If you can't join them, buy them - the Gulf operator's key to growth

Encouraging developments within the Gulf have formed the basis of several reports on Developing Telecoms but there must come a time when these Gulf markets enjoy total or almost total teledensity. Daniel Jones, Research Analyst with Analysys, believes that acquiring operators who are active outside the Gulf may present a convincing alternative route for Gulf operators.The recently-concluded auction for Saudi Arabia’s third mobile licence presented a chance for a regional or international operator to operate in one of the wealthier Gulf states but, with nine firms competing, many operators are still looking for opportunities in emerging telecoms markets.

Having won the auction in late March 2007 with a hefty bid of US$6.11 billion, Kuwait’s Mobile Telecommunications Company (MTC) now faces two other major operators, UAE-based Etisalat and Saudi incumbent Saudi Telecom, in the battle for revenues in the Saudi mobile market. This article discusses how Gulf operators must now seek out new markets to enter, to fulfil their growth plans.

It is highly likely that further licences will be issued in many Gulf states: Qatar is already making progress towards licensing competition for its monopoly Qtel, while current mobile duopolies in Bahrain, Kuwait, Oman and the UAE are under threat to varying degrees. However, new operators will find it difficult to gain market share in these highly penetrated markets, where penetration averages around 95%.

As a result, acquisition of operators active outside the Gulf may present a convincing alternative route for Gulf operators. Qtel has put this strategy into practice: its acquisition of a 51% controlling stake in Kuwait’s second-largest operator, Wataniya Telecom, in March this year has given Qtel a stake in seven regional markets in addition to Oman and its native Qatar. However, barring further privatisations, Qtel may have taken the last relatively straightforward opportunity to purchase a mobile operator already present in a Gulf market where disposable income is relatively high.

There will be further opportunities to enter these high-income markets but with penetration already high opportunities to make a significant impact in these markets may be limited. Entering other, less local, markets where penetration is lower may potentially prove more lucrative, despite lower ARPU rates.

Despite the fact that Wataniya is only active in North Africa, rather than the whole African continent, Qtel, like Etisalat and MTC, is moving away from its native Gulf territory into the wider Middle East and Africa (MEA) region. Both Etisalat and MTC have taken stakes in operators active in multiple sub-Saharan countries: In April 2005, Etisalat acquired a 50% stake in Atlantique Telecom, which operates in seven sub-Saharan African countries, while MTC acquired Celtel, which operates in 15 sub-Saharan African countries, in September of that year.

Saudi Telecom is the last major Gulf operator still to attempt a major acquisition of this type, although it has admitted studying potential acquisitions of single-country operators/operations in the past. Along with any other operators looking to invest in MEA markets, it would not be short of potential targets: privatisations are expected in Lebanon and Algeria in 2007, while Iran is also reported to be considering such a step.

In Africa, a few existing pan-regional operators are also potential takeover targets for investors looking to make large-scale investments, while there are also plentiful opportunities to acquire smaller operators and new licences. Gulf operators may also look to opportunities in Asia, or even parts of Europe for growth. Even if no further large-scale operator consolidation occurs in the next 12 months, slowing growth in the Gulf’s saturating markets may well lead to smaller-scale acquisitions across the rest of MEA and beyond, in the quest for growth.

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