PCCW
joins China's rush to Africa By
Gavin du Venage
Africa is second only to
China in the pace of growth of its
telecommunications sector, which makes it all the
more surprising that Asian companies have been
noticeably low-key when venturing into this field
on the continent. This may be about to change.
Earlier this week Hong Kong-based PCCW
said it had bought a satellite center from South
African mobile-phone provider Vodacom for US$26
million. Vodacom's Gateway satellite facility near
Johannesburg beams mobile phone signals into the
rest of Africa. Following the deal, Vodacom will
now purchase satellite time, should it need it,
from PCCW.
The announcement follows a
similar one from a few days earlier, when
Shenzhen-based Huawei said it had won a contract from
Telkom, South Africa's
state-controlled fixed-line and broadband
provider, to participate in a much-needed
infrastructure overhaul.
"This is the
largest fixed network modernization project for
Telkom," says Peng Song, Vice President of Huawei
South African Region. Telkom is Africa's largest
fixed-line telephone operator, and dominates South
Africa's broadband service, but aging
infrastructure and fierce competition from mobile
operators have eaten away its market share.
The telecommunications revolution in
Africa has been nothing short of extraordinary. It
has broken with the African narrative of the past,
in which money goes in search of cheap commodities
that are then shipped elsewhere to be turned into
items of value.
Instead, the bulk of
investment has been in fixed infrastructure that
has a direct benefit to the nearly one billion
people who call Africa home. Total investment is
expected to reach $70 billion in the next two
years, the United Nations' International
Telecommunications Union predicts.
"Market
liberalization and governments loosening their
grip on telecommunications have driven the
growth," says Chris Ngwenyama, a telecoms analyst
at Africa Analysis in Johannesburg. "Combine this
with the lack of fixed-line telephones, and it
means that you have a desperate need for
communications."
South Africa's MTN and
Vodacom, Bharti Airtel of India and Gulf-based
Etisalat are among the largest players, up and
down the continent. France's Orange and the UK's
Vodafone are also represented. Almost all
providers carry out their business with some sort
of joint venture with either a state-controlled
operator or locally owned entity.
With
many Africans going from cradle to grave without
ever owning a landline, the advent of mobile
communications has been embraced as a
life-changing event. For most, picking up a mobile
phone was the first time they had made a call.
Now, with the advent of smartphones and
tablets, a parallel revolution of Internet
connectivity is expected to follow. For companies
like Huawei, ZTE (China's second-biggest
phone-equipment maker) and PCCW, this may be the
gap they need to get into an intensively
competitive environment.
The
rough-and-tumble of African telecommunication
politics would appear particularly suited to
Chinese companies, which have already made their
mark in other industries across the continent. So
far, though, their presence has largely been
limited to support infrastructure.
Two
years ago, Wang Jianzhou, then board chairman and
chief executive of China Mobile, the world's
largest mobile-phone carrier, said the company was
looking for acquisitions in Africa, and was
willing to take either a minority or majority
stake in a local operator.
"We pay much
attention to the African operators, but we don't
have a target company currently", Wang told
Reuters. "It is not easy to get an agreement for
M&A [mergers and acquisitions]. We can have a
majority; we'd also like to be the minority."
So far it appears he has not found a
suitable deal. Part of the failure of Chinese
companies to secure operating licenses or
partnership deals may be wariness on the part of
some African countries on the business model that
they bring with them.
"There's a bit of
paranoia, you could say, that Chinese companies
will bring in skilled Chinese employees, technical
engineers and so on, which costs local jobs," says
Ngwenyama. "When it comes to mobile operators, as
opposed to equipment suppliers such as Huawei,
governments are far less willing to do business
with them."
This may also explain why
Huawei, which was initially noted for its
network-building expertise and has since branched
out into providing handsets and other mobile
telecom devices, pointedly notes on its website
that it now employs 2,000 people in Africa, "more
than half of which are local". It now operates in
30 countries on the continent, and appears to be
aiming to grow from a behind-the-scenes equipment
supplier to a stage where it is the handset of
choice for Africans, and eventually, the rest of
the world.
Just as many Africans make
their first ever phone call with a mobile handset,
so do they now increasingly access the Internet
for the first time on a hand-held device. Huawei
appears to be using Nigeria as a proving ground
for its handsets and smartphones, which it intends
pitting against international rivals such as Nokia
and Apple. The Wall Street Journal reports that
Huawei has targeted world-wide revenue from device
sales to rise above $6 billion this year, from
$4.5 billion last year.
Huawei is also
aggressively rolling out its branded modems,
routers, tablets, fixed and cordless phones, and
mobile phones in Ghana. In 2005, it signed a $150
million agreement to hook up government and state
institutions to the Internet and drive the
installation of broadband and optic fiber networks
in the West African country
South African
telecommunications companies also have a strong
relationship with Huawei and ZTE. Its four
operators are all using Huawei and ZTE equipment
in their networks.
All of which makes the
PCCW deal all the more intriguing. David Lerche,
an analyst at Avior Research in Johannesburg,
points out that satellite carriers are the least
attractive option to move signals, as they are
expensive and less reliable than fibre optic or
copper wire. "Vodacom sold it because it was
no-longer making a profit. Maybe PCCW thinks it
can turn it around," he says.
He raises
another possibility: because the African mobile
market is already sewn up, the only way to acquire
a good quality license anywhere on the continent
would be to buy it. Even with a market
capitalization of around $3 billion, PCCW would be
unlikely to afford this route. China Mobile,
however, with cash reserves of $50 billion, most
certainly could.
"China Mobile could buy
MTN twice," says Lerche. Quite possibly PCCW is
positioning itself to take advantage of a move by
the $200 billion Chinese operator to finally move
on an African license. Or even on an African
mobile-phone operator itself.
Should China
Mobile launch itself in Africa, it is likely that
it will need locally established partners to build
synergies, reduce costs and help ease its way into
a fiercely competitive environment. By planting
its flag in southern Africa, PCCW's goal could be
less about running a satellite service, and more
about laying the foundation for future cooperation
in Africa with the world's largest mobile-phone
company.
Gavin du Venage is a
business writer in South Africa, specializing in
commodity and investment analysis.
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