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Africa & Middle East Telecom Insider / Vol. 2, No 7, Edition 9 - M&A Activity Expected to Increase for AME Mobile Operators
Pyramid Research, Inc., Sep 2010, Pages: 19
With a 60% mobile penetration rate expected by the end of 2010 and approximately half a billion unsigned subscribers (the portion of the potential subscriber base that has not been penetrated), the telecom markets in Africa & the Middle East (AME) are attracting mobile operators from saturated markets looking for new sources of revenue. While some operators are entering the region by obtaining licenses and joining the existing set of players, others are buying their way in through mergers and acquisitions (M&A). Bharti Airtel’s acquisition of Zain Africa’s assets in 15 markets for US$10.7bn may remain the only major deal successfully completed in 2010, France Telecom is eyeing Meditel in Morocco as part of a $9bn expansion involving four to five countries, and MTN is looking at new African markets to consolidate its leadership and to compensate for its declining ARPS. Given these developments, it seems likely that the competitive landscape of the region will change yet again.
During the M&A activities in the AME telecom markets, mobile operators will have to align their business strategies with their business objectives. Those that expect to capture revenue growth by reaching the unsigned African subscribers will move toward low-penetration areas such as sub-Saharan Africa, but they are likely to face problems of cost management and premature saturation as they expand to rural regions. An interesting trend to watch here will be consolidations at the operational level to reduce costs (e.g., network-sharing agreements).
On the other hand, players seeking diversification will focus on the higher-ARPS markets of the region, such as North Africa, in order to benefit from the higher income levels of the subscribers and the relative stability of these markets. The main concerns in these North African markets will be the premium prices that the targeted operators will demand and the difficulties of acquiring subscribers from existing operators.
Lastly, AME operators that intend to use mergers and acquisitions for large-scale expansions of their footprints in the region will have to consider market overlaps with their targets in order to avoid regulatory obstacles and to maximize market complementarities. We believe that the penetration rates, the recent ARPS trends of the AME markets and the mobile operators’ relative footprints are the primary criteria that will shape the future competitive landscape of the region. While equity-based mergers and acquisitions will be used both to enter new markets and to consolidate competition, we expect to see integration at the operational level (e.g., network sharing, reducing the number of infrastructure operators) in markets where owning proprietary networks has became too costly in the face of sharp revenue declines.
In this report, we analyze the different opportunities and challenges that the telecom markets in Africa & the Middle East present to those mobile operators interested in mergers, acquisitions and consolidations in the region. By relating the announced and/or completed M&A deals across mobile operators to various market characteristics and existing competitive dynamics, we explain the rationale behind these activities in AME. With a unique visual representation of the competitive landscape of the region, we analyze market overlaps and highlight possible footprint complementarities across the operators. When financial positions and market characteristics are also considered, our approach not only predicts the MTN-Orascom deal in retrospect but also directs attention to yet-unasked questions such as whether Etisalat can stay committed to its non-Arab African assets during a wave of consolidation or where a considerable chunk of France Telecom’s announced investments in Africa may flow. Two M&A activities “ one complete and one speculative “ will be discussed to provide support for our arguments.
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