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MTN cherry-picking around Africa
(Business Day (South Africa) Via Thomson Dialog NewsEdge)MTN cherry-picking around Africa Failure to acquire Celtel sees cellphone operator make piecemeal deals Information Technology Editor MTN is successfully compensating for its failure to acquire rival operator Celtel by making piecemeal acquisitions across Africa at far more favourable prices, says a report by Merrill Lynch.
MTN's $2,67bn bid for Celtel was trumped by Kuwait's Mobile Telecommunications Company's $3,3bn bid earlier this year.
But losing out does not appear to have been a major setback. MTN is adding subscribers at far lower prices, taking over several other smaller network operators.
Analyst Meloy Horn says the Kuwaiti operator paid $646 for each subscriber gained via the acquisition of Celtel. MTN's latest deal to take over Libertis Telecom in the Republic of Congo saw it pay a far lower $540 a subscriber. Its acquisitions previously, of Zamtel in Zambia and Loteny in C'te d'Ivoire, cost even less for each subscriber, at $588 and $480, respectively.
MTN is successfully replicating the lost Celtel opportunity at a much lower price, says Horn.
The only anomaly has been a 44% stake in Botswana's Mascom, where MTN paid $128m, or $661 a user.
Merrill Lynch doubts that MTN will see massive growth in the Congo, where the population is only 3,5-million and almost 40% are under the age of 14. But the price tag a subscriber was marginally below the average for other recent acquisitions in the region, reflecting the lower growth potential. It reflected the slightly lower customer spending and profitability that Libertis offers compared with MTN's other African operations. Libertis has 190000 subscribers, giving it 39% of market share. Its rival Celtel has a market share of 61%. Since it covers a few major cities, MTN could win more market share, given its expertise in rapidly rolling out networks and its financial capacity to increase the coverage, Horn says. She supports MTN's expansion strategy, which has seen it make five acquisitions since July, but warned that the rapid pace of the moves posed some integration risk.
But, with the price of telecommunications assets rising as competition heats up, MTN will continue to make acquisitions before the opportunities become prohibitively expensive. Future moves could be made in Ghana, Kenya and Angola, Horn says.
About $60m in cash has been earmarked for Zambia, in order to expand MTN's newly acquired network to 40 more districts, said Zambia's Business Post. The network covers 29 of Zambia's 72 districts and has about 30% of subscribers, again playing second fiddle to Celtel.
MTN confirmed this week that it would bid for a third cellular licence in Egypt by teaming up with Egypt's GPP, Stars Communications, as well as voice and data network provider Raya Holdings.
The joint bid will be a departure from its unsuccessful strategy of bidding for licences in the Middle East as a solo entity. The unsuccessful strategy has seen MTN lose licence auctions in Algeria, Saudi Arabia and Oman, said World Markets Research Centre analysts.
Teaming up with local investors will provide MTN with more chances of winning licences in foreign countries, given the tendency by those countries' governments' to support local investors rather than purely foreign consortiums. Egypt has capacity for a third operator one with a cellphone penetration rate of 19% and a growth rate of 50% a year World Markets Research Centre analysts say.
The incumbents Vodafone Egypt and MobiNil have high 50% profit margins before interest, tax, depreciation and amortisation, so a third operator appears to be essential for competition.
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