriber growth and healthy margins for larger players appeals to balance portfolios containing many mature European assets. However, many African markets now have four or five mobile operators, meaning good opportunities for investment in green field network roll-out, rather than in acquisition of already successful operations, are becoming rarer.
Since France Telecom acquired Telkom Kenya in November 2007 and Vodafone bought Ghana Telecom in July 2008, activity from European operators has been scarce. Indeed, expanding the range of services offered within one market may present an attractive opportunity for the often mobile-only assets of European operators, especially with the landing of submarine cables on Africa’s coasts creating a new opportunity in provision of broadband.
New licences in markets where there are currently only one or two operators and the privatisation of incumbents, present some of the stronger opportunities for single country investment. Third mobile licences in Cameroon and Mozambique are set to be tendered in the next few months.
Zambian incumbent, Zamtel, is now in the final stages of the privatisation process, with Botswana Telecom, Onatel in Burundi and SierraTel in Sierra Leone among others that may be put up for sale this year. As and when these opportunities arise, it will be interesting to see if there is a continuing shift in interest from Europe to Asia. It is too early to tell, but 2010 may be the year Asia really stamps its mark on the African telecoms market.