Telecom Players Focus on Africa

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Telecom Players Focus on Africa
Deal-Making Flurry
Shows the Desire
To Tap Into Growth
By ROBB M. STEWART
June 5, 2008; Page B5

JOHANNESBURG, South Africa -- Amid a global scramble for new subscribers, telecommunications operators and investors are taking a sudden shine to a place with lots of potential customers: Africa.
In the latest show of interest, private-equity firms Apax Partners Worldwide LLP, Madison Dearborn Partners LLC and TA Associates Inc. agreed to buy a €1.1 billion ($1.7 billion) stake in Weather Investments, a holding company owned by Egyptian billionaire Naguib Sawiris. Among other assets, Weather holds a controlling stake in Orascom Telecom Holding SAE, one of the biggest telecom outfits in subscriber terms in Africa and the Middle East.
That continued a flurry of deal-making. On Monday, news broke that South African businessman Tokyo Sexwale is leading a consortium, including U.S. hedge fund Och-Ziff Capital Management LLC, exploring an acquisition of Telkom SA Ltd., the continent's largest fixed-line operator in terms of subscribers and revenue. The same day, Vodafone Group PLC, the world's largest mobile operator in revenue terms, said it wanted to boost its stake in a joint mobile-phone venture with Telkom. Last month, an Indian suitor walked away from merger talks with Africa's largest mobile carrier, MTN Group Ltd., only to be replaced by another Indian company.
Excitement over Africa isn't restricted to big players. Thousands of lower- and middle-class Kenyans lined up at banks and brokerage firms last month hoping to grab shares in the initial public offering of domestic carrier Safaricom Ltd.

What's the continent's allure? Amid a global commodities boom, African economies are growing fast. That, coupled with a period of relative political stability in some of the region's biggest economies, has stoked consumer demand. Mobile-phone technology, meanwhile, has made owning a phone affordable and convenient for the first time.
But the region's mobile penetration rate is still low. Continent-wide, penetration is 28% among a population of roughly 900 million, estimates consulting firm Capgemini. That means lots of room for growth.
"A lot of people are looking to Africa as the bastion for growth," said Irnest Kaplan, managing director of independent South African equity-research house Kaplan Equity Analysts. "It just took them until fairly recently to see that it was possible to move into some of these markets and make money."
Operating conditions, however, make building networks from scratch difficult. Many countries have sparse populations spread out over vast territories, which can make it challenging to build and run a profitable network.
That and other hurdles make buying into existing networks all the more attractive. MTN struck early, snapping up Investcom LLC of Dubai, United Arab Emirates, in 2006 for $5.5 billion to become the continent's largest operator by subscribers, with a presence in 21 African countries. Its 68-million-strong customer base has made it the target of a series of recent approaches.
Last week, MTN, based in Johannesburg, said it had agreed to exclusive negotiations with India's Reliance Communications Ltd. over a possible combination, after similar talks with larger Indian competitor Bharti Airtel Ltd. fell apart.
Cash-rich Persian Gulf players are also interested in Africa. Mohammed Hassan Omran, chairman of U.A.E.-based Emirates Telecommunications Corp., last month said the company might also evaluate a bid for MTN. Kuwait's Mobile Telecommunications Co. has been on a buying spree in recent years, spending $6 billion. It now has access to 21 million customers in 20 countries across the Middle East and Africa, including Nigeria, Kenya and Tanzania.

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Vodafone Eyes South Africa's Vodacom
Africa's untapped mobile-phone market is sparking global interest and the British telco is looking to grab a controlling interest in this major player
by Sarah Arnott


Vodafone is set to take a controlling interest in Vodacom, the South African mobile phone operator, if the latest round of talks with Telkom, its co-owner, prove successful.
The plan on the table is for the UK-listed group to add 12.5 per cent to its 50 per cent holding in Vodacom, which has 34 million subscribers across South Africa. Vodafone first approached Telkom, which owns the other 50 per cent, last year. But a potential deal was scuppered as it was contingent on Telkom's discussions with MTN about its fixed assets, which were fruitless.
Africa is proving increasingly attractive to global telcos looking for growth opportunities outside saturated domestic markets. The biggest possible deal at the moment is the £20bn sale of MTN, the South African comp-any with networks across the continent. India's Bharti Airtel was originally in the frame, but when the approaches came to nothing, Reliance, another Indian group, threw its hat into the ring.
"People are realising that Africa is the last great untapped economy frontier," said Mike Grant, a partner at Analysys Mason. "South Africa is the largest and strongest market on the continent, and is very competitive, particularly in the mobile arena, but it is also growing very quickly and a number of providers see that as a useful platform to establish a presence on the continent."
The key thing, both for the Vodacom deal and the MTN/Reliance discussions, is likely to be the price as growing interest in the region, from both established global players and rapidly expanding Middle Eastern groups with very deep pockets, takes its toll. "A number of the international players all have the same idea of pursuing growth in emerging markets, and it is inevitable when there are well-financed organisations chasing growth opportunities, that prices start to rise," said Mr Grant.
Provided by The Independent—from London, for Independent minds worldwide




Vodafone seeks to gain control of Vodacom
British mobile giant in talks about buying additional 12.5% stake



LONDON (MarketWatch) -- Vodafone Group, the world's largest mobile phone operator by revenue, is in talks with Telkom South Africa about buying a further 12.5% stake in the two firms' Vodacom Group joint venture. News of the discussions comes less than a week after Vodafone reiterated its interest in gaining control of Vodacom as it reported record annual results.

Vodafone, which currently owns 50% of the operator, said at the time that it would like to use it as a springboard for its African strategy. Telkom said the discussions started on May 14.


Analysts on Monday said securing control of Vodacom is critical to Vodafone's African strategy.

"The thing is that Vodacom is a beachhead into Africa for Vodafone. And Africa is where the mobile gold rush is happening. It's poised for phenomenal growth the way India was," said Ben Wood, senior analyst at U.K.-based telecoms consultancy CSS Insight.

Interest in African mobile phone assets has surged lately because the majority of the continent's population has yet to buy a handset, making it a very attractive market to Western operators facing sluggish growth at home. But competition for African assets is rising as big emerging-market players, confident in their ability to derive growth from such markets because of their own experience, look for acquisitions there as well.

Because of the huge benefits attached to gaining control of Vodacom, Vodafone will likely have to pay a significant premium, Wood predicted. reiterated its interest in gaining control of Vodacom as it reported record annual results.



Goldman Sachs analysts said that according to their valuations the purchase of a 10% to 15% additional stake would cost Vodafone between 0.8 billion and 1.1 billion pounds ($2.2 billion) on top of the debt assumed.
The broker said the most plausible scenario would see the remainder of Telkom's stake in Vodacom be independently listed in Johannesburg and a small stake being made available for Black Economic Empowerment investors.


Goldman noted, however, that full consolidation might "make a more natural choice of vehicle for further expansion in Africa for Vodafone," should assets become available.


It added it would regard a resolution of the ownership of Vodacom at a reasonable price for a controlling stake as a "positive" for Vodafone.


Vodafone shares fell 0.7% in London, slightly outperforming the broader market.Vodacom contributed 1.6 billion pounds to Vodafone's 2007 sales of 35.5 billion pounds.


Telkom may be sold
Separately, Telkom, which is Africa's largest fixed-line operator, said it's considering a joint
bid for the company, minus its Vodacom stake, from Mvelaphanda Group, hedge-fund firm Och-Ziff Capital Managemen and other strategic investors. Telkom said the talks are separate. No financial terms were revealed.
Telkom shares surged as much as 15%, valuing the company at about $10 billion. They were last up 10.5% in Johannesburg afternoon trading.

Competition for the asset is likely to be fierce.

At the Middle East Telecom Finance Conference in Dubai last month, chief executives of Middle Eastern phone companies such as the United Arab Emirates' Etisalat, expressed a strong interest in the African market.



"We are gaining a better understanding of these markets and want to expand internationally," Etisalat Chairman Mohammad Hassan Omran said.

Last month the company said it was evaluating a bid for South Africa's MTN, which has since said it's in talks with Indian operator Reliance Communications