Shake-up in the African telecom sector

A shake-up of Africa’s telecom sector is underway. Soon after French telecoms giant Orange said it would seek to expand its presence on the continent, Vodafone is re-evaluating its engagement there. Investors may have to brace themselves for some unpleasant consequences from the shake-up.

Capital News Africa: From the trading floor – Week 8-2023

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Events are developing rapidly in Africa’s telecoms market. In our newsletter from Monday, the lead story was about a market offensive in Africa undertaken by French telecoms giant Orange (ISIN: FR0000133308).

Now Bloomberg reports that Vodafone (ISIN: GB00BH4HKS39) has doubts about its considerable African engagement.  The report says: “The group is exploring options for its USD 14 billion African unit, as investors ramp up pressure on the UK telecom company to boost performance.”

Blast for the telecoms sector

If Orange’s announcement was a blast for the African telecoms sector, how should we describe Vodafone’s re-evaluation of Africa? Even a bigger blast, that’s for sure. The British company has, until now at least, considered Africa to be a core market. It has, for example, a 65% stake in South African telecom company Vodacom (ISIN: ZAE000132577). It also transferred its 35% stake in Kenya telecoms operator Safaricom  (ISIN: KE1000001402) to Vodacom in exchange for a payment of GBP 2 billion (EUR 2.25 billion).

According to Bloomberg, all options for Vodafone’s African business are being looked at. “The early-stage considerations range from merging the business with other operators or divesting some assets in certain markets, to selling a stake in the company,” the Bloomberg report says.

Quite similar views

So, with respect to what Orange and Vodafone have announced, how could their view of Africa be so different? We believe that their view of the market is actually quite similar - namely that it has significant growth potential. It is their approach that is so different.

Orange wants to participate in this growth, while Vodafone, ostensibly under pressure from shareholders, wants to capitalise on its success so far as it has done with other assets previously. Last year, Vodafone sold its stake in telecom tower operator Vantage Towers (ISIN: DE000A3H3LL2) for EUR 16.2 billion.

The buyer was a private equity consortium. This sale, as well as reevaluation of the African business, are likely a result of pressure from big investors in the company. They include French media mogul and billionaire Xavier Niel as well as the American entrepreneur, who is invested in Vodafone via Liberty Global (ISIN: GB00B8W67662). It is also for this reason that we believe that Orange’s announcement is a sign of strength, while Vodafone’s a sign of weakness.

Emirates could be interested

But remaining in the sphere of speculation, who might be interested in Vodafone’s stake in Vodacom? Certainly, Emirates Telecommunications Group (ISIN: AEE000401019), a firm dominated by the Emirates Investment Authority, comes to mind. This candidate, formerly known as Etisalat, operates the telecoms brand “e&,” which already competes with Orange in western Africa. Emirates Telecommunications declared its firm interest in Vodacom last December.

Should Vodacom be ceded to Emirates Telecommunications, that would leave four big players in the African market: Besides Emirates Telecommunications and Orange, they are Bharti Airtel (ISIN: INE397D01024) with its 56% subsidiary Airtel Africa (ISIN: GB00BKDRYJ47); and MTN (ISIN: ZAE000042164), the South African telecoms giant that also is active in Nigeria, Ghana, Ivory Coast, Uganda, Cameroon, Zambia and Sudan.

Telecoms are, in any case, a very capital-intensive business that will require even more investment amid the adoption of 5G, 6G and 7G technologies. It is also because of this that Africa’s telecoms market should become even more competitive.

There is one important thing to consider when it comes to investments in African telecoms. The shares tend to be volatile and hence suitable for those who want to invest for the longer term.