In spite of collapse of MTN-Reliance merger talks, continent is still ripe for a foreign partner
Information Technology Editor
TELECOMS analysts cannot agree whether MTN or Reliance were going to gain the upper hand if the two mobile operators had pulled off a merger, but they do agree that more foreign operators are eyeing Africa as a hot territory to muscle in on.
“Operators and investors believe Africa is the next utopia to make money from. There are new entrants coming in, people with money,” said Colin Orviss, vice-chairman of TM Forum, at a TM Forum conference in SA last week.
TM Forum is an association of 650 global telecoms, media and internet companies.
A foreign influx would have a profound effect on local players by providing serious competition, Orviss said . “Some of the companies coming in, especially Indian companies, have phenomenal experience and will challenge the status quo, especially in SA.”
One potential challenger is Korea Telecom, whose manager, Kyle Park, inquired about investing in Africa. The South African operators did not seem to care much about customer service, which could constitute an opportunity for foreigners to step in, he said.
Korea Telecom, with more than 5-million users, calls itself the world’s leading broadband telecoms and internet operator.
Africa Analysis’s Dobek Pater said some African countries were highly competitive and some not competitive at all.
But a newcomer entering as the third or fourth player rarely won more than 10% of the market, he warned the Koreans, so the best tactic was to buy into an established operator up for sale or seeking a strategic partner.
MTN was in exclusive talks with Reliance Communications to thrash out a merger with India’s second-largest operator. It previously hunkered down with India’s largest player, Bharti Airtel. But that proposed merger collapsed over disagreements on which would become the dominant party.
Their talks probably also soured when Indian analysts said Bharti relished the chance to step in and hone MTN operations to make them more cost-effective, since MTN views the streamlined operating tactics it has implemented across 21 countries as one of its strengths.
Indian operators were proud of some of their business models, such as outsourcing their call-centre services and technology systems, said Adrian Dunsby, an associate director of PricewaterhouseCoopers.
That gave them an operating profit margin of 40% on customers who spent just $9 a month. MTN makes a similar pretax profit margin of 43,5% although its average customer in SA spends a higher R144 a month, or $19.
But telecoms adviser Thorleif Herrstrom of Swedtel International said: “I don’t think the Indians have too much to teach us. I think it’s the other way round. We have some very good business models here. We have shown the way to run efficient operations.”
Pater agreed that MTN probably had the upper hand over the Indians in efficiency. Indian operators were good at serving customers with very little disposable income, he said, but that did not mean their methods would work in Africa.
India’s population was bigger than Africa’s, he said. Once a network infrastructure and services were constructed, the cost of adding extra customers was minimal.
Reliance serves 50-million customers in one territory, whereas MTN serves 68-million across 21 countries. That involved rolling out networks over vast terrain often lacking basic facilities such as roads or electricity.
“We have practices here that we can take to India more easily than vice versa, including network efficiencies, because the environment in Africa is more difficult,” Pater said.
“If Reliance or Bharti tied up with MTN it could be that MTN benefits more from deploying its practices in India rather than the Indians coming in and teaching MTN how to do things.”
But the chances of MTN and Reliance striking a deal looked increasingly slim, and this was confirmed by MTN on Friday when it said it had ended talks with Reliance. MTN said “certain legal and regulatory issues” had prevented the talks from progressing further.
The group was referring to the prospect of legal action that Reliance Communications and its head, Anil Ambani, were likely to face from his brother, Mukesh Ambani, who was claiming the right to buy any shares that are up for sale. That threat forced Reliance and MTN to assess convoluted ways to sidestep the threat yet still gain a stake in each other’s business.
Last week, Mukesh instigated arbitration after the telecoms group refused to meet to resolve the clash.
Analysts would not have been surprised if MTN walked away, as it has a strong growth path alone, and it did not need the headache the sibling squabble had created.
MTN denied sidling up to Bharti again last week to hedge its bets, but it might revive the negotiations now that the Reliance deal has failed.
“It would be interesting to see if they do go back to Bharti, but MTN would have to be a lot more accommodating than before,” Pater said.
Source:
Business Day
