France Telecom scores two in a row – will it make it a hat trick with Ghana?

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If making acquisitions is your criteria for success, France Telecom seems to be on a roll at the moment. First it snapped up Telkom Kenya and this week it was announced that it had secured the latest licence being offered in Niger and it will soon roll-out in Central African Republic. It also has its hat in the ring for buying Ghana Telecom. Russell Southwood looks at what its increasing presence on the continent means both for its competitors and for competition itself.

The prize in Niger is a global licence that covers 2-3G mobile, fixed and Internet and also has an international gateway thrown in for good measure. France Telecom’s bid was made with its investor in Orange Mali Moctoar Thiam and local Nigerien business man Mohammed Rissa. The bid was price was US$71.3 million. Losing bidders included its French rivals Vivendi (through Maroc Telecom) and a local group calling itself Universel Niger.

Making the announcement Minister Mohamed Ben Omar said ‘We want a quality service accessible to as many people as possible.’ Before a recent round of network investment by the country’s three operators, 53% of the population (6.9 million people) did not have mobile coverage. By the end of 2006 this figure had fallen to 6.1%.

Using its Orange brand, France Telecom will be going head-to-head with Celtel which is currently the dominant player in the market. It has a 60.12% share of overall revenues and 74.3% market share with 222,685 subscribers. The other two players have almost the same modest level of market share: Telecel (38,937) and Sahelcom (38,277). The dominant Internet player is Sahelcom with 3,512 subscribers.

Since fixed line incumbent Sonitel was taken over by Libyan investors along with Chinese equipment manufacturer ZTE who have been used to run the company, there have been continuous complaints about low levels of service and it has failed to meet the roll-out targets specified in its licence. Government and the regulator have taken no action to address these failures until now.

France Telecom has the classic vertical integrator strategy. This means it will seek to offer all communications services and this global approach increasingly mirrors the universal licence structure being adopted on the continent. Even in places like Mali it is rolling out its Livebox product that can deliver voice, Internet and IP-TV. At present, it has only really developed an IP-TV offering in Mauritius and Senegal and both places have suffered from the lack of attractive content. Kenya will prove to be an interesting market as it offers plenty of potential for this kind of “triple-play” offer but undoubtedly Orange will not have the field to itself.

Both MTN and Vodacom are choosing to go the vertical integrator route in South Africa (see issue 378) but it is not clear how quickly either of them will get this strategy out of their home base in South Africa and into the rest of the continent. MTN has had early successes with its Wi-MAX roll-outs in Cameroon, Rwanda and Uganda but seems to be much more conservative (or less successful, on another view) in its approach to mobile content offerings and television. Celtel is notably absent from the roster of vertical integrators, having sold its Internet businesses when it was preparing for the IPO that turned into the sale to Zain (formerly MTC).

So this is shaping up to be a fight amongst the big boys and the main losers will be the smaller, under-capitalised companies. However, all may not go according to plan. The success of the vertical integrators depends upon them having the management capacity to run businesses of several different scales all at once. Until now with the exception of France Telecom, most of the contenders have really just been mobile voice companies. MTN has had its toe in the fixed line business but it has really been a high-value customer, niche operator.

The vertical integrators face two challenges: one internal and the other external. They have to scale up their niche fixed line and Internet businesses to make commercial sense of them and to add unfamiliar offerings like TV. Both MTN and Vodacom are experimenting with mobile TV but it has yet to take off at scale. And Vodacom has only just become a TV service reseller. Both are big companies and therefore should overcome these issues but it is not a cheque already written. France Telecom has an additional burden in that it will have to manage massive change programmes if it acquires companies like Telkom Kenya and Ghana Telecom.

The external challenge is the more interesting one. They will not have the field to themselves as there will be independent challengers who may have a better grip of VoIP voice offerings and television programming. MWeb announced this week a “sort-of” triple-play offering, promising to come up with a full triple play offering shortly. And there are others in the wings in other countries who are waiting to enter the same territory. One of these independent contenders will be sufficiently successful to carve out a substantial minority stake. The real challenge will be whether they can actually see off any of the vertical integrators in their chosen markets.