Budde on Africa: African telco valuations on the rise - or are they?
Last week South Africa's MTN offered more than US$5.5 billion for Investcom, the Lebanon-based mobile operator with networks in eight countries in Africa and the Middle East. This represents a purchase price of over US$1,100 for each of Investcom''s estimated 5 million proportionate subscribers, which tops the US$950 that were paid by MTC for each Celtel subscriber when the Kuwaiti company bought Celtel''s 13 African operations about one year ago. Celtel/MTC then topped up its portfolio in February this year by purchasing the 61% it didn''t already own of Sudanese operator Mobitel, also paying more than US$1,100 per subscriber.
Certainly, the mobile subscriber growth rates in Africa continue to be phenomenal – 75% p.a. on average, and well in excess of 100% in quite a number of markets – with market penetration still low at only around 15%. But with monthly average revenue per user (ARPU) levels rapidly approaching the US$10 mark in most African markets (and already the US$5 mark in some), it may take a long time to recoup some of these investments.
These US$1,000-plus prices stand in stark contrast to the approximately US$300 per subscriber that MTC agreed to pay last month for a 65% stake in Nigerian operator V-Mobile. This despite the fact that Nigeria has enjoyed one of the highest and most consistent subscriber growth rates in Africa – triple digits every single year since 2001 – while market penetration and ARPU do not differ much from the African average. So why the difference in valuation?
Nigeria already has four mobile networks while most other African markets included in the recent deals have two or three. But more mobile licences are likely to be issued in some of those other markets as well, curtailing the growth potential for each individual operator accordingly. A key difference is that Nigeria already has a very competitive fixed-wireless market and has introduced a new unified licensing regime in March under which all licensees are now able to provide both fixed and mobile services. This means a new level of competition for the traditional mobile operators (like V-Mobile) and a whole new world of opportunity for other existing and future network operators, and the drop in valuation explains why the traditional mobile operators lobbied so hard against this regulatory change.
Now it is not too far fetched to expect similar regulatory moves in other African countries, following the Nigerian example – especially with mobile WiMAX technology around the corner. Sudan for example has already formulated similar plans. ARPUs will come down even further, and some of the recent mobile deals may indeed have already been overpaid, despite the undoubtedly still huge market growth potential.
It is also interesting to see how a lot of the recent money flows are within the Africa/Middle East region: MTC/Celtel, Etisalat/Atlantique, MTN/Investcom… and MTN has also been pursuing various licences in the Middle East/North Africa (MENA) region recently (and won the one in Iran for example). Some of the deep pockets on the Middle Eastern side can be explained with the prices we are all paying these days when filling up our cars. MTNs deep pockets on the other side seem to indicate that operating mobile networks in Africa is still as lucrative as selling oil!
Peter Lange - Paul Budde, Senior Researcher, Africa
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