Talking over regional telecoms

When the remaining cellular licences in Saudi Arabia, Egypt and Morocco come up for grabs later this year, the many cash-rich Middle Eastern telcoms will be the favourites to come out on top.

In the past, Europe's large telecoms groups would have been the companies to beat, but today the Middle East boasts an array of financially-powerful, aggressive and sophisticated operators who are on the look-out for additional growth opportunities outside their home markets. Of the region's key players, Kuwait's MTC and Watanyia, Egypt's Orascom Telecom and the UAE's Etisalat all have interests outside their borders and are expected to fight it out with a host of international telcos for the few available lucrative licences.

"The age of new licences is basically over because most of the world is now pretty much fully liberalised but the Middle East is an area where there are still a few very profitable licensees available," says Jawad Abbassi, president of Arab Advisors Group, a research company focused on the region's communications markets.

"The upcoming licences are top prizes if an operator can get them at a reasonable price, because they are all growth markets - it's going to be interesting to see how the Europeans and the rest of the international operators compete for those licences."

When you consider that Egypt, which has a population of 70 million, has a GSM penetration rate of just 20 per cent and that Saudi Arabia and Morocco are both high-revenue markets, it's easy to see why the top global telcos are making a beeline for the region. With the number of mobile subscribers worldwide set to top two billion by the year-end, and mobile penetration in the Middle East and North Africa (MENA) region expected to grow by 162per cent over the next three years compared with a worldwide rate of just 70 per cent, it's clear to see there will be a great deal of competition.

With most western European markets at saturation point, and many Gulf countries having reached 100 per cent cellular penetration, the remaining regional licences represent one of the last chances to get into a potentially lucrative emerging market. As such, bidding for the rights, which will not come cheap, is expected to be fierce.

"These days many operators cannot generate further growth in their own markets and are facing more and more competition, so the question is: do they give their money back to the shareholders or do they invest in regional expansion?" asks Abbassi. "I believe most operators will go for regional expansion. However, when there are so many players with the same idea targeting relatively few opportunities the price for these licences will be on the high side, which is good news for the respective governments."

The Middle East's telcoms have every right to be confident about their chances when the licences come up for tender. MTC beat off strong competition to snap up African operator Celtel for $3.4 billion last year, while Orascom and Watanyia both have much coveted interests in Iraq, Tunisia and Algeria.

Saudi Arabia's Oger Telecom proved its strength last year by outbidding a European counterpart for one of the Middle East's prized assets. Turkey agreed its biggest ever privatisation deal, selling a 55 per cent stake in Turk Telekom to a group led by Oger for $6.5 billion some 15 per cent more than the nearest bidders from Russia. More recently the government of Tunisia capitalising on phenomenal subscriber growth in North Africa sold a 35 per cent stake in Tunisie Telecom to Dubai's Tecom Investments for $2.5 billion despite numerous expressions of interest from European and Asian operators.

Despite the newfound clout Middle Eastern operators have these days, UK-based Vodafone out-muscled its Arab competitors to win the race for Turkish mobile operator Telsim in December with a $4.55 billion bid. However, in order to land the deal, the British outfit had to fight off four regional bidders in a televised auction, beating the likes of MTC, Orascom and Etisalat.

"European operators are certainly looking for acquisition potential in the Middle East, but the problem is that the valuations are often too high, so the Europeans are more cautious these days," explains Mohsen Malaki, a senior telecommunications analyst at research group IDC.

"The European players are a bit more calculating in terms of valuations, whereas you have companies like Etisalat that tend to bid very highly for something they want."

However, some analysts worry that the big regional telcoms flush with their oil cash are snapping up operators in the Middle East, North Africa and Sub-Saharan Africa because acquisitions are currently 'in vogue'. Other observers claim they are buying smaller foreign telcos not as a strategic move but to stop the competition getting their hands on them and, thus, potentially expanding their global reach.

"Middle Eastern companies are fairly cash-rich right now, and I think they are jumping on the bandwagon, particularly in Sub-Saharan Africa," says Malaki. "Middle East-based operators are just [going for] acquisitions right now, but African firms such as MTN, Celtel and Vodacom as well as Egypt's Orascom are trying to snap up as much as they can to expand their footprint and consolidate the market. But operators in the Arabian Gulf region have cash and are definitely looking for acquisitions there as well."

Despite these fears, regional telcos look set to continue their impressive growth spurt and could, in time, rival the likes of the UK's Vodafone, which has 179 million customers in five continents, and Spain's Telefonica a company with 181 million subscribers across Europe, Africa and Latin America.

"Today is the age of the telecommunication industry's super-players," says Arab Advisors' Abbassi. "If you look at the companies that have come to prominence over the past few years in the Middle East Orascom, MTC, Etisalat, Qtel, Watanyia, MTN and Oger Telecom they all have big and bold regional ambitions and are all looking to seriously increase the size of their regional and global footprint. And they certainly have the cash and the hunger to do it."

Developments in Saudi Arabia, Egypt and Morocco should indicate which, if any, of the region's operators, will become the Middle East's first real telecommunications 'super-player'.

- The writer is a Paris-based freelance journalist.