Zain to partner with Telkom?

Johannesburg, 19 Aug 2008

Kuwait-based cellphone group Zain is reportedly eyeing an entry into SA's mobile phone market and a possible partnership with Telkom.

Zain Mobile initiated its expansion into Africa in mid-2005, with its purchase of Celtel International for $3.36 billion. It is currently raising $4.5 billion to finance further expansion in Africa and other emerging markets.

With a subscriber base exceeding 50 million customers, Zain Mobile operates in 22 countries across Africa and the Middle East, with operations in Saudi Arabia, Kuwait, Lebanon, Iraq, Jordan and Bahrain, Sierra Leone, Burkina Faso, Niger, Sudan, Nigeria, Chad, Gabon, Uganda, Kenya, Zambia, Tanzania, Madagascar, Malawi, the Republic of Congo and the Democratic Republic of Congo.

The company's main rival in its sphere of operations is the MTN Group, which has a subscriber base exceeding 40 million, with African and Middle East operations, spanning 21 countries.

Of particular interest to industry observers is what strategies Zain Mobile will implement to compete in SA's mobile market, which is considered to be nearing saturation point. Frost and Sullivan ICT analyst Spiwe Chireka says SA's mobile market will prove challenging to enter as the current three operators are aggressively defending their market share.

"It took Cell C close to seven years to turn a profit and Cell C entered the market before it was anywhere near saturation and the economy was growing more strongly than it is now," says Chireka.

Disruptive technology

He further suggests Zain Mobile may be required to introduce either an aggressive data or disruptive technology into SA if it is to claim a significant share of the local mobile market.

"The only area that still has high growth potential in SA is the mobile data space," Chireka points out. "But, with the likes of Telkom making inroads into that sector, competition is likely to be cut-throat."

Zain Mobile, for the moment at least, declines to provide details on how it plans to penetrate the South African market and who a possible partner might be. To begin its South African operations, Zain requires a licence and access to the crucial spectrum required to operate a mobile network.

Given how the Department of Communications delayed the licensing process of second network operator Neotel, Zain Mobile could well be wary of the time taken to implement the licensing process.

Zain Mobile spokesman Antoine Aboukhalil confirmed the company's interest in launching South African mobile operations.

"Zain is interested in operating in SA if an additional mobile licence is offered by the South African authorities and subject to us attaining such a licence," he says.

No foundation

When asked about a possible partnership with Telkom, Aboukhalil says there is no foundation "just yet" to draw any conclusions.

In this regard, Zain could find a partner in Telkom, who has both a licence and the capacity to run a mobile network and is in negotiations to offload its 50% stake in mobile partner Vodacom. This is as a result of Telkom's disagreement with UK-based Vodafone, which owns the other 50% of Vodacom, about how Vodacom should expand its African mobile operations.

Telkom has recently accessed the crucial 1 800MHz to 2 100MHz band required to launch a fixed wireless network, which it has been entitled to since 2001 with the Telecommunications Amendment Act of the same year.

Although Telkom has indicated that a partner will be taken onboard to launch its mobile challenge into the South African market, CEO Rueben September has declined to indicate who that partner might be, saying that "I can tell you there will be partners available".

Telkom has, in the meantime, contracted Chinese firm Huawei to construct its local mobile data and fixed wireless network that is expected to see the connection of pilot customers in September this year.

Regarding a potential partnership with Zain Mobile, chief of strategy Naas Fourie says: "While Telkom will continuously explore all avenues at all times in its endeavour to enhance shareholder value, it does not deem it prudent to disclose the entities with which it has entered into discussions."

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