Posts Tagged ‘mobile’

AT&T eyes 25% stake in India’s BSNL as 3G comes to the fore

att-logo-orangeAccording to the Economic Times of India, domestic US telecom giant AT&T is in talks with state controlled Bharat Sanchar Nigam (BSNL) regarding placing an investment, that would see the company make a comeback in one of the fastest growing telecoms sectors. With mobile penetration advancing from 2% in 2005 to over 40% in 2009, still leaving plenty of room for growth.

AT&T (NYSE: T), which has been expanding its mobility business globally, quit the Indian mobile sector in 2005, selling its 33% stake in Idea Cellular following it’s merger with Cingular Wireless. It received around $250 million from the stake in Idea,that stake would now be valued at circa $3.5 billion. So a strategic mistake, that the New Jersey based company looks keen to repair. CEO Randall Stephenson spent much of 2008 in acquisition talks with Reliance, Idea and Aircel Cellular parent Maxis Communications, demonstrating a real desire to take a piece of the action.

BSNL has suffered from lackluster performance, as it’s monopoly has been slowly eroded over time, with new entrants carving up the market, especially in the mobile sector. The launch of 3G licences this year has seen heavyweight MNC telcos taking a greater stake in this huge growth market. Vodafone (UK) acquired Essar, Mobile TeleSystems (Russia) entered the market via Shyam Teleservices,  DoCoMo (Japan) has formed a joint venture with Tata Teleservices, whilst Telenor (Norway) has taken a passive route by acquiring shares in Unitech Wireless & SingTel (Singapore) has also invested heavily in Bharti Aircel, alongside Telia (Sweden) & BT (UK).

The Indian government reiterated plans to publicly list BSNL in July , although a firm time frame has not been committed to. Earlier that month, BSNL chairman Kuldeep Goyal said that the company was exploring a possible stake sale to a foreign firm to raise funds to help it compete better against its domestic rivals; however, he didn’t comment on how large the stake would be.

According to BSNL’s FY 2008 accounts, the value of the company is circa $17Bn. MTNL, the second of the telecom monopolies, which operates purely in Delhi & Mumbai, currently trades on the Bombay Stock Exchange  at Rs95 ($1.95) per share. BSNL would be expected to attain a much hirer premium, as it is the only current national carrier & market watchers have stated that post IP the company could be worth anything from $13Bn & $16.3Bn 65,000. Sources state that AT&T is interested in a 25% stake, so would need to buy in with $3Bn / $4Bn to make this work.

At present BSNL is the leader in all services in its license area, with over than 49 million mobile subscribers (17% market share), 35% fixed line subscribers (85% market share) & 2.5 million broadband subscribers.

I can see this coming off, as AT&T can offer extended network services & serious technical know how to BSNL, an area in which the company has lagged. AT&T India also operates a state of the art IP MPLS network across India that will also help the Indian company to expand it’s offerings into the burgeoning Enterprise market. With the Indian mobile market set to double by 2014, this would also give access to a potentially huge subscriber base of 100 million & dare I say it, a potential launch pad for iPhone.

For BSNL, this could be a great route to forestall the new & legacy players across the sub-continent, particularly in mobile & broadband, more importantly with infrastructure restrictions, LTE could play a defining role for any telecoms carrier in India.

Granted, this is all pure speculation at this point, however, if the rumoured talks firm up, I’ll be taking a long hard look at AT&T again.

Original post can be found at MyStockVoice.com

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Ukranian power plays could benefit Turkcell

ukrtelecomUkraine‘s telecommunications sector is, potentially at least, in line for a major shake up, with plans to privatise a controlling stake in state-owned landline operator Ukrtelecom. Proposals to sell off Ukrtelecom have been around since the 1990s, with different formulas and percentages being floated at various times, along with varying assessments of the company’s net worth.

In the latest version of the plan to privatise Ukrtelecom, an open joint-stock company that holds a 70% market share of local landline operations, the government has proposed selling off it’s block stake of 67.79% of Ukrtelecom’s shares. Currently, the state has a 92.79% stake in the company, with the company’s employees holding a further 7.14%.

The government’s plan, announced in February by the State Property Fund (SPF), initially foresaw the privatisation process beginning in March, though this did not take place, casting some doubt on the timeframe for the sale.

Although it did not meet its own deadline to start the process, the government has recently put Ukrtelecom back on the agenda. During a visit to South Korea in mid-July, Prime Minister Yulia Tymoshenko called South Korean firms to place a bid for Ukrtelecom,as she pushes to attract Asian investment into the Ukrainian economy. This is part of a wider drive by Timoshenko to privatise a number of state owned assets, including 5 regional energy companies.

However, the government may have missed the boat if it is hoping for a substantial cash windfall from the sale of Ukrtelecom, with the company’s overall value having slipped badly in the past year. The stake in the company that is to be sold off was estimated to be worth around $3bn in 2008; current pricing puts it at around $940m, mainly due to the sharp fall in the local currency.

Its attractiveness as an asset has not been helped by Ukrtelecom recording a $194m loss last year, compounded by a further $32m worth of red ink in the ledger for the first quarter of 2009, a turn around from a net profit of $33m at current rates in 2007.

More likely to give potential suitors pause than the telco’s financial statements is the political cloud that hangs over the proposed privatisation, with President Viktor Yushchenko staunchly opposed to the sale. In February, after the plan to privatise Ukrtelecom was unveiled, a senior official of the president’s office said Yushchenko would do everything possible to block the sale.

Yushchenko and Tymoshenko, formerly close allies, are at loggerheads over numerous issues, including management of the faltering economy, combating corruption & ties with Russia. Having repeatedly blamed the Tymoshenko-led government of failing to protect the economy and the Ukrainian people from the fall out of the global financial crisis, it is no surprise that the president has opposed the sale of Ukrtelecom.

According to the SPF, there are at least 10 companies interested in bidding for the Ukrtelecom stake, though this assessment was made in March, and could be optimistic given the present variable political and economic climate. “Climate change” notwithstanding, one interested party is Turkey’s largest mobile phone operator, Turkcell (NYSE:TKC) which already has a presence in the Ukrainian telecoms sector, owning a controlling interest in Astelit, the country’s third-largest mobile services provider, which services 20% of the mobile market.

In mid-February, as discussions over the privatisation of Ukrtelecom again gained momentum, Turkcell’s chief executive officer, Sureyya Ciliv, said his firm was considering making a bid for the landline operator.

“It is an interesting situation but we need to understand the terms of the deal, and our teams are studying that. Based on the study, we will make a decision if we are a serious interested party who is willing to bid.”

What could be of more interest for Turkcell & the Ukrainian goovernment, is TeliaSonera looking at gaining a greater stake in Turkcell. The Swedish multi-national is eager to penetrate new markets in Eurasia & already has a growing fibre network building out in Ukraine. My view is that this has a greater chance of success than courting Asian investors to come into the Ukranian market, time will tell.

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MTN-Bharti : a long winding road from India to South Africa

bharti-airtel-mtn-mergerIndia’s Bharti Airtel & South African operator MTN returned to the bargaining table this week, over a merger that could create a $20 billion mobile giant. The potential deal is attractive for both parties & if successful, would create a leading telecommunications service provider group aligning Bharti’s market leading Indian business with MTN’s market leading African and Middle Eastern operations. Combined operations would result in the group enjoying leading positions in three of the fastest growing wireless emerging markets ; India, Africa & the Middle East, with no overlapping footprint & subscriber base of circa 200 million.

Under the terms of the deal Bharti will acquire a 49% shareholding in MTN, in turn MTN and its shareholders would acquire a 36% percent economic interest in Bharti, of which 25% would be held by MTN, the remainder held directly by MTN shareholders, with the long term goal being a fully merger. The two companies have agreed to continue exlusive discussions until the end of July, at which time any issues will be resolved or other potential partners will be engaged.

Sunil Bharti Mittal, Chairman and Managing Director of Bharti, said “We are delighted at the prospect of developing a partnership with MTN to create an emerging market telecom powerhouse. Both companies would stand to gain significant benefits from sharing each other’s best practices in addition to savings emanating from enhanced scale. We see real power in the combination and we will work hard to unleash it for all our shareholders.”

“The rationale for this potential transaction between MTN and Bharti is highly compelling,” said Phuthuma Nhleko, CEO of MTN. “We are excited at the prospect of teaming up with Bharti, India’s number one wireless operator and one of the most strongly capitalised players amongst its emerging market peer group. This would create a highly visible commercial partnership between South Africa and India,”

Bharti & MTN have been here before, almost exactly a year ago. Previous talks were torpedoed by a lack of clear understanding on control between the two companies. At the last minute, MTN proposed a different structure where Bharti was to become a subsidiary of MTN. Bharti retreated from the deal on the basis that it felt MTNs position was a way of gaining indirect control of the combined entity, which would have compromised the minority shareholders of Bharti. This time round it has been made clear from the start that Bharti will be the primary vehicle for both Bharti and MTN to pursue further expansion in India and Asia while MTN would be the primary vehicle for both Bharti and MTN to pursue further expansion in Africa and the Middle East. Most importantly, Bharti would have substantial participatory and governance rights in MTN enabling it to fully consolidate the accounts of MTN.

When this was announced earlier this week, I decided to hold off on posting, as I wanted to see what would forthcoming once the dust had settled & also to get a better feel for some of the more convoluted relationships involved. One of the potential major hurdles to this deal from my perspective was the stance of Singapore Telecom (SingTel) which owns a 30% stake in Bharti Airtel. Bloomberg reported that SingTel would end up with a diluted position of 20% at the end of any full merger between the two. However it would seem that this could be offset by synergies across all of the combined networks of Bharti, MTN & SingTel. In addition to its strong domestic business, SingTel owns Australian carrier SingTel Optus & holds significant stakes in carriers in Bangladesh, Indonesia, Pakistan, Thailand, and the Philippines, commanding upwards of 290 million subscribers themselves. In the same Bloomberg report, SingTel spokesman Peter Heng states that “SingTel will remain a significant shareholder and strategic partner in Bharti post any successful transaction. We will continue to equity account for Bharti, in its enlarged form post the transaction if this is successful.”

Another potential challenge that was aired, is opposition by minority shareholders in MTN, however it has been reported today that the Mikati family which owns a 10% stake in MTN via the M1 Group, has said it will back the deal. The majority shareholder in MTN is South Africa’s state pension fund PIC, with a holding of 13.5%, to date there has been no statement from them. Other minority shareholders of MTN include Allan Gray, Polaris, Coronation and Stanlib, it would seem that these companies are not so bullish on the deal, at least not until further details come clear.

The South African press also gave some weight to the position of the highly politicised trade union federation COSATU (Congress of South African Trade Unions) which recently tried to scupper the full takeover of Telkom’s stake in Vodacom by Vodafone. However, COSATU spokesman, Mr Patrick Craven, has said the MTN deal was a different situation to that of the national carrier ;  “Telkom has always been 50% owned by the public & the move was part of our policy agenda against privatisation. MTN has always been a private company”

So it would seem that conditions are favourable to the potential transaction going forward, which would bring to fruition a long held ambition for Bharti to move into Africa, which remains the most underdeveloped of emerging markets regards telecoms. By leveraging across the combined networks of Bharti Airtel, MTN, SingTel & the Bridge Alliance (11 major operatots in Asia-Pac), the new Bharti-MTN will become a major powerhouse & definitely a very attractive investment for those involved in Global & Emerging Markets.

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Nokia gets thumbs up from China

china-mobile2Following on from the distribution of 3G licences earlier this year for China’s three mobile networks, China Mobile, China Telecom & China Unicom, along with the convoluted technology demands imposed by the regulator, signs are that Nokia will be sitting a little higher up the table at the tea party, as Chinese news portal Xinhua reports :

“China hopes Nokia will enhance cooperation with China’s information sector and play an active role in developing China’s TD-SCDMA industry, Chinese Vice Premier Zhang Dejiang said”

As we reported earlier this year, China looks to 3G networks to help stimulate economy, each of the operators is working on a different standard, China Telecom will work on the US standard CDMA 200, Unicom has gone down the W-CDMA route, whilst China Mobile (NYSE : CHL) has invested a veritable fortune in its home-grown standard TD-SCDMA.

From a political standpoint, it is pretty much a given that TD-SCDMA will not be allowed to fail, as the government is very much behind these moves. So what does this mean for equipment vendors ?

Basically, it has resulted in Western vendors like Alcatel-Lucent & Ericsson being marginalised when it comes to participation. Alcatel (NYSE : ALU) has managed to win business in 14 regions to partially satisfy China Unicoms requirements, whilst also signing $230 million worth of contracts with China Telecom.

“The drive for 3G (in China) is a very important stimulus for what I think is a very exciting market to come,” Ben Verwaayen, chief executive of Alcatel-Lucent, told reporters in Beijing yesterday. “If you look to the market and the economic crisis today, it is good to see that China is going to play a more prominent role than ever before.”

Ericsson (NYSE : ERIC) has stated that it has picked up 30% of China Unicoms 3G network requirements, leaving Chinese vendors Huawei & ZTE to fight over the spoils, with Huawei reportedly being the big winner.

So what about Nokia ?  Back in March, Nokia-Siemens Networks (NSN), a subsidiary of the Finnish mobile giant, announced the signing of framework agreements with both China Mobile and Unicom for up to US$1.1 billion in orders. NSN is one of the less recognised parts of Nokia’s business, however, it is definitely a division not to be ignored, Q1 2009 showed that NSN contributed  34% of group revenues.

Nokia has already provided major infrastructure deployments on China Mobile’s Phase II deployment of 3G network, on its testing rollout in Hainan province. Now with equipment currently being deployed across 28 major cities throughout China, Nokia Siemens Networks has provided the top performing city networks based on 3G TD-SCDMA commercial readiness, as laid down by the Chinese telecoms regulator.

“We are very confident of our 3G TD-SCDMA solution and feel proud to showcase its capabilities. Nokia Siemens Networks has provided us such tremendous on ground support, that our 2G and 3G TD-SCDMA networks are optimized and ready to handle high throughput and access rates demanded by cutting edge applications,” said Zhou Chengyang, President of Hainan MCC. “We have laid a solid foundation to launch commercial services in the Hainan province and are looking forward to working closely with Nokia Siemens Networks towards large scale and high quality TD-SCDMA services.”

So the expectation is that this suuccess will bleed over into Nokia’s main revenue driver, handsets. China Mobile is now becoming more of a commodity player with regards to handsets, as it is now looking to more rural areas for subscriber growth. My expectation is that Nokia will play a major part in this area, as discussed in a previous post, Nokia has a very strong back-catalogue of handsets to pick from & also enjoys higher margins in the low end sector than its competitors.

Having picked up on the Nokia ADR (NYSE : NOK) earlier this month & also enjoyed the $0.52 dividend yesterday, I had planned to drop 50% of my holding to place elsewhere. With this mornings news on official support for Nokia, I will now be holding a little longer term, looking for a target of $18.50 towards the end of the year.