26 Jan 2009

How (hard) will the global slowdown hit telecoms M&A activity?

Last Thursday's telecoms.com blog newsletter came with yet another article discussing how telcos will need to respond to the current mood of economic gloom. A Frost & Sullivan analyst, Saverio Romeo is quoted as believing that the key to surviving the credit crunch is being able to design lower cost and disruptive business models as an effective way to attract consumers. Romeo highlights the combination of existing technologies with new business models to create low cost products and services, such as the combination of mobile content with forms of marketing and advertising.

This is important, according to Saverio Romeo, because "due to the lack of credit in the global economy, investments will fall in the beginning of 2009. Particularly, investments related to incredibly costly projects such as acquisitions, will feel this drop intensely."

However, I have heard the view articulated widely of late that acquisitions will continue to be a feature of the telecoms landscape in the near future, with some people even expecting this kind of activity to intensify. In this scenario, it is telcos headquartered in the Middle East that would be expected to be shopping for extensions to their various empires.

There are a good number of very recent examples. In addition to ones I've already discussed here, consider the case of QTel acquiring a "significant stake" in Philippines-based Liberty Telecom Holdings, a provider of wireless voice and data telecommunications services, according to a report from Qatari daily, The Peninsula earlier this month. In another recent move, according to Informa Telecoms & Media's Telecom Markets service, the Bahraini incumbent carrier Batelco is set to acquire a 49% stake in India's S-Tel in partnership with Millennium Private Equity for US$225 million. S-Tel, says the report, is preparing to launch GSM services in six Category C spectrum circles in the northern part of India and is funded by private-equity companies Sky City Foundations and Telecom Investments Mauritius. Writing about this move, Fredrick Richter of Reuters quotes Jithesh Gopi, a telecom analyst at Bahrain-based investment bank SICO: "Middle Eastern operators and their major shareholders are less risk-averse than some of their counterparts in other regions as most of them have relative low levels of debt."

Also this month, as reported by Global Mobile Daily, another MENA region heavyweight, Orascom Telecom, via its Telecel Globe unit, has paid US$59 million in cash for Namibian GSM player Cell One, after closing the deals it agreed to in July to reacquire Telecel Centrafrique in the Central African Republic and U-Com Burundi (formerly Telecel Burundi).

It will be interesting to track further activity of this type on the part of MENA's leading telecoms groups in the coming months. I wonder how much more shopping they will feel like doing as this challenging year unfolds.