Gulf telecoms on smooth tracks
As per the analysts and bankers, the industry may soon enter a period of more measured, organic†growth, as acquisitions targets are scarcer and competition heats up in domestic markets.
Etisalat’s $11.7bn blockbuster bid for 46% of Zain, the Kuwaiti operator, is anticipated to go through and lead to the eventual sale of Zain’s 25% stake in its Saudi subsidiary which competes against Etisalat’s Mobily.
Most of the region will have been carved up by the Gulf’s remaining three large operators the United Arab Emirates’ Etisalat, Saudi Telecom (STC) and Qatar Telecom, or QTel once Zain Saudi Arabia is sold.
According to Victor Font, head of Delta Partners, a telecoms-focused management advisory and investments firm, there were a number of players in the region that had the aspiration to become relevant operators in the global scene, but there isn’t space for all of them to be successful and consolidation was to be expected.
The Gulf’s mobile companies are left in the Middle East, or even in the wider Asian and African markets. Whereas, there is a license for sale in Syria, and Lebanon’s long-delayed privatization plans remain.
According to Mr Font, most of the other regional players are government controlled and it is very unlikely that the company will see any of these sold, at least in the medium term.
Etisalat, STC and Batelco, the Bahraini telecoms company, are active in the rapidly growing but fiercely competitive Indian market, which is the largest pool of potential subscribers close to the Gulf. Etisalat is also in talks with Reliance Communications about a tie-up, which are expected to continue in spite of a Zain deal.
As per a senior telecoms-focused investment banker, once Etisalat closes the Zain and the India deal, they will be done with their acquisition expansion. The question is what QTel and STC will do now. There aren’t a lot of opportunities left in the Middle East.
QTel is a hot favorite amongst those who are eyeing on buy Zain Saudi Arabia if it comes up for sale. Batelco has also expressed interest, but lacks the financial heft of its Qatari competitor, and Saudi Arabia would fit well with QTel’s Middle East footprint, analysts say. Other possible, but less likely, buyers include South Africa’s MTN, India’s Bharti Airtel and Turkcell.
The attraction of Zain’s Saudi operations is clear. While Zain Saudi Arabia has struggled because of a price war with STC and Mobily, the overall size of the market will reach $11.6bn in revenues this year, says research by Delta Partners.
As per recent reports, Saudi Arabia alone will grow, in absolute terms, more than the rest of the [Gulf] telecoms markets put together.
Competition has increased across the Gulf, and eroded the average revenue per user (ARPU) a common industry measure of customer profitability. Across the Middle East, the overall ARPU rate has slipped from $20.85 a month in June 2008 to $13.95 in June 2010, Informa estimates.
The Gulf markets remain more lucrative. At $18.86, Saudi Arabia’s ARPU is the region’s lowest, while the figure is $44.64 and $33.14 in Kuwait and the UAE respectively, in line with richer developed markets.
Mobile Operators in the MEA Region can save over $8 bn in the next 5 Years by sharing their network towers
www.WirelessFederation.com/news: Delta Partners, the leading telecom advisory and investment firm, released a new white paper today about the potential of network sharing in the MEA region, entitled “Tower Sharing in the Middle East and Africa: Collaborating in competition”.
There are currently over 200,000 mobile network towers in operation across the Middle East and Africa, in which operators invest annually between 10-20% of their revenues to rollout new sites or upgrade existing sites. Operators continue to make large investments in order to upgrade technologies and capacity as well as population coverage, especially in rural Africa. An extra 100,000 towers are expected to be rolled out in the next 5 years.
“Network sharing is not a recent trend, but the current economic environment, increasing competition and pressure on margins across MEA markets is making operators consider it in order to achieve significant savings in capex and opex. In some cases, infrastructure sharing is the only viable way to access rural areas and penetrate lower end segments”, says Victor Font, Managing Partner. “We believe that over $8 billion can be saved in the next 5 years if operators collaborate and start sharing their networks assets”.
Recent multi-billion dollar network sharing deals have already been concluded in India, and last month’s announcement that Vodafone and Telefonica would share parts of their European network infrastructure was hailed as a milestone of pan-European collaboration and result in better quality and coverage, less unsightly masts and save hundreds of millions of Euros for shareholders.
“The same shareholder value can be created in the MEA region, but many operators are still a little cautious as they see their network assets as a key asset and differentiator,” says Chris Datta, Principal, “our analysis has shown, however, that a potential downside in market share is far outweighed by the extra benefits of cost saving on both opex and capex. In other words, operators would have to drop their market share by over 10% to not create value.”
“We see operators, investors and regulators starting to actively support site sharing and we expect it to become a key trend for 2009 /2010 in the Middle East and Africa” adds Victor Font. “The key success factors lie in the negotiation and structuring of the deal e.g. whether to include passive and/or active network elements, existing towers or just new towers and who would manage the assets. The main challenge will continue to be in the execution.”
About Delta Partners
Delta Partners is the leading management advisory and investment firm specialized in Telecoms, Media and Technology (TMT) in high growth markets. It has more than 130 professionals operating across 50 markets in the Middle East, Africa and South East Asia. From its offices in Dubai and Johannesburg, Delta Partners provides services through its three highly synergistic business lines: management advisory, private equity and corporate finance.
Delta Partners delivers tangible results to its clients and investors through an exclusive sector focus, and a unique approach to services, combining strategic advice and a hands-on pragmatic approach.
For further information please contact: Mia Mutic, Marketing Manager, Delta Partners. Tel: +971-4-369-2999 and mmu@deltapartnersgroup.com or visit http://www.deltapartnersgroup.com
