Africa leads the way for growth in Telecoms M&A
by Caroline Clayfield
Telecoms is proving an increasingly active market in emerging economies, and healthy M&A activity is expected to follow.
There have been a number of notable telecoms and cable TV mergers and acquisitions in the US so far in 2011. These include Comcast Corp’s purchase of NBC Universal and the merger between Qwest Communications International and CenturyLink Inc. The rise in activity is widely attributed to the fact that businesses in the sector have healthy bank balances and are eager to either expand into a growth area or to add on smaller rivals.
However, it is not just the US that is experiencing a rush in the telecoms sector – Africa is where the growth in the sector really is and experts expect plenty of M&A activity in the coming years.
The current boom in the African telecoms industry has been a long time coming and is a result of a combination of several factors. Nine of the top 20 countries, in terms of telecoms service subscriber growth, in the period of the 12 months to the second half of 2011, are in Africa. During the same period, the number of telecoms service subscribers increased by 80 per cent in Zimbabwe, by 60 per cent in Mali and by 55 per cent in Burundi.
So why the sudden boom? “Telecoms is obviously a hot area because it has been underserviced historically on the continent,” explained Christo Els of South Africa-based law firm Webber Wentzel. In addition, the African population is young and distances between towns and villages can be vast, with poor physical infrastructure and plenty of remote regions. These factors all add to the desire for better communication channels within Africa and with the rest of the world.
Only now is the growth of the African telecoms and mobile markets becoming a reality with the introduction of new infrastructure like the Eastern Africa Submarine Cable System (EASSy) – a high speed cable system that connects 21 East African nations to the internet. This has prompted growth in the mobile telecoms market in countries including Zambia, Uganda, Rwanda, Kenya and Burundi.
With this growth comes the prospect of more M&A activity, and many of the local legal firms are already reporting a change in their practices. Bradley Scop, the Director of law firm Norton Rose, told Thelawyer.com, "Telecoms lawyers are moving away from regulatory work and towards antitrust, and, more importantly M&A.”
Other lawyers agree with Scop and add that much has been done, in terms of regulatory changes, to allow for more M&As to emerge in the African market. Indeed, the consensus from the continent is that many of the smaller operators, particularly in the East African markets, will be looking to consolidate in the coming years.
Other M&A activity will no doubt come from outside Africa. Certain markets are already attracting major investment from home and abroad. World Bank statistics show that Tanzania’s telecoms industry received an incredible $42.3 trillion in capital investment between 1998 and 2008, and the rate of investment is still growing.
Foreign firms looking to buy or merge with African telecoms businesses may find they need to deal with several regulatory obstacles. They can rely on local lawyers to help guide them through the process. Any obstacles are also likely to be far less challenging than in the past as the African telecoms industry continues its battle to put itself on the map as a viable global player.