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ISSUE NO 47 ON THE MONEY

GSM TENDER FEES IN ARAB AFRICA MAY DISAPPOINT EXTERNAL INVESTORS

Algeria and Tunisia are making steady steps toward the sale of GSM licences later this year. In November, Algeria chose BNP-Paribas to oversee the tender of a new mobile licence. The French bank recently called for parties to express their interest by February 9^th. Likewise, Tunisia chose an international French bank in December to assist in its tender and is expected to award its second GSM licence by the end of April. In preparation for competition, state-owned fixed and cellular operator Tunisie Telecom contracted Sweden’s Ericsson to increase its subscriber capacity to 500,000.

The two North African countries began restructuring their communications sectors with strong hopes of emulating the 1999 sale of a second GSM licence for US$1.08bn in neighbouring Morocco.

Tunisia and Algeria’s GSM licences are undoubtedly attractive. With a population of 30 million, an average income of US$5,500 and an unmet demand estimated at 400,000 people, Algeria represents a potentially lucrative investment, especially now that the government is warming to foreign investors. Albeit smaller, Tunisia is more stable politically and its population is wealthier; hence, it may be considered a better bet by gun- shy foreign operators. Nevertheless, the two countries should not count on repeating Morocco’s sky-high bids for its recent tenders.

The global market for telecommunications licences has cooled considerably over the past six months. While Morocco’s privatisation tender did reach its asking price of US$2.2bn, only one firm eventually submitted a bid. France is currently trying to generate more interest in its UMTS licences after only two bids were submitted for four licences; France Telecom’s flotation of Orange’s shares is being watched cautiously. Many of the traditional European operators that might be expected to express interest in the Maghreb have overspent on acquisitions and 3G licences and are now focussing on generating revenue and reducing debt rather than acquiring new assets. In addition, Morocco is planning to issue four tenders for fixed telephony in the coming year, a prospect that might cause some investors to stay out of the Tunisian and Algerian auctions in anticipation of snagging a Moroccan licence.

The sale of four licences in Nigeria bucked the trend of lacklustre auctions by going for $285m each. The impact of the Nigerian sale on the North African auctions will be mixed. First, Nigeria, with 100 million people, is a key part of any pan-African strategy and thus not really comparable to Algeria and Tunisia. Second, MTN and Econet were likely bidders on the Algerian and Tunisian licences until they paid so dearly for a Nigerian one - a factor that will likely mitigate their interest.

On a more positive note, Egypt’s Orascom Telecom did not win a licence in Nigeria and is the most probable African operator to be bidding in Algeria and/or Tunisia. Orascom, though, recently acquired additional stakes in three operators from Motorola and purchased a GSM licence in Syria. If Orascom does win one or both of the North African licences, it is not likely to break the bank to enter these markets.

A comparison with other tenders held in the region suggests that Tunisia could bring up to US$30 per head and Algeria a little more than $13 per head. A $30 per-head price tag would seem pretty steep, however, considering that Turkey’s cellular licence went for $39 per head and Morocco’s second cellular licence for US$37 per head. This price per capita would seem realistic because Tunisia’s population is smaller than that of the other Mediterranean countries listed here and its GDP per capita is on par with Turkey’s. In fact, at $30 per head the total price of the licence is US$300m, one-third of Morocco’s total price and one-eighth of Turkey’s. Algeria is a more populous country, making its licence more valuable due to its larger potential market and but worth less on a per-capita basis. Given the current gloomy environment for telecoms investments in the global market, the Algerian licence is unlikely to sell for more than US$400m.

Although Algeria is a riskier market in terms of political stability, its large population and low penetration (around 0.6% for cellular phones) make it a good buy at US$200m. While this may seem substantial given the current environment, it is only $6.50 per capita and less than half the total price of Egypt’s licence. The eventual price may be somewhere between US$200m and US$400m at around $10 per capita. While still significant, it isn’t outlandish given the strength of the market. Tunisia’s licence should fetch a higher per-capita price owing to a more stable political and economic environment, likely around US$23 per person (a price tag of US$225m).

In the end, lower licence fees will disappoint the two governments, but may hasten their privatisation timelines, with the environment for the financing of telecoms projects seemingly worsening every week. On the flipside, the two countries may decide to put privatisation plans on hold until the investment climate becomes more favourable. While they have not announced target prices, the governments are probably counting on the licence fees to shore up their budget deficits. On the buyer’s side, a low licence fee would reduce the pressure to show immediate return on investment (though only partially), and perhaps lead to strategies that would favour lower prices from the start and, eventually, faster subscriber growth.

(source: Pyramid Advisory Alerts for www.AfricaNewsNow.com )

ECONET-BACKED CONSORTIUM GETS KENYA TELKOM

The Kenyan Government has chosen a consortium led by South Africa-based Econet Wireless to buy 49 per cent of its state-owned telecommunication company, Telkom.We have decided to make them the preferred bidder, and we believe we will be able to complete a deal by the end of the month," said Kitili Mbathi, who heads Kenya’s privatisation unit.

Econet has a 50 per cent stake in the Mount Kenya consortium, which also includes South Africa’s Eskom and KPN-Royal Dutch Telecom. It appeared on the brink of winning the bid last year, but at the last minute Kenya’s cabinet decided its offer was too low and threatened to halt the process. That, alongside a finance bill that capped commercial interest rates and the failure of anti-corruption legislation, prompted the IMF to suspend disbursements temporarily.

The Telkom deal, which officials say comprises US$225m in equity and US$80m in committed financing, is therefore crucial to restoring confidence.

Econethas expanded into several other countries, including Nigeria, Botswana and the UK.Econet is advised by First Africa Capital, an African-led corporate advisory company part-owned by UBS Warburg and whose Kenyan managing director, Wanjiku Mugane, has become one of the region’s most prominent businesswomen.

There are talks for a tie-up with Africa Online, a fast-growing multinational internet company led by Kenya’s Ayisi Makatiani. He said: "I think it’s a very good thing Strive is coming into Kenya. He’s a home- grown telecoms provider who will bring new energy to the sector."

(source: FT via www.AfricaNewsNow.com)

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