Putting cash on the line in Africa

Posted On Thursday, 19 July 2001 03:01 Published by
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Some foreign operators believe emerging markets can provide opportunities for high growth

Some foreign operators believe emerging markets can provide opportunities for high growth

FRESH research by two separate organisations suggests international players could be interested in bidding for a licence to operate a fixed-line network in SA to rival Telkom.

SA's chance of attracting high-calibre foreign operators has looked slim, given the plummeting shares of Europe's cashstrapped telecoms companies after their overspending on third-generation licences.

Now, Gartner Group and local research house BMI-TechKnowledge say some foreign operators are willing to take a risk in Africa.

Several companies are looking at Africa to revive their fortunes because they believe the continent's emerging markets can provide high-growth opportunities, says Gartner Group's senior analyst Margot Hooley.

'European operators are experiencing a revenue slowdown in fixed and mobile services and as a result are looking for emerging markets to pull them out of this slump,' she says. African nations should enjoy an influx of investment from Europe in the years to come.

But countries like SA could blow their chances if they do not deregulate their markets and establish strong, independent regulators where the rules do not change at a whim, Hooley says.

SA's government has drawn up strict rules for the second network operator. It insists that the licence will be awarded only to a consortium which includes the telecommunications arms of Transtel and Eskom and a substantial black empowerment stake.

That clearly excludes any foreign operator from bidding for the licence without tying up with government's favoured players.

The policy has yet to be presented in Parliament, and government is understood to be considering a drastic about-face by granting two, rather than just one new licence. That could remove the need to work with both Eskom and Transtel.

Any reassessment of the rules would have been prompted precisely because of the lack of interest in the licence under the onerous draft conditions.

So far the only company to show enthusiasm for bidding is SA's M-Cell, which says its interest will evaporate if the opportunity is not worthwhile.

BMI-T analyst Dobek Pater says the onerous terms have deterred many companies from bidding. However, he says there could still be a reasonable degree of foreign interest.

One contender could be Orange, France Telecom's cellphone subsidiary. Orange could enter through a side door by acquiring the 24,5% stake in M-Cell that government is planning to sell. But Orange has been sending out mixed messages about its interest, and is far from a sure-fire contender. Portugal Telecom is also rumoured to be assessing the M-Cell stake.

Pater said the second network licence should 'definitely attract some foreign names because there has been some interest', but a number of issues could drive them away.

The black empowerment component is a major deterrent, as companies will be less willing to invest if they are forced to share the profit with a partner in an arranged marriage. Government's earmarking of Transtel and Eskom for a stake in the licence is a similar barrier, says Pater, since foreign players will question how much value their enforced partners will add to the operation.

'They will have to determine what the partners they are going to be saddled with are going to bring to the company and whether they are going to be worth the money,' says Pater.

Despite the hurdles, foreign operators could see Africa as attractive because the cost of competing in Europe has become horrendously expensive.

Although African nations are poor, they become more profitable when looking at the percentage of monthly salary people spend on communications.

Research by BMI-T shows the average cost of a fixed line call in southern Africa is about 0,40 a minute, and that people spend almost 0,5% of their income on communications.

Gartner Group says the pace of legislative reform largely determines how attractive African opportunities are to foreign investors. It divides Africa into three categories the laggards, the could-do-betters and the leaders of the pack.

Laggards are those where no private sector capital is being introduced to the capital structure of the telecommunications operator, or where governments intend to privatise, but has not done so.

SA is ranked as 'could-dobetter': ownership of the incumbent is shifting to the private sector, but the incumbent is still a monopoly protected by a lengthy period of exclusivity.

SA is beginning to see the rewards of introducing competition through a faster decrease in prices, increased infrastructure and the introduction of new services, putting it on a more equal footing with international competitors.

The leaders of the pack among African nations are Ghana, Uganda and Tanzania, which have opened up their telecommunications sectors and scrapped any form of exclusivity for a state-owned service.

Publisher: Business Day
Source: Business Day

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