BARCELONA, March 2 (Reuters) - Poor infrastructure,
fragmented markets and stiff competition mean Africa poses risks
as well as potential rewards for telecom operators hunting for
growth in countries like oil-rich Nigeria and post-revolution
Libya and Tunisia.
With new cheaper smartphones set to drive sales, a growing
corporate market, and the fact that most in Africa will use
mobile phones to access the Internet and do business, many
operators are seeking acquisition targets in the continent.
France Telecom and Vodafone now present on
the continent could expand, but they'd have to compete with new
emerging market players like Russia's Vimpelcom, South
Africa's MTN or India's Bharti Airtel.
Chinese companies, which already sell telecoms equipment in
Africa, could move up the value chain by buying operators or
licenses. In 2010, China Mobile lost a bidding war to Bharti
that saw the Indian operator snap up telecom units in 16 African
countries for $10.7 billion.
But making money in Africa, one of the last remaining
emerging telecoms markets not yet sown up, has proven very
difficult, as some of the existing players have discovered.
The market is fragmented in 56 countries, some of which have
dozens of operators, while consumers in Africa tend to spend
between $1 to $10 per month on telecommunications, far less than
in Europe or the U.S., but still more than in India.
Operators have also realised that the cost of running
networks is high due to poor infrastructure, executives told
Reuters this week at the Mobile World Congress in Barcelona.
Operators, including France Telecom, are now looking at ways
to share costs through network sharing deals.
Bharti Chairman Sunil Mittal said Africa was in many ways
tougher than his home market of India, itself marked by
ferocious competition and unpredictable regulation.
"There are two differences between what we saw in India and
Africa," he told a panel session. "One, the cost of operations
is extremely high and that was a big surprise for us. And the
second is that there is no middle class."
"You either have a handful of people in the
affluent part of the society or you have lots of people who
can't afford the services."
Colin Brereton, a telecoms expert at consultancy PWC,
acknowledged that Africa held promise and peril for operators.
"Africa is where it is," he said. "That doesn't mean to say
it's going to be easy or soluble in the short term. It's going
to take a long time and it's going to be difficult."
Two of the most interesting markets are Libya and Tunisia,
which are expected to open up after the Arab Spring.
Libya, which is struggling for stability after a bloody
civil war last year, has two state-owned mobile operators, Al
Madar and Libyana. The new government is expected to open up the
sector by selling new licences or stakes in existing companies.
Gulf operators Qtel and Etisalat, as well as Egyptian
businessman Naguib Sawiris told Reuters in interviews that they
were interested by Libya, and others might jump in as well.
Tunisia is also ripe for development since it is affluent
and already has decent fixed infrastructure. Its three mobile
operators, two of which are partly owned by France Telecom and
Qtel, are eager to launch smartphones and new services.
The new government may also revive a planned public listing
of state-owned Tunisie Telecom, which was scrapped in early 2011
amid political chaos brought on by the revolution.
Meanwhile, Vodafone and France Telecom might be tempted by
Nigeria since the oil-rich country is the third-largest economy
in Africa behind South Africa and Egypt and offers critical
scale with 160 million potential customers.
Globacom Limited, which operates in Nigeria,
Republic of Benin, Ghana and Ivory Coast, has long been mooted
as a target if the Adenuga family that founded it decides to
Vodafone did due diligence on Globacom in 2009, according to
a banker, but stepped away from a deal .
"There is real potential for a deal in Nigeria," said the
banker. "If something big happens it will happen there, but
foreign companies have mixed feeling about it because they are
worried about the safety of their employees," the banker said.
Both Vodafone and France Telecom have said they could pick
up small assets to complement their existing footprint.
France Telecom has been beefing up in Africa in recent
years, buying Morocco's Meditel and Egypt's Mobinil, but
recently indicated that it would slow its expansion this year.
"If there is an opportunity that comes up in 2012, we will
look at it, but we don't plan to proactively seek significant
deals," said Elie Girard, head of strategy and development. He
added that "it would make a lot of sense" for France Telecom to
be in Burkina Faso, Benin, and Togo.
However, despite the obvious appeal of Africa's rapid
growth, there are also many challenges.
In a bid to shake up the market, Bharti slashed prices for
consumers, and was again surprised to see that it had little
impact in terms of how many calls were made or texts sent.
"We found that every time we saved money on telephony (for
the consumer) it went on food," Mittal told the Congress.
Another issue that causes some pause is the unpredictable
nature of regulation.
Qatar Telecom, which snapped up assets in 16
countries from Algeria to Indonesia in a rapid 10-year expansion
plan, told Reuters it had in general preferred to operate in
Asia and the Middle East.
"We get a lot of invitations to go and operate in Africa,"
Chief Executive Nasser Marafih told Reuters. "There appears to
be no control over how many licences are issued. We are amazed."
The challenges are leading some to look for exits.
Gulf-based operator Etisalat is weighing a sale of
its weaker operations in seven markets in the French-speaking
"It's not that they want to sell because they need the
money, but they are not that happy with the African market,"
said a banker who knows the company.
"A deal process hasn't really been started yet but the day
they launch the sale, they will have bidders."