By Andrew White
Two of Middle East's heavyweight telcos are facing off in the battle to secure Qatar's second mobile licence.
In the red corner: the old master, UAE-based Etisalat. Weighing in with over 20 years of experience, a US$8bn warchest, and operations in Afghanistan, Benin, Burkina Faso, the Central African Republic, Ivory Coast, Egypt, Gabon, Niger, Saudi Arabia, Sudan, Tanzania, Togo, Pakistan, and the UAE.
In the blue corner: the young tyro, Kuwait's Mobile Telecommunications Co (Zain). Rebranded, refocused and connecting people across 21 different markets: seven Middle Eastern and 14 sub-Saharan African countries.
Just last week, both Etisalat and Zain continued their headlong charge deep into the African market.
According to industry analysts, the two will most likely go head-to-head in the battle to secure Qatar's second mobile licence - the victor ending the monopoly of incumbent operator Qtel on the provision of the mobile services in the country. Two of the Middle East's heavyweight telcos are facing off, and the whole region has tuned in to watch.
"We are optimistic about the result," Etisalat International Investments chief executive Jamal al-Jarwan said last month, when it was revealed that the two companies had bid for the licence. Jarwan would not say how much Etisalat was willing to pay for the privilege, but Etisalat Chairman Mohammed al-Omran said in July the firm planned to "compete fiercely" to enter Qatar.
Despite having a comparatively high mobile penetration rate - 120% in a population of more than 628,000 people - the Qatari market is widely considered a good bet for an investor as it is a high growth environment with high average revenues per user. The country will become the last Gulf state to open its telecoms market to competition, and is expected to be receptive to a new entrant.
"Qatar is actually a small market, but its revenues are quite high compared to its small size," says Jawad Abbassi, general manager of the Jordan-based Arab Advisors Group, a consulting firm focused on the communications, media and technology markets. "It's also a market where there has been a massive population increase. Basically, when you look at the Qatari market, you shouldn't look at the current size, you should look at the how big a country it can be in the next 10 or fifteen years."
However, he is less sure that the race for Qatar will go down to the ‘big two', Etisalat and Zain. The other pre-qualified candidates for the licence are ACE Consortium, Argos Consortium, AT&T, Batelco and Vodafone, and all seven bids are currently under technical evaluation, with the announcement of the winner expected in early November. In such a cash-rich race, there's plenty of time for one of the chasing pack to shock the favourites.
"The Gulf markets are always surprising everybody," says Abbassi. "Yes, they are the big players, but you can never underestimate other groups who are eager to expand. It really boils down to how badly everyone wants it."
So who wants it? At the moment, sources close to the bidding suggest that Zain has slipped behind the leading pack. Etisalat has instead been joined at the head of the queue by Argos Consortium, whose partners include Verizon Communications, Virgin Mobile, and QInvest, part of Qatar Islamic Bank.
The mind-games have certainly begun in earnest, and in direct contrast to Etisalat's unwavering enthusiasm for the market, Zain chief executive Saad al-Barrak said earlier this month he did not expect to win the licence because the firm was not willing to overpay. It has been reported that the licence might cost more than US$300m, and Zain's reluctance to overpay chimes with the suspicion that it might no longer be seriously in the running.
"Maybe Zain's statement was a smokescreen, maybe he really meant it - who knows?" says Abbassi. "It's essentially going to be down to the bidders, and how eager they are to expand. Who knows how much they will be willing to pay?
"It's not a sure thing for the big players, because let's face it, the big players can afford to be very rational," he argues. "Sometimes you have family businesses or major groups that want to enter telecoms and are willing to pay premium prices, even over the odds, to do so. There's no way to guess - you just wait for the surprise once they open the bids."
Big companies don't like surprises, they like sure things - and neither Etisalat nor Zain is sitting around waiting for news from Doha. Just last week, both telcos continued their headlong charge deep into the African telecoms market. Etisalat, the third-largest Gulf telecom firm by market value, bought an additional 17% of Tanzania's fourth operator Zanzibar Telecom, raising its total stake to 51%. On the same day Zain, the second-largest Arab telecom firm by market value, said it was to buy a Ghanaian operator for a round US$120m.
"Africa is absolutely the next big battleground," insists Abbassi. "Especially with the improving economies in Africa, you'll have a lot more subscriber growth and a lot more revenue growth.
"Some Arab markets are reaching the situation where revenue growth and subscriber growth is going to plateau, and so Africa is a natural goal for Middle East telcos including Etisalat and Zain."
Abbassi's views are echoed by Alan Sinfield, CEO of Doha-based retail distribution giant Starlink, and an operational business and technology specialist with over 20-years global experience in the communications sector.
"Everyone says the growth market is China, but China is still a bit closed, whereas Africa's wide open," he says. "Anybody investing into Africa at the moment is going to do well, because it's got the lowest teledensity and penetration rates."
Taking this to heart, Zain has agreed to buy 75% of Western Telesystems (Westel) from the Ghanaian government through its Celtel unit, and will list some of its shares on the Ghanaian stock exchange. Netherlands-based Celtel, which Zain bought for US$3.4bn in 2005 to expand in sub-Saharan Africa, operates in 14 other African countries. Westel has a licence to offer fixed-line and mobile phone services in the West African country, and is likely to start operations in the first half of next year - around the same time that another of Etisalat's new ventures is scheduled to launch.
Just last month, the UAE firm bought a 40% stake in a new Greenfield operation in Nigeria, which will enable it to offer mobile, fixed-line, voice and data services and also to establish an international gateway from March 2008. This after April's announcement that Etisalat was boosting its stake in loss-making operator Atlantique Telecom, which holds stakes in seven operators in Africa, to 70%.
Elsewhere in Africa, there remains particular potential in Mali and Cameroon. It has been strongly suggested that the Mali government is going to sell off the state-owned mobile and fixed-line services, and in Cameroon there is heavy speculation that a third operating licence is on its way. According to analysts, the good times need not stop there.
"For me, the top prize in the whole of Africa at the moment is Ethiopia, because Ethiopia Telecom still has a total monopoly - it's one of the last ones left," says Sinfield. "When that opens up it will be phenomenal, and the whole of the world will be lining up to get in there."
Libya is also looking at selling off the two government-owned mobile licences and issuing a third licence as early as Q1 next year. The country's oil reserves alone make it a prime target for Middle East investment, and a string of global telcos are already circling the prize.
"Libya again will be somewhere that all of them will dive on, and we know for a fact that Vodafone already has people on the ground in the country, petitioning for the third licence," confirms Sinfield. "Middle East telcos could have an edge, however, as some of these African countries have very strong cultural and trading ties with Middle East nations, particularly down the East Coast of Africa. Ethiopia, too, is pretty close to home."
Another home truth is that Africa is as synonymous with political and economic instability as it is with huge growth potential. However, the rewards might just be great enough for Middle East telcos to take the plunge ahead of more reticent Western operators.
"Given the focus on Africa, and their strong presence already in the region, some telcos might think ‘I'd love to be in Qatar, but I'm only going to pay what I think is fair'," concludes Abbassi. "In Africa, given the strong growth potential, you probably can't pay over the odds."
While the auction of Qatar's second mobile licence represents a convenient head-to-head battle, it seems that the real war will be fought elsewhere. There's a whole continent out there to discover, and the Gulf's telcos are racing towards the very edge of the map.