MTN & Bharti: Former Suitors Now In Face-Off As Zain Africa Is Sold

Sunil Bharti Mittal, the billionaire chairman of India’s largest mobile-phone company, spent millions of dollars and almost two years wooing MTN Group Ltd. for its Africa business. Now he’s picking a fight with them.

Mittal was thwarted twice while pursuing a $23 billion merger with Johannesburg-based MTN that would have created one of the five largest phone companies in the world. His Bharti Airtel Ltd. then courted Zain, offering $9 billion for the Kuwaiti mobile-phone company’s operations in 15 African countries in an effort to offset slowing profit growth at home.

Bharti may sign an agreement with Zain as early as this week, three people familiar with the negotiations have said. If the deal goes through, Bharti and MTN will go from being potential partners to foes. Zain and MTN go head-to-head in five countries, including Nigeria, the largest African country by mobile-phone subscribers and population. MTN is No. 1 in Nigeria, followed by Zain.

“They’ve decided to venture into the forest on their own,” MTN Chief Executive Officer Phuthuma Nhleko said. “They would have been in a better position if we were holding their hand.”

Bharti had no choice. Bharti and MTN agreed on terms in September, yet opposition from South African authorities scuttled the deal. Reserve Bank Governor Tito Mboweni said Oct. 1 that MTN “must remain a South African company.”

Knowledge

Bharti and MTN learned much about each other during their two rounds of matchmaking. Each stage yielded thousands of pages of documents containing such details as vendor contracts, supplier pricing arrangements and the costs of installing and maintaining cell-phone towers.

Those papers, plus MTN’s $3.2 billion cash hoard and its experience in sub-Saharan Africa, portray MTN as a company Mittal may have been better off having on his side, said Taina Erajuuri of Helsinki-based Fim Asset Management.

“It’s difficult now for Bharti because MTN is such a superior company, and now they have to compete with them,” said Erajuuri, who helps manage $1.4 billion in emerging markets, including Indian equities. “MTN was the first choice, and it would have been the better buy.”

MTN has a $31 billion market capitalization, 28 percent operating margins, and expects to add 20 million subscribers in 2010 to its 116 million customer base, mostly in markets like Nigeria, Ghana and Iran. Profits of 14.7 billion rand ($2 billion) last year missed analyst estimates as the rand climbed 24 percent against the dollar.  MTN shares have gained 3.1 percent so far this year compared with a 6.7 percent decline for Bharti.

African Assets

Bharti also is buying operations that MTN once coveted. Nhleko was outbid by Zain, formerly known as Mobile Telecommunications Co., in 2006 for Celtel International BV. Zain paid $3.4 billion for Celtel, compared with MTN’s $2.7 billion bid. Zain bought companies in 13 African countries, all of which it is now selling to Bharti.

Zain’s board said Feb. 16 that Bharti’s offer could yield a $5 billion profit. It ends a seven-year African adventure for the Kuwaiti firm in which it spent as much as $12 billion to win 42 million customers in an area stretching from the Atlantic Ocean to the Gulf of Aden. It only intermittently turned a profit.

Overseas expansion is the only way for Bharti to escape slowing profit growth in India, where price competition from 10 other players -- including Japan’s NTT DoCoMo Inc. and Newbury, England-based Vodafone Group Plc, the world’s largest mobile phone company by revenue -- pushed call rates below half-a-U.S. cent per minute.

121 Million Subscribers

Bharti’s 121 million subscribers, more than the combined populations of Spain and the United Kingdom, makes it India’s largest wireless provider, closely followed by Reliance Communications Ltd, which pursued a merger with MTN after Bharti’s talks failed the first time in May 2008. Price competition has meant that much of urban India already carries cell phones, while rural customers are more difficult to attract and service.

“Mittal wants to diversify and find new markets for future growth, and most of the growth is in the developing world,” said Kurt Hellstrom, former World Chief Executive for Ericsson AB and a Bharti board member in 2004-2009. “Africa is a place India understands.”

Bharti has limited overseas experience. It started operating in Sri Lanka in January 2009, and two months ago it paid $300 million for Warid Telecom, a 3-million-subscriber company based in Dhaka, Bangladesh.

MTN’s Span

By comparison, MTN operates in 21 different countries, each with its own regulatory conditions. More than 80 percent of its earnings come from outside its home market.

The company may spend as much as $10.4 billion through 2011 building phone towers, sponsoring the World Cup in South Africa this June and introducing a $20 cell phone, according to the African Alliance South Africa Securities Ltd., a Johannesburg- based research firm.

A third of that investment may be made in Nigeria, according to the report. That compares to the $1 billion a year that Mittal told analysts Feb. 25 he intends to spend on capital expenditures in all 15 countries annually.

“A lot depends on what Bharti will do,” said Brian Neilson, head of Johannesburg-based telecom research consultant BMI-Knowledge. “Even if Bharti invests aggressively, MTN will not take the challenge lying down.”

--Bloomberg

Tanzanian Phone Users Now 17.6 Million

Data just released by the Tanzania Communications Regulatory Authority (TCRA) shows that the country was home to a total of 17.642 million fixed and mobile subscriptions at the end of 2009, up from 13.130 million a year earlier, a combined teledensity of 43% (32%, 2008). Of the total subscriptions recorded at end-2009 17.469 million were cellular connections to one of the country’s leading mobile operators.

Market leader Vodacom attracted 1.475 million new users last year for a total of 6.883 million, while second-placed Zain (Celtel) signed up a net 1.048 million new users in the period for a total of 4.910 million. Zain, however, failed to reach its own stated goal of six million customers by the end of last year.

Third place operator Tigo boosted its base to 4.178 million by the end of 2009, and Zantel Mobile — once the nation's fastest growing cellco — added roughly 300,000 net new customers during the period for a total of 1.378 million. Trailing far behind the big four, the mobile arm of fixed line operator TTCL added just 10,000 subscribers for a total of 115,681, and Benson Informatics Limited (BOL), which lost 300 subscribers in 2008, had 3,101 data-only subscribers, up 101 since the start of the year.

In the fixed line segment, TCRA reported 172,922 fixed lines in service as at 31 December 2009, up from 123,809 at the start of the year, but only marginally higher than the 163,269 counted at 31 December 2007. National PSTN operator Tanzania Telecommunications Company Ltd (TTCL) claimed the lion's share with 157,321 lines at end-2009 (its December 2008 figure was 116,265 after it disconnected a number of active lines), with Zanzibar Telecommunications' (Zantel's) fixed line division taking the remainder.

Nigeria Dispute Could Curtail Bharti Zain Deal

Minority shareholder Broad Communications Ltd, which owns 14% share in Zain Nigeria, will seek to enforce its rights in any potential transfer of ownership in the company. The announcement came after Bharti Airtel entered into exclusive talks with Zain until March 25 to buy most of Kuwait-based Mobile Telecommunications Co. or Zain’s assets in Africa in a deal that could be worth up to $10.7 billion.

According to the largest minority shareholder in Zain Nigeria, Broad, the company has not been formally informed by the Zain Group of its intention to sell its 65% shareholding in the Nigerian entity and the company intend to fully exercise its pre-emption rights as directed by the courts and as guided by the company’s shareholders’ agreements entered into between the company’s shareholders.

The dispute over ownership of the largest unit in Nigeria might disrupt Bharti’s third attempt to enter the African market. Econent Wireless Holdings Ltd., a South African telecommunications company is attempting to overturn a 2006 deal in which Celtel, now known as Zain, bought a controlling 65% of the business that had been founded at the beginning of that decade by a group of government, institutional and private investors.

Zain Denies Reports on Sale of African Networks

­Kuwait's Zain has refuted local media reports that it had been contacted regarding a sale of its African assets. The Al Anbaa newspaper had reported that Zain was in talks with Vivendi, France Telecom and Vodafone offer a possible sale of the former Celtel networks.

In a statement to the stock exchange, Zain said "There are no current offers and the company will inform the bourse's administration with any new information that may come up regarding this issue,"

The paper, citing unnamed sources said that Zain had been in talks with the other operators for the past couple of months and is seeking US$11-US$12 billion for the networks.

Vivendi was in talks last year to buy the African networks, for a reported US$12 billion - although those talks then broke down. At the time it was suggested that the sale could have been an all-share based transaction, with Zain taking 20 percent of Vivendi, in exchange for 10 percent of Zain Africa.

For its part, Vodafone recently increased its holdings in South Africa based Vodacom to 65%. A merger of the former Celtel, Vodafone and Vodacom assets across Africa could lead to much needed consolidation in several markets.

Celtel was founded by Sudanese-born Mo Ibrahim in 1998 and sold to Kuwiat's MTC (now Zain) in April 2005 for US$3.4 billion.

Vivendi in Need for Expansion As Maroc Telecom Growth Stalls

For a few days last month Maroc Telecom's parent company Vivendi looked like it might pull off one of the most audacious attempts yet to arrest control of one of the Middle East & Africa's largest mobile operations from the now well-entrenched players.

However, Zain, whose Celtel unit was the subject of the interest, could not agree on price with the French company and the chance of a deal - however unlikely most commentators, including your author, thought that to be - now looks to be dead and gone.

If a transaction had gone ahead it would most likely have had a significant effect on Maroc Telecom's place in the Vivendi group, with the Moroccan incumbent slotting in as part of a much larger overall portfolio.

As it is, the company remains Vivendi's sole venture in the emerging markets, and its sole vehicle for growth in Africa. In addition to its home operation and its long-standing subsidiary in Mauritania, Maroc Telecom has expanded into Burkina Faso and Gabon by purchasing the incumbents in these markets, and this year has followed those deals with the agreement to purchase a majority stake in Sotelma, the incumbent telco in Mali. The talks with Zain indicate, however, that management in France is not entirely content with this slow piece-wise expansion strategy.

The mobile business, which accounts for almost two-thirds of Maroc Telecom's MAD14.6bn strong top line, grew by 25.9% in connection terms in the year to 30th June 2008, but by just 5.9% in the most recent 12 months. Strong performances by the regional operators (+26% in Gabon, +30% in Mauritania, +74% in Burkina Faso) have failed to offset an almost complete arrest of growth in Morocco which grew by just 0.5% in the year. With 14.29m customers, the Moroccan business still accounts for 81% of the overall mobile base of 17.55m, whilst its fixed operation contributes 84% of the 1.5m strong landline total.

In revenue terms, the home business is even more dominant with 86% of the mobile turnover and 85% of the fixed - and it is convincingly the most profitable in both departments. In this light it is perhaps no wonder that Maroc Telecom's acquisition in Mali - involving around 1m customers - has failed to satisfy the appetites of the French owners. The question, if Celtel is off the menu, is where they will turn next?

Zain to Relinquish its 35% Stake In TTCL

Zain Tanzania is to give up its 35% equity stake in state-backed national PTO Tanzania Telecommunications Company Limited (TTCL), according to Reuters quoting the nation's minister for technology as saying. 'Recently, Celtel has shown interest in exiting. But there's need for consultation before that happens,' said Peter Msolla, Tanzania's minister for communications, science and technology.

Mr. Msolla's comments came during a budget presentation to the national Assembly in Dodoma. The cellco was originally known as Celtel when Netherlands-based Celtel International bought a stake in TTCL in 2004; the Tanzanian government retained the original name in its records. The minister went on to say that in a meeting last week to discuss firms owning shares in state-run corporations on the government's behalf, Zain, TTCL and Consolidated Holdings Corp discussed the redistribution of state assets. 'In principle, they have agreed to end the partnership and Celtel exits.

Celtel's 35% shareholding will revert to the government. We will continue talks on how to offload those shares,' Msolla said. The government holds the other 65% of TTCL, while only last week it said it had reached an agreement with SaskTel International, a subsidiary of Canada's SaskTel, to end a three-year contract to manage TTCL. The contract, brokered in 2007, was worth up to USD5 million.