The rationale of paying premiums in an uncertain world

A senior telecoms executive from the Gulf region told me a few months ago that geographic expansion by service providers from the region was not a challenge in itself. He pointed out that the real challenge came in exercising constraint and pursuing such a programme in an economically efficient manner, ensuring that value could be maintained and created through the investment.

News that Etisalat has finally gained a foothold in the expansive Indian mobile telecoms sector through buying into GSM licensee Swan Telecom for US$900 million reminded me of that, ‘expansion at any cost’ conversation. Etisalat’s investment in Swan Telecom values the licensee at US$2 billion, though it was just a few months ago that the India bidder paid a small fraction of that amount to gain GSM spectrum in 13 of India’s 22 telecoms circles.

Etisalat has been asked to justify paying high premiums to enter new markets in the past, its bids in Saudi Arabia and Egypt coming immediately to mind. And to its credit, in each case, Etisalat’s big money investments have gone on to become stellar performers, with its Mobily operation in Saudi being a case in point.

Despite these successes, it remains a valid question to consider when a potential investment slips down the other side of viability and what early indicators are there to prevent potential investors from over-spending in such an instance. In India, given the licensing of an additional six new GSM players in total earlier this year, what will be
interesting to watch is whether other established operators will be lured into paying top dollar for a slice of the action, and over time, whether such premiums will be justified.

This month’s issue of Comm. is laden with updates on the strategic developments of a number of mobile handset manufacturers. This did not happen by design; it was simply a case of many of these players generating compelling stories in recent weeks, which we felt we needed to highlight.

At the end of September, Research In Motion (RIM) warned that current-quarter profit would lag estimates as it spends more money developing a new crop of BlackBerry smartphones and forecasted weaker-than-expected gross margin. In the Middle East, however, the smartphone manufacturer continues to perform well, so much so that it is looking to open a representative office in Dubai before year-end.

Samsung and LG are two handset manufacturers that have taken advantage of some of the weakness present within the market in order to consolidate their respective positions and attempt to close the gap on runaway leader Nokia. We speak to both companies’ Middle East managers for a taste of what each considers being the respective handset manufacturer’s ingredients for success, and how this is being replicated in emerging markets.

Comm. also travelled to Finland with Nokia in order to gain an insight of what the dominant handset manufacturer is conjuring up from a product portfolio perspective. We reveal the things Nokia is doing that none of its competitors are; a situation that may explain its 40 per cent market share.

In the UAE, a mobile TV licensing process is currently underway, which will pave the way to a new generation of mobile content, and we review what the mobile TV proposition may entail.

There’s also time for a quick look at the Ugandan telecoms market ahead of the inaugural one-day UgandaCom conference taking pace in Kampala on October 22. Uganda has developed to become one of the most competitive telecoms markets on the continent and Comm. considers the prospects of the numerous operators and licensees over time.

Tawanda Chihota, Group Editor