Scramble for Africa’s mobile market deepens

Bharti Airtel’s bid to revive talks on a $61 billion deal with MTN, if successful, may spark the consolidation of mobile phone markets across Africa and the Middle East.

The window for new entrants to the African market is closing quickly, even for cash-rich names from developed markets. Scale is important in developed markets but vital in Africa where customers may have just $5 or $10 a year to spend on mobile services.

Unsurprisingly, each operator has assembled a patchwork of assets, and only four have critical mass: MTN, which if merged with Bharti, would become the world’s third largest mobile operator in terms of customers, Vodafone, the world’s biggest mobile carrier in revenue terms and France Telecom.

The fourth, Kuwaiti-based Zain, is in 24 markets across Africa and the Middle East and may be a consolidator or a bid target.

In any event, Africa’s 500 million potential customers represent a consolidation play with parallels to Latin America, where two dominant players have emerged.
The four must also contend with Egypt’s Orascom.

In 2008 it boasted 78 million customers in 11 markets including Zimbabwe and north and sub-Saharan Africa, but its latest quarterly results were badly damaged by currency swings.

China Mobile, the world’s largest mobile operator in terms of subscribers, has expressed interest in South Africa, but its enthusiasm may be tempered by failed acquisition moves in Central and South Asia and the Middle East.

Reliance Communications, a major Bharti rival in India, owns a global undersea cable network providing a backbone for an eventual move into the market. It sought a deal with MTN after talks between Bharti and MTN broke down over the issue of control.

One spur for consolidation is Vodafone’s control of Vodacom, South Africa’s biggest mobile operator, after Telekom SA, the country’s biggest fixed-line operator, sold its stake.

Its ambition to create a new mobile network in South Africa is a difficult task since 90 per cent of customers use Vodacom or MTN.
Telekom is active in Nigeria, Africa’s top mobile market, and is eyeing other countries on the continent.

There remain many hurdles ahead of a Bharti deal, which would be the world’s biggest merger outside pharmaceuticals so far this year.

The premium offered to MTN shareholders is small, and the $23 billion offer is complex, with Bharti paying cash and shares to end up with 49 per cent of MTN after MTN pays cash and stock for an effective 36 percent stake Bharti.

Vodafone looks best positioned in Africa. But a Bharti-MTN deal would create its most formidable rival there.

Auchard is a Reuters columnist.