Reliance Communications (RCOM) has joined the clutch of Indian telcos seeking to establish their presence in Africa. RCOM is in talks with Mobile Telecommunications Company K.S.C. (known as Zain) for a potential acquisition of its African operations, Reuters quotes its banking sources as saying. ET further states Zain is selling Celtel, the division that is present in 13 nations in the continent, valued at $10 billion. Zain acquired Celtel in 2005 for $3.36 billion.
Indian Telcos & Africa
Indian operators appear to be keen on the African region: Bharti Airtel restarted discussions with South African telco MTN this year and the haggling continues; the exclusive discussion period has been extended till August 31st. Last year, both Bharti Airtel and RCOM huddled with MTN to discuss mergers but nothing materialised. RCOM is now pitching for Zain after French conglomerate Vivendi withdrew from talks. BSNL too announced it was looking to acquire minority stake in African telcos, with the hope of increasing its revenues.
Mumbai-based Essar Global‘s telecom subsidiary was the first to enter the African telecom sector. Last year, it set up a joint venture with Zimbabwe-based Econet Wireless International for Kenya and another this year with a local firm Kenyan Telecom Uganda Ltd for Uganda. Its $200 million network in Uganda was to have launched this month.
Zain is present in 16 African countries: Burkina Faso, Chad, the Republic of the Congo, the Democratic Republic of the Congo, Gabon, Ghana, Kenya, Malawi, Madagascar, Niger, Nigeria, Sudan, Sierra Leone, Tanzania, Uganda and Zambia. It is also in Morocco through Wana Telecom. As of March 31, 2009, it witnessed a 36% rise in active customers in Africa to 40.07 million compared to Q108.
Zain’s Acquisitions, Plans
Zain has paved its path in Africa through a series of acquisitions, reported in its Q1 investor presentation. The operator views Africa as being a high growth, emerging telecom market albeit with medium ARPU. Nigeria is its biggest market in Africa, contributing to 18% of Zain’s revenues, while the Middle East brings in 53%.
Zain has recently completed a $2.5 billion funding with eight regional and international financial institutions for its Saudi Arabian operations. The funding was raised to repay its existing loans and for expansion of its network in the Middle East. It is also on a drive to realign its operating model, which will mean a 13% reduction in its workforce.
Zain, which has ambitious global growth plans, showed interest in new telcos (one was Loop Telecom) in India, but did not conclude any transaction, Wall Street Journal reported in March. This year, Zain is opting for a second stock exchange listing – this time on the London Stock Exchange.
Sub Sahara Turns El Dorado, Competitors
Countries in sub-Saharan region are the ones with highest competition – take Sierra Leone for example. Four operators –Tigo, Zain, Africell and Comium are aggressively competing for subscribers. Congo Brazzaville, 72% of its area covered by mobile networks, is also a battleground for Warid, MTN and Zain.
Of the African countries, Gabon in the West coast of Africa offers high ARPU to Zain. Uganda has four operators- MTN, Zain, UTL and Warid. The region has an ARPU of $4. Kenya is also seeing rising competition though Safaricom holds fort with 79% of the market share.
VAS companies are also targeting Africa – inMobi (previously mKhoj) has set up offices there. The similarity between Indian and African telecom markets is a reason for businesses in this sector to set up base there.
RCOM’s Presence In Africa; Acquisition Or Joint Venture?
RCOM bought Ugandan telco Anupam Global Soft and invested Rs. 2000 crore in rolling out its network early in 2008. The company’s website does not offer any information on if the network was launched, nor any details of its subscribers, leading us to believe it has not yet rolled out. Reliance GlobalCom subsidiary Flag Telecom has established itself in Sudan, Nigeria and South Africa.
RCOM could have opted for a joint venture agreement with Zain (like Essar’s strategy in Africa) rather than an acquisition. It would be quicker, cheaper and allow the company more flexibility in future expansion.