Telcos’ lost charm of Africa

Nevin John, senior editor, Business Today

The African telecom dreams seem to have faded from the memories of Indian communication giants. It was Bharti Airtel, after its aggressive 2010 bid ($10.7 billion) to acquire Zain’s telecom business in Africa, first started reducing its footprint in the region for improving financial performance. Now Tata Communications’ plan to sell Neotel in South Africa also shows the lost charm of the African market.

Tata Communications wants to become fit for the future in the communications and telecom solutions space by selling the non-core assets. The Rs 2,904-crore deal with Liquid Telecom will also be a relief for debt-laden Tata Communications, which has Rs 9,595.22 crore debt on its balance sheet. Vindicating the move, the share price of the company has risen 2.44 per cent to Rs 460.55 a share on Tuesday.

Bharti Africa, which is making losses, announced sale of its operations in Burkina Faso and Sierra Leone to France-based Orange in January. Last year it announced entering into an agreement with Orange to sell its four subsidiaries Burkina Faso, Chad, Congo Brazzaville and Sierra Leone, in Africa. The agreements for the remaining two countries have lapsed.

Africa was considered by telecom giants as a huge untapped market. “But doing business there was tough. The challenges are high and the margins are not attractive,” say sources from telecom industry.

As part of its plan to exit from non-core assets, Tata Communications also scouted for a buyer for its white-label ATM business earlier this year. The targeted valuation was Rs 1,000-1,350 crore ($150-200 million). “They are still looking to bring in a strategic buyer for the business. It is yet to conclude,” sources said. White-label ATM business is not the core business of Tata Communications (erstwhile VSNL), like Neotel, which is the second national operator for fixed line telecommunication services in South Africa.

Neotel was unveiled on 31 August 2006 in northern Johannesburg. Initial holdings by Eskom Holdings, Transtel and two consortiums in Neotel was sold to Tata Communications in 2009 and 2011, which helped the Indian major to raise their stake from 26 per cent to 68.5 per cent. Nexus Connexion and Communitel hold the rest of the stake.

Tata Communications is the largest wholesale voice carrier carrying 53 billion minutes of wholesale voice traffic annually – that’s 1 in 10 voice calls globally. About 1,600 telecom service providers use their network. It owns world’s largest wholly-owned submarine fibre network – more than 500,000 km of subsea fibre, and more than 210,000 km of terrestrial fibre. Over 24 per cent of the world’s internet routes are on Tata Communications’ network.