A report from Moody’s Investor Services predicts that Africa’s maturing telecoms sector looks set for further consolidation. African nations with 4 or more operators or those with operators owning less than 15% of the market are more likely to see more deal activity driven by the need for in-market consolidation.
Currently, the average number of operators to be found in African countries stands at three, with some countries such as Uganda, Cote d’Ivoire and Tanzania having as many as six. As some of these third and fourth-tier operators seek to expand their market share or boost profitability by cutting costs, they’ll be forced to link up. Operators may also pursue tower sales, network sharing and outsourcing to specialist third party providers in order to relieve their cost pressures.
“Not all countries are able to support a large number of operators, and smaller wireless operators are finding it increasingly difficult to compete and increase their market share profitably,” says Dion Bate, Vice President — Senior Analyst and a co-author of the report. “Companies considering potential mergers or acquisitions will be hoping for cost savings through improved economies of scale and the opportunity to apply uniform and improved branding, service and product offerings.”
Africa’s telecoms market is made up of a mix of local, regional and international operators, some of whom have established competitive regional footprints. According to the report, with many of the international firms facing increasing capital expenditure demands and falling revenues in their core domestic markets, they will be less likely to undertake additional M&A activity in Africa and indeed may look to dispose of or rebalance some of their assets on the continent, especially in those market where they have smaller shares.
The report anticipated that regulators will look less kindly on deals that allow the larger operators to consolidate their positions, favoring instead deals between firms with lesser market shares who proposed deals that expand service offerings, buttress market stability and encourage increased capital investment.
The report predicts that some operators will need funding to fulfill their M&A ambitions, which may be particularly tough for those smaller operators with significant operational exposure to sub-investment grade countries and regions in East, West and southern Africa.