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The great consolidator

MTN will be hungry for growth after its last attempt to expand failed at the 11th hour, say analysts.

BY  Nicola Mawson , 2 December 20090 comments

Absa Investments' analyst Chris Gilmour thinks MTN could benefit from consolidating smaller networks in Africa.Absa Investments' analyst Chris Gilmour thinks MTN could benefit from consolidating smaller networks in Africa.


Africa’s largest cellular operator, MTN, is expected to turn its attention to gobbling up smaller networks on the African continent in a move to expand its holdings.

Analysts expect the company to seek to stave off stagnating revenue as countries such as Nigeria and Iran reach saturation, and more operators in Africa means more competition for the cellular giant.

The continent is already densely populated with mobile companies, but these are small companies that could be bought out, says a report by auditing firm Ernst & Young. The report notes that market consolidation has already started, and is expected to pick up pace over the next few years.

In its results for the six months to June, MTN said competition in countries where it has a presence is likely to increase. In response, the company aims to find what it calls “value-accretive expansion opportunities in emerging markets”.

The company’s latest bid for growth failed dramatically at the 11th hour after the cancellation of the proposed merger between Africa’s largest cellular operator and India’s Bharti Airtel.

The Indian merger would have created the world’s third largest operator, with more than 200 million customers, in a deal worth around $24 billion. The deal, said MTN, “addresses growth objectives” and would have opened the doors to the growing Indian market.

MTN may find it has little room to manoeuvre, however, as many countries in Africa are already flush with competition and India – a natural choice – is a bureaucrat minefield and a difficult market to enter without a partner.


Chris Gilmour, an analyst with Absa Investments, says MTN could well become the great consolidator of smaller cellular companies in Africa.

He points out that the company needs to move beyond its current geographies, as these countries will run out of growth in the next two to three years. “Nigeria will not continue growing forever, and neither will Iran,” he states.

He says that MTN’s choices are to either take part in a large merger in which it buys out a large company, or quietly buy up smaller operations and bundle them together. As there are only a handful of large cellular companies on the continent, Gilmour says MTN may well decide to consolidate a number of smaller firms.

While there may be a billion people on the continent, these people are split into 53 countries, and there are only a handful of large countries that would offer opportunities for MTN to add large numbers of subscribers, he explains.

“Africa is a huge growth area. Its gross domestic product growth since 2000 is higher than any other area of the world, including Asia....But, the rest of Africa, which would be a natural bailiwick for MTN, is looking a bit crowded.”

Irnest Kaplan, MD of Kaplan Equity Analysts, agrees that there are no African territories left that would give MTN another Nigeria, which has been a big contributor to profit as the company benefited from its early entry into the market. “There are countries that would be good for growth, but they are not huge,” he notes.

Kaplan says MTN can expect to see returns on its current African investments for the next two to three years, but will have to plan for when growth in its current territories flattens.


MTN certainly has sufficient money to do a deal. The group had R19 billion in cash and cash equivalents in the bank at the end of June, and made R17 billion from operations during the first half of the year.

Gilmour says the company has just raised $100 million for its investment in Uganda. “They’ll have no problems raising debt; this is a cash-flush business.”

An Ernst & Young report released mid-year – Africa connected: A telecommunication’s growth story – indicates that the continent has already seen some consolidation, with more expected in the future.

The report states: “The market remains fragmented with less than ten large operators and more than 80 smaller operations.” It points out that 40 percent of the networks account for only a percent of the continent’s subscriber base.

Ernst & Young anticipates that consolidation is likely to happen in markets where there are five or more operators.

“Consolidation will not be confined to the mobile environment, even though this is where most of the activity will be concentrated. Mobile operators looking to build converged networks are acquiring fixed-line operators, as was the case with MTN’s recent acquistion of Ivory Coast landline operator Arobase Telecom,” the auditing company says.

And, says Ernst & Young, multinational operators are on the lookout for acquisition targets to enable geographic expansion. “Consolidation seems inevitable, with moves into new segments being a key defensive strategy for many players.”

Growth engine?

Recent research from BMI-TechKnowledge shows the African continent continues to attract substantial investments in its telecommunications markets. The report, Africa Telecoms Services and Infrastructure Market Analysis and Forecast, was released in October and shows that more capital will flow into the continent.

Combined, investment into fixed and mobile infrastructure is expected to grow from $76.1 billion last year to $141.1 billion by 2013.

Africa recorded a year-on-year growth of 31.1 percent last year, reaching an estimated 405 million subscribers, with the fixed networks accounting for 7.5 percent. Mobile networks added about 94 million new subscribers last year, taking total mobile subscribers to 375 million.

This pace of growth is not expected to slow in the next four years, with total fixed and mobile subscribers expected to reach 782 million by 2013.


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