eFive Choses Alcatel-Lucent For Undersea Cable

South African telco eFive Telecoms has selected Alcatel-Lucent to build a new submarine cable network linking the west coast of Africa to South America, the French/US equipment vendor has announced. The network will consist of two trunks – the first one connecting South Africa to Angola and Nigeria, and a second trunk linking Angola to Brazil.

Alcatel-Lucent has confirmed that it will be in charge of the project end-to-end, with responsibility for the system’s design, manufacture and installation. The cable will be maintained by Alcatel-Lucent through its Atlantic Private Maintenance Agreement (APMA), which currently covers over 100,000km of submarine cable infrastructure from the west coast of Africa to the Caribbean and as far north as Greenland.

Lawrence Mulaudzi, managing director of eFive Telecoms commented: ‘We believe that high-growth areas such as the African continent require the development of new projects. The planned submarine network will also provide cable route diversity to South America, making the most economical and operational sense in the current landscape’. Philippe Dumont, head of Alcatel-Lucent’s submarine network division added: ‘Growth in African internet and mobile telephony is driving service providers’ demand for more connectivity options to ensure higher reliability, as well as increased widespread access to bandwidth.

This project will further position Africa as a major hub for broadband connectivity’.

MTN, Bharti, Zain Lead In Revenue Growth Worldwide

As part of its latest round of service provider benchmarking analysis, TeleGeography has found that 16 leading service providers have grown their revenues by an average of 45% over the last three years, equating to some 13% per annum. As could be expected, those achieving the highest growth have been focused on wireless markets in Africa, Latin America, the Middle East, India and China. Leading the growth charge are MTN, Bharti and Zain which have all more than doubled their revenues in the last three years. Despite being substantially larger companies than the top ranked three, America Movil, China Mobile and Vodafone have all recorded growth in the 45%-70% range. Of the companies covered in this research the only other to achieve similar growth is AT&T, which has achieved this via acquisition and reconsolidation of US service providers, rather than organic growth.

While it is no surprise that four of the bottom ranked five companies are incumbent operators from four of Western Europe’s largest markets, the level of their growth (or more accurately the lack of it) will surprise many: in a nutshell all five have stood still for three years. BT and NTT are locked into their highly competitive and low-growth home markets, and are also primarily dependent on wireline markets. Telefonica, Deutsche Telekom and France Telecom have all taken great strides in the past to build businesses beyond their home countries; collectively they now generate over 55% of their revenues from beyond their home markets. However, over the last three years the trio have been held back by tough competition and diminishing growth in the Western European region, and, in the case of Deutsche Telekom, difficulties growing its US operation. The results of their efforts in Latin America and Eastern Europe have not been sufficiently robust to generate substantial revenue growth for the consolidated groups.

So why does this matter? ‘Absolute scale remains an important metric, but growth often has a more direct impact on profitability and the strength of a business’ said TeleGeography’s John Dinsdale. ’The next five years will see the growth rate of telecoms markets drop to less than half of what has been experienced over the last five years. Those companies which are better equipped to meet and beat market growth rates will be more richly rewarded’ added Dinsdale.

TeleGeography’s service provider benchmarking research includes analysis of revenues, profitability, subscribers, ARPU, growth rates, geographic footprint, market share, competitive positioning and future growth prospects. It is published as part of TeleGeography’s GlobalComms Insight service which is a companion to the GlobalComms Database, a regularly updated online database of wireline, wireless and broadband competition. No other telecoms market research service rivals their collective geographic scope and depth of coverage.

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Millicom Reports 5% Rise in Q2 Revenues

Millicom International has reported a five percent rise in Q2 revenues to US$814 million compared to a year ago but a drop of 13% in net profits of $114 million, down from the US$132 million a year ago. In Q2 09, Millicom added 1.7 million net new mobile subscribers, reaching 30.8 million total mobile subscribers, an increase of 25% versus Q2 08 as Millicom continues its focus on attracting the more loyal and higher revenue generating customers.

Mikael Grahne, CEO of Millicom, commented: "Our Q2 09 results continue to show the benefits of the actions taken in the last few quarters to focus on both margins and cash flow generation, whilst maintaining or improving our market position. Our EBITDA margin moved up to 45.6%, which is above our long term target margin for the Group, as we tighten cost controls and adapt our product offering to changing market conditions. Cash flow continues to improve, with operating free cash flow standing at 15% of revenues in Q2 09. We are also pleased to have grown our market share by 0.7 percentage points over the quarter.

In Central America, Honduras grew its subscriber base by 19% year on year, despite the entry of a third operator at the end of Q4 08. Guatemala grew its subscriber base by 18% year-on-year and El Salvador by 17%.

In South America, total subscribers increased by 17% year-on-year with Bolivia showing growth of 51%. In Colombia, the increase in subscribers was 5%, and in Paraguay it was 15%.

In Africa, the best performing markets in terms of net subscriber additions were Chad which grew by 93% year-on-year, adding 110 thousand net new subscribers in Q2 09, and Tanzania, which grew by 81% year- on-year, adding 413 thousand net new subscribers in Q2 09. In Senegal, total subscribers increased by 26% and 144 thousand net new subscribers were added in Q2 09, which is indicative of the continuing trust that subscribers are placing in the Tigo brand.

The topic of the planned sale of the company's Asian assets, Grahne added, "The disposal of our Asian assets is in progress and expressions of interest have been received from a number of parties for the three assets. We expect the disposal to be completed by Q1 2010."

Capex is expected to be approximately $750 million in 2009 (excluding capex relating to Asia of approximately $100m). The EBITDA margin is expected to be maintained at the current level for the full year. Millicom expects operating free cash flow to be in the mid teens as a percentage of revenues for the 2009 year.

Emerging Markets Telecoms Adopt Cautious Approach In Capital Spending

­Debt ratings agency, Fitch Ratings said today that the challenging macro-economic outlook is driving emerging market telecoms to adopt a more cautious stance on capital spending for 2009. In a new report, Fitch compares technology development and investment trends across Emerging Asia, Latin America, Russia/CIS and Africa, and examines currency risks stemming from the recent devaluation of most emerging market currencies.

"With the exception of Africa and China where infrastructure investment is expected to increase by about 10% and 20% respectively, other regions are expected to report broadly stable-to-declining capex in 2009," noted Priya Gupta, Director in Fitch's Asia-Pacific Telecommunications, Media and Technology (TMT) team.

"Russia, in particular, is braced for sharp cuts, with many regional fixed-line incumbents expected to slash their capex by over 50% from the previous year, and mobile operators to reduce budgets by up to 25%," commented Nikolay Lukashevich, Senior Director and Fitch's Head of Russian/CIS Corporates.

Supported by capex rationing in 2009 as well as relatively resilient earnings in the recessionary environment, Fitch expects credit quality across the emerging markets to broadly register a stable-to-improving trend; although much will also depend on the competitive environment within individual markets, exposure to currency risk, event-risk related to M&A and/or capital management policies.

Fitch notes that growth in cellular (2G) services is slowing as penetration is now quite high in many emerging markets, while 3G services are yet to gain traction. Meanwhile, broadband is emerging as a key growth driver, although the agency expects medium-term growth to be constrained by low PC penetration in many emerging markets.

Fitch notes that the recent devaluation (in H208 through Q109) of most emerging market currencies against the US dollar is negative for telecom players, as it typically inflates capital spending and increases the cost of servicing dollar-denominated debt. Against this backdrop, the agency takes positive note of the fact that most rated Asian, African and Latin American emerging market operators (with the exception of the Argentinian telecoms) have limited exposure to foreign currency debt after hedging.

"After debt restructuring by Telefonica de Argentina and Telecom Argentina following the Argentine crisis of 2002, the two companies remain exposed to a currency mismatch between debt and cash flow generation," said Sergio Rodriguez, Director in Fitch's Latin American TMT team. "However, this is substantially mitigated by low leverage at less than 1.0x for both companies at end-2008," he added.

In Emerging Asia, Fitch notes that several companies have significant forex debt exposure, although in most cases this is substantially mitigated by low leverage as well as natural and purchased hedging measures. Within the portfolio, stand-outs include Indonesian operator PT Excelcomindo Pratama Tbk (XL, 'BB-' (BB minus)/Stable) and Sri Lanka's Dialog that have about a 50% share of foreign exchange debt and exhibit leveraged profiles; - however their currency risks are moderated by partial hedging (at XL) and significant forex earnings (at Dialog).

In Russia however, some telecoms operators are facing significant currency risks. For various reasons (including the scarcity of long-term, inexpensive Russian rouble financing), some telecom companies, particularly mobile operators, have preferred to predominantly raise foreign currency-denominated debt. Although this has allowed them to economise on interest payments in the good times, further significant rouble devaluation could significantly impair their financial flexibility.

A copy of the special report is available on the Fitch website (registration required).

Tigo's Millicom Q4 Earnings Rise by 31%

Emerging markets mobile operator Millicom said its fourth-quarter EBITDA rose 31 percent from a year earlier to USD 406 million and revenues were up 18 percent to USD 907 million. The company, which operates under the brand name Tigo, met its target for an EBITDA margin of 45 percent in the period.

However net profit fell to USD 66 million from USD 113 million a year ago, due to a net charge of USD 55 million for tax and forex losses. Total subscribers rose to 32.0 million at year-end from 30.6 million in the third quarter. Millicom plans capital spending of USD 1 billion in the current year, down from USD 1.4 billion in 2008.

The company said it's lowering operating and capital spending due to the more challenging economic environment, and also expects a continued impact on results this year from the stronger US dollar. Millicom is also scaling back its promotions in Latin America, its biggest market, to focus more on revenue-generating customers as subscriber growth slows due to higher market penetration.

The company said its recently acquired Central American fixed-line business Amnet is performing as expected and should be fully integrated during Q1. Helped by improving margins, especially in Africa where the company plans to sell its Sierra Leone operation, Millicom expects to turn free cash flow positive for the full year in 2009.