ComWorld

French groups France Telecom and Vivendi rumoured to be expanding further into emerging markets

French telecoms companies are in the news today following expansion rumours in emerging markets.
France Telecom/Orange Group has been present in Africa for a long time, and expanding recently across West Africa and further, with the acquisition of a controlling stake in Kenya's Telkom, launching the country's first triple-play operation. Until now, it seems that its emerging market strategy was strictly focused on Africa, but there are now reports that it is looking at Asia too. According to my colleagues at telecoms.com, France Telecom is reportedly in talks to take a 25% stake in Indian operator Aircel for up to US$2 billion. France Telecom should buy the stake from Malaysian investor Maxis which holds a 74% shareholding in the operator. Aircel is currently a regional operator in India (operating in 13 circles), but it is planning a nationwide launch in the coming years. India's mobile market has been suffering from a slow regulatory process, but the sheer size of its population, combined with a fast-growing middle class, makes it a prime market for operators looking at high growth opportunities.
Back to Africa, the rumour that Zain group was to sell its African operations to "a French company" raised eyebrows last week, and I wasn't the only one thinking of France Telecom as the potential buyer. However, another operator has also been looking at opportunities in Africa: Vivendi. The group was one the stars of the 1999-2000 telecoms boom, and suffered one of the most spectacular descents when the bubble burst. Since then, it's been slowly rebuilding its position, and has already invested successfully in Africa, with a 53% share in Moroccan operator Maroc Telecom, which has investments in Mauritania (Mauritel), Burkina Faso (Onatel) and Gabon (Gabon Telecom). Now Nigerian paper Business Day claims that Vivendi is the group in talks with Zain to acquire its African operations.
The move would bring a new major player to the African market, but it also raised the question of the direction of Zain's strategy in Africa. Zain's objective has been for the past two years to become a global player by 2011. Africa was one of the cornerstones of this strategy, and all operations across the continent were re-branded as Zain in a expensive campaign in 2008. Zain representatives are not commenting on the rumours, other than mentioning that the group is looking at strategic partnerships for its expansion.
The rumours should be a big discussion point at this week's West & Central Africa Com event in Nigeria, were Zain Nigeria's CEO Bayo Ligali is scheduled to give a keynote presentation. If his company is taken over by another group, he would probably not relish the thought of going through yet another rebranding exercise - it would be the 3rd in almost as many years.

Are cost effectiveness and customer-centric business models enough for Russian operators to get out of the economic downturn?

The economic downturn was on everybody's minds at the Russia & CIS Com congress in Moscow last week. Russia was already a highly competitive market, with three major operators sharing the majority of the subscriptions, while a number of regional operators battle for a space in the market. Mobile penetration passed 100% as early as 2006, ARPU levels have been declining, and the imminent entry of MVNOs should make the market even tougher. It's no wonder that operators are getting worried about the impact of the economy on the market - but some players are faring better than other in a difficult context.
As in other sectors, companies specialising on discount have a better chance of survival when consumers are tightening their belts - or "being clever with their spending", as Donna Cordner, CEO of Tele 2 Russia, put it in her presentation at the congress. Ms Cordner, speaking in the opening keynote of the event, gave a master class on the discounter model as applied by the Scandinavian-owned operator in Russia. Tele 2 operates in 17 regions, with a further 18 to be launched. Its business model is based on that of discounters across various sectors (retailers such as Ikea and Aldi and airlines such as Ryanair to name but a few). The model's main strategic points are: a low-cost operation, a small portfolio of products, efficient management of vendor relationships, and good communication with the customers. It is proving particularly popular with customers who look at managing their budgets more efficiently, not just the lower income segment.
When faced with such competition, Russia's major operators have to be more creative to keep their leadership of the market. Among them, MTS has put in place a detailed sales and marketing strategy based on customer-centricity, as was presented by Garrett Johnston (Group Director of Strategic Marketing) in a lively talk. His main message was that operators need to understand their customers in order to deliver services they need, rather than products that suit the operator. He didn't just go over classic business manual theory, but gave concrete examples of how to get to know customer behaviour, and how to apply the learnings within an operator's sales strategy.
Among the other operators present at the congress, the main focus was how to keep costs under control in order to retain heatlhy margins. Cost-effectiveness is a priority for most operators across the world, but it seemed event more of an issue in Russia. The light at the end of the tunnel for operators investing in the region should be seen in CIS countries rather than Russia: emerging Central Asian markets, with their low penetration levels and improving economies and network, offer more potential than the already developed Russia.

WiMAX spectrum licensing causing trouble in Nigeria

In the past couple of weeks, I’ve been debating with my colleagues about the opportunities for WiMAX in Africa. It has always been hailed as a great technology to provide wireless broadband services on the continent. Its relatively cheap deployment and flexibility made it a good business case for under-served areas. But it hasn’t taken off quite as fast as some of its most fervent supporters were hoping for, and the debate is still ongoing over what the best use is for the technology on the continent.
Over 100 WiMAX deployments are either planned or in service across Africa. Mobile WiMAX is not really an option in the foreseeable future, but fixed wireless services have good potential. Existing operators use WiMAX as a complementary technology to mobile for the provision of wireless broadband services (Orange in Mali and Botswana for instance), or as a cost-effective backhaul solution, ideal for rural coverage. Mostly, it has been seen as a good choice for Greenfield operators due to its easy deployment and favourable licence conditions. In the last few months, the global economic downturn has made it difficult for new entrants to raise the necessary funds, but this trend may change for 2010. The other potential obstacle to WiMAX’s success on the continent is the popularity of CDMA WLL for wireless broadband, supported by an active industry association, the African CDMA Forum (Bill Hearmon, the association’s chairman, is a regular at our conference and a very dynamic advocate of the technology).
As Africa’s largest telecoms market and one of the most competitive, it’s no wonder Nigeria is embracing the opportunities of WiMAX in addition to the other available technologies that are already successful in the market. But, as I’ve experience in last couple of years, things often take longer than expected to get done in Nigeria, and this particular process is being delayed in quite a spectacular fashion.
Licences have been issued for spectrum in the 2.3GHz frequency band for WiMAX services, and were allocated this month by the regulator (the Nigerian Communications Commission - NCC) to Mobitel, Spectranet and Multilinks. But almost as soon as the news was out, doubts were raised about the licensing process, and Nigeria’s Economic and Financial Crimes Commission arrested Ernest Ndukwe, head of the NCC, over the matter. According to my colleagues at Middle East & Africa Wireless Analyst, the main controversy was caused by the award of a licence to Multilinks rather than rival bidder Galaxy; Nigerian paper the Daily Trust reports an issue with winner Mobitel as well, and with contracts for the construction of community information centres across Nigeria.
Ernest Ndukwe is a major figure in Nigeria’s telecommunications as well as across Africa, and a regular speaker at international congresses. He led the NCC’s move to unified licensing in Nigeria, one of the first regulators to do it in Africa. I was surprised to hear of his arrest, but not of the fact that licensing processes are subject to controversy, particularly when matters go back and forth between different government bodies. Indeed, his arrest followed a petition filed by the Hon. Minister of Information and Communications, Professor Dora Akunyili, who has since ordered the cancellation of the whole licensing process. Professor Akunyili took office at the end of 2008, coming from a medical background - she was previously Director General of National Agency for Food and Drug Administration and Control. As new Minister for one of Nigeria’s foremost industries, it is understandable that she takes a keen interest in what is happening with new licences. She also has a strong reputation to defend as a popular public figure in the country, and probably doesn’t want to be associated with any controversy.
The NCC is currently fighting the cancellation and arguing its case with the government, so we should hear more of the story in the coming days or weeks.
Both Professor Akunyili and Ernest Ndukwe are due to give keynote presentations at the forthcoming West & Central Africa Com congress taking place in Abuja in 3 weeks. Their presence should attract a lot of attention from the local industry observers and stakeholders. Hopefully by then we’ll see more clarity in the case.

Operators working on their network performance in South Africa

Competition is increasing in African markets, and added to the threat of lower consumer spend due to the global economic downturn, operators need to look at how they can best differentiate. In some cases, particularly for incumbents and market leaders, network capacity and high quality of service is a strong asset for both customer acquisition and retention.
That may be the reason why MTN is so strongly supporting the move of South African regulator ICASA 's decision to make operators publish quarterly reports on their performance. South Africa’s mobile operators MTN, Cell C and Vodacom met with ICASA last week to discuss the terms of the agreement. As a result, they will have to publicly report on: network performance and availability, network parameters (including reports about dropped calls and delayed text messages) and Active Subscriber Information. ICASA’s move is “part of the broader investigation about the source of dropped calls and the delayed SMSs that cell phone subscribers have been experiencing recently”. Apparently, SMS delays became a major issue during a reality TV programme involving text voting (a sign that the reality TV format is still alive and well across the globe!).
MTN was quick to turn the decision to their advantage, with representative Tim Lowry commenting publicly on it (Lowry is MD for the South Africa operation, regional VP for Southern and Eastern Africa at group level, and a regular speaker at the AfricaCom congress). According to MTN, ICASA’s decision was based on their proposal, described as similar to the way listed companies have to report on their financial performance. A great PR move for an operator which is investing heavily on its networks across Africa this year, as mentioned in a previous post. They will undoubtedly want to avoid the situation they experienced in Nigeria last year, when the local regulator threatened to block all new subscription additions until the QOS issues were sorted.
Tim Lowry’s comments also included a snap at Telkom, saying that the most consistent area of failure occurred when its network was relying on link faults by the fixed operator. His comment was quickly picked up by Telkom’s people, who released a statement saying “Telkom rejects the claims made by Lowry where he reportedly blamed the company for their own network and capacity shortcomings as an attempt to deflect attention from MTN’s own failure to adequately service its customers”.
We’ll just have to wait and see if Telkom is asked to share its network performance too to settle the debate. In the meantime, let’s hope South African viewers get to vote safely for their favourite TV show!

Picture of contrast in India’s telecoms market

India is a land of contrast, and it seems that its telecommunications industry reflects this. In the past week or so, news coming from India have given very different pictures of the industry: on the one hand, strong 2008 results from the market’s operators, while on the other hand, regulatory uncertainty still prevails.
The results for the last quarter of 2008 published this week show a healthy situation. Mobile subscription growth is still strong, boosted by operators expanding into new territories as well as the launch of new ones. Operators’ financial performances are healthy, with Bharti Airtel and Reliance Communications showing EBITDA growth. The market is still attracting foreign investment, as Etisalat joined in with a stake in new operator Swan Telecom. Above all, operators are still investing in their networks and services, in order to be ready for the increased competition on the market (only today, Bharti and Alcatel-Lucent announced a network management over the operator’s fixed-line and broadband business). In a context of global economic uncertainty, India seems to be a great example of the fact that emerging markets are the best places to do business at the moment.
However, the market is still experiencing drawbacks, a major one being its relative uncertain regulatory situation. New decisions take a very long time to be made, due to the constant bouncing back and forth between regulator TRAI and the government’s Department of Telecommunications. 3G licences took years to be awarded, with yet further delays earlier this year. Particularly telling was a debate among emerging market operators in February at Mobile World Congress: while all operators where discussing their great plans for mobile broadband, the Indian operator on the panel explained he had to make do with 2.5G networks while awaiting the regulator’s decision. Similarly, the situation with MVNOs took years to be sorted, with Virgin Mobile launching while arguing that it was only a branded offer, in order to bypass the regulatory uncertainty.
As reported in the last week, one of the interesting ‘up-and-coming’ new operators, Loop Telecom, may be another victim of regulatory challenges: its license may be under threat following an enquiry by the Ministry of Corporate Affairs over its indirect ownership by Essar Group. As Essar already owns a stake in mobile operator Vodafone-Essar, its link with Loop means that the new company may be in breach of its Universal Access Service License (UASL) conditions, and risk losing it altogether.
An interesting market then, that I’ll be happy to explore further at the India & South Asia Com event in Mumbai next week. A number of senior representatives of the abovementioned companies will be there, and I’ll be particularly attentive to the contributions of the Department of Telecommunications representatives. More news to come!