Archive for July, 2006

Egypt’s 3rd mobile licence valuation

Monday, July 31st, 2006

By BuddeComm Senior Analyst Africa Peter Lange
Almost a year after it was tendered, the third mobile licence in Egypt was awarded to Etisalat of the UAE in July 2006 for close to US$3 billion, plus 6% of gross revenues. Prices of this magnitude remind us of the crazy summer of 2000 that sent the telecoms industry worldwide into a deep crisis when US$7.4 billion were paid on average by the German 3G licensees and even as much as US$10.9 billion in the UK. Putting the numbers into perspective, however, makes the Egyptian licence appear in a somewhat more favourable light, even though it is a world apart from the US$1 million annually that 3G licences cost at the other end of the continent, in South Africa.

First of all, the Egyptian licence includes a concession for both 2G and 3G services. The 3G component can be valued at about US$578 million – the price the two existing 2G operators in Egypt will have to pay to upgrade their licences to 3G. But even when adding the 2G and 3G components together, the licence fee represents ‘only’ about US$38 ‘per pop’ (per each of Egypt’s roughly 75 million citizens) and three times as much – US$116 – for each potential customer, considering that a third operator can naturally expect to reach about a third of the market eventually. Germany’s licensees paid US$90 per pop and a whopping US$540 per potential customer, given the fact that six licences were issued (even though only four licensees survived).

Furthermore, the 2G penetration in Germany and the UK was already close to 70% back in 2000 while Egypt stands at only 20% in 2006. Whether this is good or bad can be debated: On the one hand there is a lot more unexploited market potential, but on the other hand it is easier to migrate an existing customer base to 3G than acquiring new customers from scratch. And with a GDP per capita of only US$1,500 it will take Egypt much longer to reach the virtually 100% mobile penetration of Western Europe, if at all in the foreseeable future.

In any case, it will take the new Egyptian licence holder many years to recover the licence fee and infrastructure investment – possibly more than the 15-year term of the concession (the European 3G licences by the way have 20-year terms). With monthly APRU levels in Egypt now approaching US$10, and US$5 in many other African markets, it can only be done if the potential for the additional revenue streams that 3G offers, beyond traditional voice revenue, is fully developed and exploited. 3G customers in South Africa for example are currently spending four times as much as 2G customers.

And this is where the fundamental difference lies between Europe and Africa that may justify different valuation methods: In Africa with its poorly developed or often virtually non-existent fixed-line infrastructures, the mobile operators play a much bigger role in the provision of all kinds of communication services. 3G operators in Africa are well positioned to take over significant parts of the largely untapped broadband markets and possibly parts of the media and entertainment markets as well. Fixed-line penetration in Egypt is only 14% (compared to around 60% in Western Europe) and the country’s broadband penetration is still negligible.

3G operators in Africa will, however, be facing competition from other wireless broadband technologies eventually, in particular WiMAX, and will already have to keep the next step in mind, towards 4G.
NEW AFRICA REPORT
2006 Africa Telecoms Statistics – 234 tables report

Single-User Price US$1,595.00

This report comprises 234 statistical tables, with high-level and detailed data relating to fixed-line, mobile and Internet operations within Africa as a whole, and within its component countries. Broadband is not yet well enough established to have meaningful statistics. Data in this report is the latest available at the time of preparation and may not be for the current year.

Countries covered are: Angola, Algeria, Benin, Botswana, Burkina Faso, Cameroon, Chad, Democratic Republic of Congo, Côte d’Ivoire, Egypt, Ethiopia, Gambia, Ghana, Kenya, Lesotho, Libya, Madagascar, Malawi, Mauritius, Morocco, Mozambique, Namibia, Nigeria, Senegal, Sudan, Swaziland, Tanzania, Tunisia, Uganda, Zambia and Zimbabwe.

  • Major statistics include:-
    Key country indicators;
    Subscriber numbers (Mobile, Internet – users/subscribers and hosts);
    Annual change and penetration percentages;
    Number of fixed lines in service and teledensity;
    Major operator statistics;
    Growth indications;
    Historical data.

Approx. number of pages: 121

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Podcast by Paul Budde – Broadband – moving up to higher speeds

Friday, July 28th, 2006

While Unbundled Local Loop service were economic unviable for voice service, it provided the right platform for semi-infrastructure based broadband competition. Several telcos and ISPs are now installing their own DSLAM infrastructure and by early 2006 more than tens of thousands of DSLAMS were either installed or commissioned. ADSL2+ became available over the first installed DSLAMs in late 2003 and this development is going to lead to a broadband capacity explosion over the rest of this decade, with triple play business models delivering VoIP and IPTV as well as high speed Internet access.

Duration: 14 minutes

Download: Broadband – moving up to higher speeds

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This is a BuddeComm MP3 podcast. BuddeComm is an international telecommunications research company and produces over 2,000 research reports, covering 170 countries, 500 companies and over 200 technologies and application. Topics include telecommunications, mobile, Internet, broadband, convergence, digital media and content. These reports are available on the net as well as in pdf and printed formats. For more information visit us on our website www.budde.com.au.

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Public investments will be followed by private money

Monday, July 24th, 2006

Participating in the Telstra Debate Down Under sometimes gives you the feeling that many of our observers and decision-makers do, indeed, live on an island. But I am sure this article also applies to many other countries.

The interesting thing is that telecoms is a very international business and, to be honest, that sometimes makes my life a lot easier. Operating an international research business covering 170 countries, and having some 45 senior analysts and researchers involved, gives me the luxury of being able to compare and analyse.

And what happens with mobile content in Europe does impact on what happens in Australia – how government policies in Asia affect infrastructure investments over there provides us with lessons to be learned in North America; wireless pioneering in New Zealand can be used in analysing and forecasting developments in Europe; and so on …..

But, back to Telstra, the arguments that Telstra is putting forward in relation to regulations and infrastructure investments are also being used in other parts of the world. In Europe the incumbents are using similar arguments in order to obtain regulatory holidays on their FttH investments and, like Australia, most governments are not giving in.

The incumbents in Germany and France have sympathetic governments, but even there the concessions in relation to competition are still significantly better than the current situation in Australia. Look for example at local loop unbundling in France, they are leading the world here. Perhaps the odd one out is the USA, but if one looks at how low the US international broadband and mobile penetration rankings are one would have to question the success of US telecoms policies.

Most countries in Europe are far less willing to give in to incumbent demands. Regulators in Britain and the Netherlands are very hard-line, and it is in these countries that we are seeing the most progress towards competition and innovation. Interestingly, it is in those countries also that significant new investments are made in new infrastructure, particularly in the Netherlands.

Countries where governments show real vision and hands-on involvement in infrastructure development show by far the highest level of new investments. Classic examples here are Korea, Japan, Hong Kong, Singapore and Taiwan, and I am sure that, in a few years’ time, China will follow this trend also. Financial analysts have told me that public infrastructure investments are often a prerequisite for private investments.

The Connect Australia initiatives from the Australian government has seen a number of proposals put forward to the government that will see at least a matching of investments once these projects are underway.

The financial market is victim to a great deal of uncertainty and misinformation regarding technologies and regulations, and many are getting cold feet when it comes to investing in such an environment.

Public investments can show the way forward, making the environment perhaps a bit more predictable, although it is argued in some quarters that public funding should be avoided, the view being that the market should lead new investments.

The reality is that infrastructure in whatever format will always involve some government participation – whether it is in policies, regulations or funding. So it is unrealistic to act as though this will suddenly go away just because we are talking, for example, about an FttH network. True, if you give the incumbents a monopoly and a 20%-25% return on that investment there might be no need to seek public funds. However, if we want a solution for home care for the ageing; quality education in regional areas; improvements in lifestyle; e-government applications and, perhaps just as important, a first-class infrastructure for the e-economy, the question is whether that is best achieved through such high ROIs for a monopolist.

It is now well-recognised that the benefits of FttH are not simply economic. They are also most important for the social infrastructure of the country. And more and more countries are coming to recognise this.

Interestingly, because of the enormous conflict in Australia between the government and Telstra, the Australian government has been forced to analyse what its role has to be. They can no longer simply hide behind promises from Telstra – that it would look after the country’s interests. Telstra has made it very clear that it will not do this and, as a consequence, the Australian government is suddenly propelled into a leadership role.

We are fortunate to have a Minister who is driving this process, and slowly but surely she seems to be succeeding in persuading her colleagues to share with her the important role that the government has to play here.

I receive regular requests from the international media, asking for an explanation as to what is happening Down Under in respect if these new government policies, these certainly are attracting international interest.

Paul Budde

See also: Industry Analyses Australia

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Podcast by Paul Budde – The battle between 3G HSDPA and WiMAX

Friday, July 21st, 2006

The next big opportunity for the wireless and mobile industry is to develop a 4G solution, combining mobile technologies and wireless technologies to address markets such as wireless data, telemetry, RFID and a range of new personal broadband services that will emerge around this 4G concept. I predict that 3G and HSDPA are just stepping stones to a deployment of true wireless broadband in late 2007. Will Super 3G (100Mb/s) here finally merge with WiMAX ?

Duration: 17 minutes

Download: The Battle Between 3G HSDPA & WiMAX

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BuddeComm is an independent global telecommunications research company and produces over 2,000 research reports, covering 170 countries, 500 companies and over 200 technologies and applications. Topics include telecommunications, mobile, Internet, broadband, convergence, digital media and content. These reports are available on the net, for more information visit usat our website.

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Media Reforms – who gets what?

Monday, July 17th, 2006

News Corp and Foxtel
My reading of Rupert Murdoch’s comments is that he genuinely believes that a total overhaul of the media reforms would be in the national interest. Surely, this would have caused short term problems for some of his current assets in Australia (namely Foxtel). But he is a big picture thinker and also knows that News Corp is the best positioned in the Digital media environment to profit from these changes long term.

It is obvious that the government has failed to do this, while perhaps to a lesser extend as previous media change, this set of reforms is still very much aimed at protecting the current broadcasters, so Rupert will be double disappointed. And, viewed from the perspective of the company’s own interests, he will also not be pleased with the upcoming multichannelling possibilities. This will further undermine the Foxtel pay TV model.

However, the current pay TV model is still doomed to fail because of the shareholder issue. In order for Foxtel to become successful it will need to move into broadband (I would argue that it is already too late). So either Foxtel will be undermined by its Telstra shackles or by future relaxation of media regulations. However, one can also argue, the foreshadowed relaxation (2009/2010) is no direct threat to Foxtel and a future Minister in a future Cabinet is a matter for another time. I hope that these non media reforms will see Rupert to seriously shake up the Foxtel alliance (something I have been hoping for for a decade).

There was a bit of a win with the relaxation of the anti-siphoning regulations, but not enough to turn this into a significant subscription increase. So basically the company needs to invest more to buy some of the programming that will now flow into their direction, without attracting significant new revenues. Is this a blessing or a curse?

News Corp could now buy a TV station, subject to ACCC approval. However, I can’t see an urgent need or an easy opportunity. Other players are not going to sell their station at a discounted price, and who would want to pay top dollars for an ailing asset?

News Corp would actually have been brave enough to launch a new TV channel in Australia, and again this is a missed opportunity (no fourth channel). Why can’t we have more competition in this country? This is a so-called liberal government but they seem to be extremely reluctant to open this market up to competition.

I like to stress here, that The Minister had the right vision when she embarked on this project in 2005, her initial plans were much closer to Rupert’s suggestions. However, with John Howard stuck in the fifties, there was no way that she could execute her brave plans. The only thing she has been able to do is to create a few cracks.

PBL
The Packer company now has more flexibility regarding buying and selling. In the absence of an immediate threat to their traditional broadcasting asset (Nine) the market value is not dropping rapidly, buying them time to either convert the business further towards digital media or to execute their sales options more aggressively.

I don’t think that James is much interested in Nine, he will either sell out; or more rapidly develop, from ninemsn, more digital media businesses.

Although the market has changed enormously since the company first showed an interest in John Fairfax, it still might be interested. However, John Fairfax has shown some signs of waking up towards the digital media, and it is no longer available at a discounted price.

So my comments here are similar to the ones I made above in relation to Murdoch buying a TV station. The egos are big in media-land, and everybody believes that their rapidly aging assets are worth much more than anyone else is prepared to pay.

Seven
Not much change for this broadcaster either. Again, a bit more flexibility but, given the current excellent ratings, this broadcaster also won’t be available at a bargain price to any potential buyer.

Furthermore, at least in the future there is a possibility for Seven to become involved in multichannelling. However, I am not holding my breath here. 2009 is too far away to see this as a certainty, and by then the question will be whether multichannelling offers the same business opportunities as it does at the moment. By that time Broadband TV (the Internet connected to the TV with access to video entertainment and the user being in control of programming) might make multichannelling obsolete, or at a minimum less attractive.

Ten
Again, the same level of flexibility that would allow the company to buy or sell, but again the same remarks regarding how much you can get for these assets, and how much other parties will ask for theirs. There might be a few merger-style activities, rather than outright buying and selling.

Ten does have a good opportunity to extend its business into other media that fit their target audience, but so far I have not seen any strategic moves from the company in that direction. For instance, they are well behind the other players in relation to their digital media strategies. It looks like they miss the cash to do anything substantial in this market (old or new).

Telstra
Not mentioned too much, but certainly affected by the media reforms. This company has a golden opportunity to profit from the free-to-air protection policies. An enormous opportunity exists to offer broadband TV over both ADSL2+ and FttN, in direct competition with the sluggish, self-destructive broadcasters. As a matter of fact, I predict that in 10 years’ time all TV signals will be over their fibre network. However, the longer Telstra waits to embrace this opportunity the less likely it will be to become a major player in this field.

Rhetoric from the company alludes to its digital media ambitions. Yet they keep Foxtel, BigPond and Sensis shackled in their own silos. What a wasted digital media opportunity.

Regional operators
While there might be some potential to sell their assets to the big boys, it looks as though the government/senate is going to put limitations on this which could make this prospect less appealing.

Here again, as I said in relation to Ten, I am disappointed about the lack of digital media strategies. These players are ideally positioned to dominate new niche markets which could be extremely lucrative in the new digital media marketplace.

Talking about diversity, if the regional media companies would have the right vision, that is to built solid regional businesses, rather than pure financial greed, media diversity would be best served by unleashing more digital media services into regional Australia. Digital media is niche marketing, you don’t need the millions of dollars to be successful. If you built the right business model you will be able to built very profitable business and with digital media you will attract many people to produce content which will greatly improve diversity. Where are our forward looking (regional) politicians who could see these opportunities?

Customers
They are the biggest losers because all of the above doesn’t add anything new or exciting to new media products. It could mean a lot of reshuffling, in-fighting and navel-gazing in relation to the old media, but it will also mean no progress whatsoever in new media services for at least 3 to 4 years – services that other countries have been using in some cases for already more than five years.

Look what digital TV has done to media diversity in the UK? They are close to 10 years ahead of us.

Conclussion
Overall, I believe that most players will not spend a lot of their time on these media reforms. In stead I predict that they will continue what they have been doing over the last 12 months concentrate their strategies and investments aimed at (unregulated) digital media opportunities

Paul Budde

See also: Australia – Convergence – Media Reforms 2004 – 2006

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