Portugal Telecom to create separate African subsidiary to up its profile

Top Story

Next week Portugal Telecom (PT) will announce that it will set up a separate subsidiary to consolidate all of its African investments in a 1 billion euro holding company to increase its profile on the continent. PT owns five main companies on the continent and they make a significant contribution to its revenues. However PT does not yet appear to have the winning streak that it has identified in Brazil. Ahead of the announcement, Russell Southwood Russell Southwood looks at what strategy PT might adopt.

Portugal Telecom is a classic European incumbent of the old school. Its former incumbent privileges, its successful businesses in Portugal and its former colonial ties have all allowed it to generate revenues that have seen it create a somewhat ragbag portfolio of international investments, including a company in Hungary. Its interest in overseas investments has waxed and waned as telecoms booms and busts have come and gone, never quite getting into its stride in Africa. It bears comparison with the pre-2005 Vivendi who first wanted to dance and then decided to sit it out but has since then made a number of significant investments.

With the exception of Brazil, PT’s emerging markets investments are all in former colonies (shareholding percentage): Morocco’s Medi Telecom (32%); Angola’s Unitel (25%); Macao’s CTM (28%); Namibia’s MTC (34%); Cape Verde’s CVT (40%); Sao Tome and Principe’s CST (51%); and East Timor’s Timor Telecom (41%). In Brazil it owns a 32% stake in Vivo and a 29% stake in UOL. Not listed in its 2006 annual report are Botswana’s Mascom and its somewhat rocky involvement with the incumbent in Guinea Bissau.

With the exception of the tiny CST, it has no majority stakes and although it would like to increase its shareholding in Angola’s Unitel, has been told publicly by the Government that this will not be possible. Some of the companies it owns are incumbents but others are solely mobile holdings.

PT’s total revenues in 2006 were 6354 million euros. Its Brazilian investments contributed 2281 million euros (36%) and its African investments 1130 million euros (18%). Of its total overseas revenues of 3638 million euros, 63% came from Brazil and 31% from Africa.

Where data is available, its mobile ARPUs are high, largely because it is focused in some of the continent’s least competitive markets. With the exception of Morocco (US$10.5), all of its other available ARPUs are in the high end of the range: Angola (US$34); Namibia (US$24); and Cape Verde (US$36). Good news but these are all markets that will become significantly more competitive in the next three years.

There was a point when Telkom SA was semaphoring vigorously in the South African press that it was interested in PT’s portfolio when the company was the acquisition target of Sonaecom. The fact that Telkom was driven to announcing what it wanted to the press makes it unlikely that PT was selling.

The initial report in Expresso said that the company would focus on Portuguese speaking countries which makes it hard to understand what it will do in Africa. It has minor involvements in Angola (outside Unitel) and Mozambique but are there other major significant investments? Angola Telecom? TDM? Possible but not highly attractive or currently for sale. However, there are cable operations in Angola and Mozambique that PT Multimedia might help make sense of.

But other than upping its percentage shareholdings in the more major markets, there does not seem to be much left to buy in Portuguese speaking African countries. And the Portuguese speaking definition of the strategy somehow does not make sense of its investments in Botswana and Namibia.

Like France Telecom, PT has to either decide to be a global company or stay in its Portuguese speaking comfort zone. But whereas France Telecom shows signs of understanding what it needs to do to act globally, PT (as an altogether smaller company) seems altogether less comfortable with making the transition.