Etisalat Enters Nigerian Mobile Market via Stake in Mubadala

Competition in the Nigerian mobile market is set to intensify even further as the fifth licensed operator, Mubadala Development Company (MDC), has selected Etisalat to run its Nigerian mobile operations. MDC, which is a strategic investment and development vehicle established and wholly-owned by the government of the Emirate of Abu Dhabi, has sold a 40% stake in its Nigerian operations to its home-country incumbent telco, Etisalat, ending speculation on who will emerge as the operator of Nigeria's fifth mobile network. In a statement, MDC said Etisalat came top among five unnamed companies that made the shortlist in the process of identifying potential operating partners, carried out by investment bank Goldman Sachs. "Based on our understanding of the market, we believe Etisalat is in the strongest position to bring maximum value to the operations, leveraging their international footprint and operating experience in Africa," said Waleed Al Mokarrab Al Muhairi, chief operating officer of Mubadala. The unnamed companies ostensibly include Vodafone, which was reported to be in talks with MDC to run the service (see Nigeria: 21 August 2007: Vodafone In Talks on Taking Stake in Nigerian GSM Licensee—Reports).

MDC, which paid US$400 million for the licence in January 2007, was granted a 15-year renewable Universal Access Service Licence (UASL), with allocated frequencies in the 900 and 1800 MHz GSM band. The company is expected to launch commercial mobile services by March 2008 and also has the right to provide fixed-line, voice, and data services, and establish an international gateway. MDC will retain a 30% stake, while Nigerian investors will hold a 30% stake in the operations (see Nigeria: 23 January 2007: Mubadala Development Company Meets Payment Deadline for Unified Licenceand 12 January 2007: NCC Issues U.A.E. Company with Mobile Spectrum for US$400 million).

Outlook and Implications

• Etisalat's Nigeria Gamble: Etisalat's foray into the Nigerian market is a bold attempt to force its way through the already tough competition in the Nigerian mobile arena. As Africa's soon-to-be largest mobile market, the Nigerian mobile sector is dominated by MTN, Celtel and Globacom, with M-Tel lurching tepidly behind. Etisalat already has first-hand experience after its strategic partner stint with NITEL/M-Tel and would have learnt some key details about the intricacies of the Nigerian market. Perhaps that also helped explain why MDC's financial advisers pitched for Etisalat instead of other contenders, such as Vodafone. Crucially for Etisalat though, the MDC deal gives it the best chance of getting into the Nigerian market, and the right to tap into the burgeoning opportunities therein. By becoming the largest stakeholder in MDC's Nigerian operations, Etisalat has effectively bought its way into the Nigerian market, supporting the company's long-stated desire to diversify abroad from its highly mature UAE home market (see Nigeria: 1 February 2007: Nigeria Reaches 32.3 mil. Mobile Subscribers as of Decemberand 4 July 2006: Transcorp Wins NITEL Stake with US$750-mil. Bid).

• An Insurmountable Task: Although Etisalat may hope to dislodge the market-share status quo in the Nigerian mobile market, the odds are stacked against it making much headway. Apart from the existing four mobile operators, a plethora of private telecoms operators (PTOs), armed with unified licences, are actively eating into the mobile market. For Etisalat, its key ambition would be to either offer a cheaper tariff option or to offer better mobile services for the Nigerian market. Expectedly, Etisalat would want to compete on price, offering cheap tariffs to entice customers onto its network. But such a move is likely to be matched by rivals and, in any case, will require such massive subsidies to make the financial status of the Nigerian operation uncertain. Unfortunately for Etisalat, because of the dire lack of network capacity from the existing operators, it will be under massive pressure to embark on a record-breaking network roll-out to at least convince users that it is capable of offering more than patchy network coverage. Besides, as mobile phone ownership becomes more commonplace, and people identify with their mobile numbers, the absence of mobile number portability in Nigeria means there is a hurdle to be overcome to convince users to ditch their former mobile numbers. Worse still, unless Etisalat teams up with a 3G player like Alheri Engineering, it may find it impossible to compete on data services and portraying itself as the "Hutchison Whampoa" of Nigeria (see Nigeria: 4 July 2007: Celtel Buckles Under Promotion Pressureand 21 March 2007: NCC Awards Four 3G Licences).