Wholesale/transport services

Vivendi Wants Zain's African Assets

French telecom and media giant Vivendi is lining up a multibillion-dollar bid for the African operations of Kuwait's Zain Group , an international emerging markets services specialist. (See Vivendi Eyes Africa.)

Vivendi, which owns 56 percent of French fixed and mobile operator SFR , already has a significant telecom asset in Africa: It holds a 53 percent stake in Maroc Telecom . And that asset is just about to grow, as Maroc Telecom is in the process of buying a 51 percent stake in Sotelma, the national operator in the Western African republic of Mali, according to a Bloomberg report.

Now Vivendi is looking to expand that empire, and has confirmed its "interest for acquiring a majority stake in the Zain group’s telecommunications activities in Africa, in line with its clearly defined strategy of seeking growth opportunities in emerging countries. This acquisition would enable Vivendi to capitalize on its successful experience of developing mobile telephony in Africa."

Talks are at an early stage, though. Vivendi -- which reported revenues of €6.5 billion ($9 billion) for the first quarter of this year, of which nearly €3.7 billion ($5.15 billion) was generated by its telecom operations -- stated that "there is no certainty that the discussions currently in progress will lead to a successful outcome."

While neither party has mentioned a price, French newspaper Les Echos has reported a potential cash price of between $11 billion and $12 billion. Vivendi's share price is down slightly, by 7 euro cents, to €16.95 on the Paris exchange today, while Zain's stock is down nearly 9 percent to 1.02 Kuwait dinars.

Zain currently has more than 40 million mobile customers and 10,000 staff in 16 African markets -- Burkina Faso, Chad, Democratic Republic of the Congo, Republic of the Congo, Gabon, Ghana, Kenya, Madagascar, Malawi, Niger, Nigeria, Sierra Leone, Sudan (though this operation is managed as part of its Middle East group), Tanzania, Uganda, and Zambia. Zain claims to have invested more than $12 billion in its African operations, and to be the market leader in 12 of its 16 African markets.

During the first quarter of this year Zain generated revenues of nearly $2 billion and net income of $260 million from all of its African and Middle Eastern operations. (See Zain Reports Q1.)

The African operations (not including Sudan) generated about $920 million of those revenues, while Sudan reported revenues of $234 million.

Zain's Nigerian operation is its biggest in Africa, with more than 15 million customers (at the end of March) and first-quarter revenues of $357 million.

Vivendi, like other international operators, is looking to buy into markets with growth potential, and many African markets offer that. The continent has a total population of about 900 million, and around 390 million mobile lines. While some markets already have high penetration rates -- Gabon, for example, has a mobile penetration rate of 116 percent! -- many still have penetration rates below 50 percent, including Kenya (48 percent), Nigeria (44 percent), Uganda (29 percent), and Malawi (14 percent), according to Informa plc statistics cited by Zain in its first-quarter report.

And the potential for 3G service growth is yet to come. In a recent Pyramid Research Africa & Middle East Telecom Insider report, "AME Capex Looking Up in Face of the Global Economic Downturn," analyst Badii Kechiche noted that while 10 African markets already have 3G services, another eight are set to get high-speed mobile data services in the next year or so, including the prime market of Kenya.

And the growth of 3G services will run in tandem with far greater international data connectivity for the African continent. "Between 2008 and 2010, the number of submarine cables connecting Sub-Saharan Africa is expected to jump from one to at least four," writes Kechiche. (See ACE Submarine Cable Extended, Seacom, Interoute Link Africa, AlcaLu Wins Submarine Deal, Tata Anchors Seacom Cable, Huawei Marine Wins Subsea Deal, and Africa Tackles Its Capacity Bottleneck.)

"We strongly believe that the additional cables will finally release the upward pressure on broadband connectivity costs and result in significant reductions in consumer access costs."

This, believes the analyst, will help "encourage operators to cover larger areas with their new 3G or WiMax networks, rather than providing coverage only for business centers and for small, ultra-wealthy residential areas."

If Vivendi strikes a deal with Zain it will join a growing number of carriers, including AT&T Inc. (NYSE: T), Orange (NYSE: FTE), Global Cloud Xchange , and Vodafone Group plc (NYSE: VOD), that have invested (or are still trying to invest) in African telecoms or have struck partnerships with African operators. (See Bharti, MTN in $23 Billion Talks, Telkom, AT&T Team, MTN Joins BICS Alliance, Vodafone Offers $2.5B for Vodacom Stake, Vodafone Buys Into Ghana for $900M, Tata Takes Bigger Stake in South Africa's Neotel, Etisalat Ups Africa Investment, Emerging Markets Drive FT's M&A Plans, Reliance Makes African Acquisition, Orange Goes to Africa, and FT Adds to African Assets.)

— Ray Le Maistre, International News Editor, Light Reading

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