Home > Business & Strategy, Technology & Telecom > Gulf telecoms M&A surge seen continuing, operators eye new revenues

Gulf telecoms M&A surge seen continuing, operators eye new revenues

December 3, 2010 Leave a comment Go to comments

 

Egypt-based analyst predicts more takeovers in region as big players seek synergies, new technologies.

After a period of economic stagnation, a wave of mergers and acquisitions amongst Gulf telecom firms shows few signs of fading as well-heeled operators target smaller competitors rather than grow revenues naturally, industry experts say.

“I think we will continue to see more consolidation taking root in our part of the world with smaller, less competitive players targeted by deep-pocketed groups,” said Amr Elalfy, director of research at Egypt-based CI Capital Holding.

Corporate activity in the Middle East telecoms sector has been on the rise of late. Last week, Qatar Telecom, the Gulf Arab state’s largest telecoms operator, and Tunisian investment firm Princesse Holding said they will pay Orascom Telecom $1.2 billion for the Egyptian company’s 50% stake in its Tunisian unit. Earlier this month, U.A.E.-based Emirates Telecommunications Corp., or Etisalat, said that it would acquire 51% of Kuwait’s Mobile Telecommunications Co., or Zain, in a deal valued at about $11.7 billion, making it potentially one of the biggest recent deals in the Middle East.

// <![CDATA[
document.write(”);
// ]]>Click here to find out more! // = 0)|| navigator.userAgent.indexOf(“WebTV”) >= 0) {document.write(‘‘);}
// ]]>Russian mobile operator VimpelCom also said in October that it could combine with the highly indebted telecom assets of Egyptian billionaire Naguib Sawiris in a $6.5 billion stock-and-cash deal, transforming two regional emerging-markets companies into a telecoms giant with global scale.
http://www.totaltele.com/view.aspx?ID=460602&G=2&C=5&Page=0

The logic behind the surge in Gulf merger and acquisitions is quite simple, say analysts. Big telecom companies face eroding average revenue per user, or ARPU, in their saturated domestic markets, and buy-out’s offer an alternative way to grow and diversify revenue.

“We will see more companies look to acquisitions for the following reasons: to grow market share,(subscribers), and to add new products and services-as in certain cases it is more economical to buy new product offering rather than develop it in-house,” Nnenna Ilomechina and Eric Benedict from AlixPartners told Zawya Dow Jones.

“Another factor is improving margins by squeezing costs through synergies. As telecom groups grow larger, their bargaining power strengthens, which should translate into better procurement pricing,” said CI Capital’s Elalfy.

Also, telecom operators are finding it easier to get funding now after a period of stagnation during the global financial crisis.

“There will be funding available,” said Ilomechina and Benedict from AlixPartners.

“Companies with healthy balance sheets and a proven track record of efficient operations will be in better positions to fund growth activities internally and secure additional external funding as required,” they added.

Growth prospects
Some of the most attractive markets for telecom acquisitions are based in north Africa, sub-Sahara Africa, and Asia, analysts and consultants said.

“There are three main growth prospects for the regional industry: growth from new services, particularly data services; subscription growth in the region’s less-developed markets such as Iraq, Iran, Syria; and growth from expansion into other high-growth markets, particularly in Asia and Africa,” said Matthew Reed, a senior analyst at Informa Telecoms and Media in Dubai.

But with acquisitions also come challenges as there’s always a risk companies may over pay for assets to satisfy their “non-organic growth,” said Elalfy at CI Capital.

“Some markets are difficult in terms of operating environment; revenues are low; competition is often fierce; and there is often political risk,” said Reed.

He added that there will however be some limits to the amount of regional consolidation that will take place amongst Gulf telecom firms.

“While there is clearly some consolidation underway now, I don’t think the Saudis, Emiratis, or the Qataris will be as open as the Kuwaitis have been to the idea of state-backed operators passing into foreign ownership,” said Reed.

“Besides assessing strategic rationale, an in-depth look at the target market dynamics, regulatory environment, rate of liberalization and company culture is critical for the acquirer,” said Ilomechina and Benedict from AlixPartners.

Acquisitions could also be good for consumers in the Gulf area who might as a result enjoy lower costs in areas such as roaming, integrated services, and one-stop customer service, said analysts.

Zoran Vasiljev, managing director of Value Partners, said that while acquisitions during the economic boom were part of aggressive expansion plans, the current phase of consolidating gains and streamlining operations will be more focused on “either making acquisitions of a strategic importance, or on the opportunistic acquisition of assets as a medium–to–long-term investment vehicle.”

Nevertheless, analysts expect the Gulf telecoms landscape in five years time to be considerably different to its current appearance.

“In 5-years’ time, I think there will be a few “global” groups and a few more “regional” groups. By then, I expect the telecom environment will have reached a critical mass in terms of subscribers with revenues driven more from data and valued-added services. I believe telecom groups will be capitalizing on their customer base by cross-selling new products and services, not necessarily within the telecom realm,” said CI Capital’s Elalfy

Originally posted at:

Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: