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Carlos Valdecantos
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An entrepeneur with more than 15 years of telecom industry and consulting experience, Carlos has deep skills in strategy, marketing, sales & distribution, finance, program & project management, planning and implementation and is skilled at leading large, multidisciplinary teams. Carlos... More
My company:
mmC Group
My blog:
Consultant Value Added
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  • MTN-Orascom: What exactly is for sale?

    Wirelessfederation is detailing today what the MTN-Orascom deal means in terms of markets involved in the deal and business contribution per market. If you found our previous post related to Orascom’s internacionalization strategy interesting, you’ll appreciate this update.

    A lot of activity and news has been generated around the MTN-Orascom deal which is said to be in the offing. One of the key things to note, which MTN has experienced over the last 3 attempts (Twice with Bharti and once with Reliance) that a deal could be close and yet quite far. That said, if a deal were to happen, here’s a quick analysis of whats for sale in the Orascom portfolio and why 2 assets are particularly interesting:

    1. Djezzy in Algeria: Top line of $1.86 billion with a 46% market share (14.6 million subs) and a 57% EBITDA margin! This is the crown’s jewel. However, there is a downside here as well for some key reasons. Orascom’s relationship with the government and the regulator is strained and Q4 2009 results suffered on account of backdated taxes and penalties. Djezzy has actually seen market share decline by 5 percent and ARPU declined by 16% in 2009. Mobile penetration is in excess of 90% and Q-tel owned Njedma has proven to be an aggressive competitor. Numbers are big and exciting but the hay-days might just be getting over pretty soon though.

    2. Tunisiana in Tunisia: Orascom owns half of Tunisiana alongside it’s arch rival in Algeria, Q-Tel (Wataniya) which owns the remaining 50 percent. With 53 percent market share (5.2 million subs) and 54% EBITDA margin this is another rock and roll story. However, with Orange launching and that too with an exclusive 3G license, pressures will build up sooner rather than later.

    3. CellOne Namibia, Telecel Zimbabwe, Telecel Central African Republic & U-com Burundi together have 1.8 million subscribers and contribute only $81 million to the top line. Advantage MTN: With the 2 key markets facing pressure, MTN is very well positioned to make the most of the situation and ensure that margins are intact or could even be expanded if it plays out its cards right with what it knows best about innovative and dynamic pricingmobile money and fantastic Value added services. Understandably Q-Tel and Orange need to watch this space closely.

    Orascom is not interested in selling Mobinil and MTN is not interested in Orascom’s mobile businesses in Canada, Pakistan, Bangladesh and North Korea. Nor does it want Orascom’s minority stake in ECMS, Egypt’s leading mobile operator. No deal structure had been finalised between MTN and Orascom… yet.

    Enjoy the reading. Best, CVA 

    Disclosure: No positions
    Tags: MTN, ORSTF, telecom, M A
    Apr 28 9:59 AM | Link | Comment!
  • Strategic reflections on telecom on-net / off-net differential in developing markets
    The differential between on-net and off-net prices on mobile telephony networks is an issue that is hotly debated between telecoms operators and regulators. Small operators contend that their competitors’ high off-net prices are anticompetitive forcing them to face aggressive on-net strategies to drive market (or sim) penetration at a cost of significantly increasing on-net versus off-net price differentials.

    It is now widely recognized that new entrants in mobile markets face a barrier to entry due to the structure of prices charged by incumbent networks. In particular, on-net versus off-net price differentials create tariff-mediated network externalities which make larger networks more attractive to consumers than smaller networks. When on-net calls are priced below off-net calls, ceteris paribus, subscribers to large networks experience lower average call charges than subscribers to smaller networks, since more of their calls are made on-net. This makes larger networks more attractive and places smaller networks at a competitive disadvantage.

    It’s therefore important to establish a determined strategy as a challenger since day one after commercial launch. Third, fourth or even fifth entrants should realize of the impact of diverse on-net and off-net strategies before launching them to the market. A problem for the smaller and challenger operator appears when someone knocks to your door asking for a wholesale agreement with the objective of launching a mobile virtual network operator. If this case occurs, the small operators should face the questions: is this interesting for me? and case it is: can I afford this?

    This was, for example, the case of our client, a multi-operation african telecom provider, to whom we were supporting to define a successful MVNO business model and contract agreement between MNO and MVNO. Our client had a more-than-aggresive price per on-net minute and when defining the wholesale business plan, we saw that the numbers would hardly fly at a shareholders perspective because of the aggressiveness of the current retail on-net prices. How can you expect to close a win-win wholesale deal if your retail price can hardly offer a discount on top?

    But this is not just a retail vs wholesale problem. Large price differentials for on-net and off-net calls are common in most developed and developing mobile markets. If networks don’t have (or have roughly equal) termination costs, economic efficiency requires equal on-net and off-net call charges.

    Now, where do you establish the equilibrium in price differentials for on-net and off-net calls to react to incumbent and large operators? There is another case I’ve recently seen in Central America in a third mobile operator trying to compete against the incumbent through ultra-aggressive on-net and off-net promotions, incurring in more than a 45% premium discount in price calls. Our client thought that this positioning could fight against the incumbent while the incumbent’s pricing decisions were specifically designed for clear predatory activity against our client, i.e. trying to hold down its profits and reducing the “competitive punch” of the third entrant.

    In our opinion our client’s pricing strategy has been a recurrent error as 1) they didn’t see the real objective of our competitor’s positioning and more importantly 2) our client’s strategy didn’t show the expected success (measured in billed traffic increase and/or customer acquisition) of such strategy in the last 12 months. In the meantime, our competitor has continued charging higher off-net prices even without anticompetitive intent.

    Predatory behaviour will be surely accompanied by larger on-net/off-net differentials even if access charges are set at cost. the on-net vs. off-net differential is driven not only by the level of termination charges, but also by the utility of receiving calls (the call externality) and the relative size of networks. Net, net, the large networks charge significantly higher off-net prices, and set a higher on-net / off-net differential. This happens because the presence of the call externality gives incentives to the large network to limit off-net calls in order to make the smaller network less attractive. Thus even while a large differential may not be the main weapon for predation, it can indicate its presence.

    Having written this, on-net vs off-net differential is a topic with lot of literature behind. After addressing this issue in niche markets in Africa and Latin America for several times, we are still passionate consultants about it. We have additional insights and tools to provide pragmatic and decision-oriented approaches to win the on-net vs. off-net disjunctive. Feel free to visit consultantvalueadded.com or contact us for additional details.

    Nice reading. Best regards.
 CVA



    Disclosure: No positions in any referred company
    Mar 03 6:09 AM | Link | Comment!
  • Key questions of a scenario planning after recession.

    In these fast-changing and turbulent times, businesses are facing an uncertain future and conventional business models may no longer be viable. Many management teams will need to re-assess their operations and consider a number of possible scenarios.

    As explained before in several articles in this blog, mmC Group thinks nobody can predict what is likely to happen to the overall economy, or indeed, the impact the current downturn may have on the telecom (or any other) industry or on a particular corporate. There are likely to be a range of outcomes, but to survive, management teams need to plan for the potential eventualities.

    Managing in a downturn is all about being flexible, anticipating and reacting quickly to changing circumstances. This helps mitigate risks, while also positioning companies to seize any opportunities which arise. Investing management time in planning for different scenarios is not a luxury – given the volatility of the current economic environment, it is a necessity.

    We’ve been recently supporting a “Scenario planning” department within a telecom operator in a Assessment of an economic downturn scenario and its impact in their group operations in Europe. This group required business intelligence on the external environment and an objective assessment of internal situation across countries. A common assessment of the divergent scenarios help the operator identify the actions to be taken today in order to mitigate the negative impact or take advantage of the opportunities offered in the future.

    The work was done for the CEO that came to us asking: What questions should I ask myself? Here are some of our suggestions:

    • How will the telecom business be impacted by an extended economic downturn?
    • What geographies in which the company operate in will be impacted most? What are the likely repercussions for the industry and geographies?
    • To what extent have we stress-tested our forecasts to account for changes in performance and outlook?
    • Have we stress-tested forecasts over different time periods to reflect a potentially extended economic downturn?
    • How good are management reporting and information systems at highlighting potential issues?
    • What areas need to be monitored carefully?
    • What are the key vulnerabilities in the operator’s business model? Is my model flexible enough to allow us to adapt quickly to a new environment?
    • What is my long-term financial position? How significant would a material loss of revenue be?
    • What are my competitors doing and are there opportunities for organic growth in the sector?
    • How bad should performance get before we face a covenant/facility breach?
    • Am I appraising the board regularly on performance and scenario planning/management?

    I won’t share the final outcome of the project but I would like to share some relevant slides related to the market and the general impact on some major telecom KPIs. Please find next the link to the presentation: consultantvalueadded.com/2009/11/27/key-.../

    Enjoy the reading.

    CVA. Happy Thanksgiving weekend to all!

    Nov 27 9:57 AM | Link | Comment!
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