IHS Global Insight Perspective | |
Significance | France Telecom is assessing a relatively risky market compared to its other operations. |
Implications | Etisalat expressed interest in Korek around two years ago, but very little news has emerged on its progress—indicating that working with the operator may be very difficult. |
Outlook | The Iraqi mobile market is dominated by two players, but there is room for competition due to high growth rates and relatively low penetration. Korek is in need of a partner that can help it expand. |
France Telecom is in talks with Korek Telecom for a possible minority stake in the third Iraqi mobile licence holder, Reuters News reports. Korek Telecom won a national mobile licence at the end of 2007 along with existing operator Asiacell which is owned by Qatar Telecom through its stake in Wataniya and new entrant Zain (at the time MTC) which later bought Iraqna's old mobile assets for US$1.2 billion. Korek at the time still only operated in the Kurdish region, but it unexpectedly won a national licence. France Telecom only recently expressed interest in Korek (see Iraq: 14 May 2010: France Telecom Considers Investment in Iraq's Mobile Market); one of its key strategies has been to enter emerging markets. Since winning the licence, the operator has struggled with funding and been unable to deploy a national network. There has been limited partnership interest from other operators to assist it in deploying a national network, however Etisalat, the region's largest operator that also expressed interest in the mobile licence was also in talks with Korek to help it deploy a national network. The likelihood of a deal forming is almost zero as Etisalat is in the process of acquiring 46% of Zain.
At the time, the Iraqi mobile market was considerably more risky due to a range of political and national security problems. Its mobile market is one of the fastest growing in the region and is heavily relied on as fixed-line networks were almost completely destroyed by the war, mobile penetration is now 72%, jumping around 20% on the previous year.
Outlook and Implications
- Limited Licence Availability: The Middle East region went through a wave of liberalisation between 2006 and 2009 primarily for mobile licences but other segments of the communication sector too such as fixed-wireless. Fees for licences rocketed up until the financial crisis, but since then there have been very limited opportunities to acquire new ones. Syria and Lebanon are the only two countries which have mobile licences available for sale within the year, however are unlikely to receive high prices as network roll-out in these countries will have a very high capital expenditure requirement not to mention a lower asset prices. Over the past year, operators have been seeking merger and acquisition opportunities and currently there are major deals being examined such as Etisalat's acquisition of 46% of Zain and VimpelCom's acquisition of 51.7% of Orascom telecom. These major operators are unable to find fresh opportunities through licence purchase and are opting for M&A activity instead.
- France Telecom Strategy: France Telecom has expressed interest in exploring emerging markets for the growth it needs. Its key interest lies in Africa and the Middle East, but it is also keen on Asian assets. While it has no specific target, and is only considering a small number of possible markets, the operator is eyeing the former French colonies of Vietnam, Cambodia and Laos. France Telecom's five-year plan to increase its subscriber base by 50%, to 300 million, by 2015, through a programme of strategic acquisitions in emerging markets, has been well-publicised (see France: 6 July 2010: France Telecom Aims for 50% Customer Growth by 2015 with New Five-Year Plan). The strategy has faced some fears by conservative shareholders with sentiments that the operator's strategy is on the more radical side. However, the operator has responded to investor reaction by stating only the right acquisition opportunities would be identified and if not, France Telecom would direct its cash towards share buybacks.
- Korek Requirements: Korek currently operates in the northern territories of Iraq, primarily the Kurdish region. It paid US$1.2 billion for a national mobile licence almost three years ago now but has yet to do anything with it. Most operators in the region who have won a licence are able to launch a network just over a year after winning a licence, even in markets with relatively tough operating conditions. The market is dominated by Zain and Asiacell, however there is room for competition as mobile penetration is relatively low compared to the rest of the region and there is strong demand for mobile services across the country. Korek needs to partner with a strong international player which can compete against the likes of Zain and the Qtel-backed Asiacell.