Vodafone Buys Into Ghana for $900M

Further proof that Africa is a hotbed of mobile investment came today as Vodafone Group plc (NYSE: VOD) announced it is to acquire control of Ghana Telecom by paying $900 million for a 70 percent stake in the national fixed and wireless operator. (See Vodafone Acquires Ghana Telecom.)

The West African state's government retains a 30 percent holding in the operator.

Because the news had been widely anticipated for days -- see VOD Nears Ghana Deal -- it had little impact on Vodafone's share price, which is trading down 0.6 percent at 151.5 pence on the London Stock Exchange .

Ghana Telecom is the country's dominant fixed-line carrier, managing nearly all (about 99 percent) of the country's approximate 380,000 fixed lines, including 15,000 DSL broadband lines (90 percent broadband market share).

It also owns the country's third largest GSM mobile operator, Onetouch, which has 1.4 million customers for a 17 percent market share.

According to Vodafone, Ghana Telecom reported revenues of $290 million in 2007, up more than 9 percent year-on-year, and EBITDA of $42 million.

Vodafone says it's getting a controlling stake in a company with high growth potential.

The mobile penetration in Ghana (population 24 million) is about 35 percent, and the mobile user base, currently around 8.3 million, is growing fast, with 2.7 million subscriptions added in 2007. In addition, the country's economic health is improving: Ghana had a GDP (gross domestic product) growth of 6.3 percent in 2007, stated Vodafone.

Vodafone faces stiff competition in Ghana, though. The country's leading mobile operators are both emerging market specialists: MTN Group Ltd. , which is currently embroiled in M&A talks, leads the market with 4.4 million customers (53 percent market share); and Millicom International Cellular, S.A. , which uses the brand name Tigo, has 2.4 million customers for a 29 percent share of the market. CDMA minnow Kasapa has about 330,000 customers. (See Reliance, MTN Update, MTN Reports Q1 Subs and Top Ten: Emerging Markets Carriers.)

In addition, another emerging markets player, Zain Group (which trades under the Celtel brand in Africa), plans to launch fixed and mobile services in Ghana in the near future. (See Celtel Acquires Westel.)

Vodafone, though, believes it can increase its mobile market share to 25 percent through a combination of its experience of rapid growth in India, and planned investment in fixed and mobile assets by Ghana Telecom, which Vodafone expects to total $500 million during the next five years.

Those assets will be boosted by the Ghanaian government's decision to donate its fiber network assets to Ghana Telecom as part of the Vodafone transaction, which is expected to close during the third quarter of this year and have no impact on Vodafone's earnings during the first year.

Africa attracts investments
Vodafone, which already has mobile operations in seven other African markets (Democratic Republic of Congo, Egypt, Kenya, Lesotho, Mozambique, South Africa, and Tanzania), is just one of a number of carriers turning to Africa for future growth as the continent boosts its international connectivity. (See , Telkom SA in M&A Talks, Etisalat Ups Africa Investment, Orascom Scopes Out Africa, Africa Adds 65M Subs in 2007, Reliance Plots Global WiMax Rollout, HiTs Telecom Seeks to Raise $300M, Reliance Makes African Acquisition, Vodafone Eyes Emerging Acquisitions, and FT Adds to African Assets.)

And the roll call of other carriers that, at one time, showed an interest in taking a stake in Ghana Telecom is testament to the widespread interest in the region's growth potential. According to Ghana Telecom, Orange (NYSE: FTE), Portugal Telecom SGPS SA (NYSE: PT), and South Africa's Vodacom Pty. Ltd. had previously been shortlisted as potential investors following an initial bidding process, while Belgacom SA (Euronext: BELG), Middle East giant Etisalat , and Singapore Telecommunications Ltd. (SingTel) (OTC: SGTJY) had also submitted proposals.

The government dismissed those bids as unacceptable, however. France Telecom had emerged as the highest initial bidder, offering $520 million for a 66 percent stake.

Deal comes under fire
But the sale of the Ghana Telecom stake has attracted fierce criticism from the Ghanaian government's opponents.

Haruna Iddrisu, a member of parliament representing the minority National Democratic Congress party, told a press conference that the government had not struck a good enough deal, and that Ghana Telecom should not be valued at less than $1.5 billion -- the Vodafone deal values the Ghanaian carrier at just short of $1.3 billion.

He also accused the government of a "lack of openness and transparency in the privatization of the major national asset [Ghana Telecom], which has major national security and economic implications," saying that Vodafone had been treated as an exclusive bidder in the most recent process "without consideration for other bidders who are likely to offer higher bids."

He added: "We are also appalled at the inclusion of the National Fibre Optic backbone constructed at the cost of $100 million with a loan from China, which has never been part of Ghana Telecom’s assets, being included in this transaction."

The Vodafone deal is subject to a number of conditions, one of which is "approval from the Ghanaian Parliament." It seems likely there will be some votes cast against the deal.

— Ray Le Maistre, International News Editor, Light Reading

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