France Telecom's New Push in Africa, Asia

France Telecom has hinted at a strategic push into emerging markets where there is still substantial room for growth. It is eying acquisitions in Africa and Asia, but concedes that there is little room for success in pushing into Latin America. 'We have a certain number of specific ideas in regions where markets are rapidly growing,' chief executive Didier Lombard told a telecoms forum. 'It's rather in Africa or in Asia. In Latin America, there is Telefónica, which has a very strong position’. France Telecom currently has operations or stakes in 10 European countries, eight African countries, one Latin American country, one Asian market and an affiliate in Tahiti (in the Southern Pacific region). Outside of Europe, the company mostly has stakes in nations with historical ties to France. A rebranded France Telecom, operating as Orange, has a brand appeal that can permeate beyond its existing boundaries (see World: 1 June 2006: France Telecom Adopts Orange Brand for Internet, TV and Mobile Services).

Outlook and Implications

• Reaching Beyond Europe: Lombard's comments reiterate a widely held view that stagnating markets in Europe necessitate an increased push into emerging markets. Despite substantial growth opportunities for broadband in Europe (penetration was at 11.45% by September 2005), the maturity of Europe's mobile market is the biggest cause for concern. Expectedly, mobile communications remain the most enticing bait for any potential investor in emerging markets. Compared to an average mobile penetration of 91% for the 25 European Union (EU) countries at end-2005, penetration in China at the same point hovered around the 30% mark, Africa was yet to hit the 15% mark, and India was still at sub-10% penetration. Perhaps Lombard has given the signal to European telecoms stalwarts to begin the race to grab telecoms assets abroad. Telefónica has, inadvertently, claimed the Latin American market, leveraging its long-term association with the continent. However, historical factors are becoming less important; Telefónica has also become the first European giant to gain a footing in the burgeoning Chinese market. Perennial hunter Vodafone has not been left out either; it has snapped up assets in India and boosted its stake in several African assets. Constrained by an even more mature home market, the Nordic players - Telenor and TeliaSonera – have being pushing into Eastern Europe, Asia, and the former Soviet Union.

• Opportunities Beckon: The chief opportunities include buying stakes in existing companies, acquiring licences, or the privatisation of state enterprises. Unlike in Western Europe, where Swisscom and OTE are the only incumbents yet to be privatised, there are some sell-off opportunities scattered around emerging markets. Mobile licences are getting scarcer, and 3G licensing in China and India may throw up interesting battles. However, the big push will be in acquiring existing companies that have already demonstrated their capacities to operate and survive in the prevailing scenarios of emerging markets. In Africa, the mobile market is concentrated in the hands of a few companies – MTN, Vodacom/Vodafone, Celtel, Millicom, Orascom - grabbing any of these would bring a bouquet of assets. Although the need to exploit opportunities when they emerge will remain paramount, concerns over debt, shareholder wariness and the need to avoid overpaying for assets will continue to subdue the acquisitions market (see Sub-Saharan Africa: 7 April 2006: Mobile Metrics - Expansion, Acquisitions and Future Growth Prospects in Africa and India: 17 March 2006: Mobile Metrics - Growth, Acquisitions and Regional Disparities in the Indian Mobile Market).