Africa Telconomics

Rwanda's Third License Opportunity: We Like it – at the Right Price

At the end of June, the Rwandan telecoms regulator, the Rwanda Utilities Regulatory Agency (RURA) invited bids for the country’s third unified telecommunications license. The third license follows the sale of an 80% stake in state-owned operator Rwandatel to Libya’s Lap Green Networks for $100m in November 2007. The market’s other player is MTN Rwanda, which controls around 95% of Rwanda’s mobile subscriber and revenue bases.

The Government of Rwanda (GoR) can hardly be blamed for putting another license in the market. In the Rwandatel transaction (and we suspect, much to the GoR’s happy surprise), the state-owned operation was valued $100m+ higher than in a previous transaction a mere five months earlier. This was largely because of the inclusion of a mobile license as part of the company’s assets. We like this opportunity - as long as the price is right:

• Despite an      already low marginal ARPU, the nearly $100m (2008F) Rwandan mobile market      will generate more incremental cumulative revenue over the next five years      than it has over the past five.
• The overall cost      environment is among the most attractive in Africa for a mobile operation.       
• The challenge      lies with competition. Market leader MTN is entrenched and profitable, Lap           Green/Rwandatel is somewhat unpredictable and      presumably cash rich.

Using a mix of comparable transaction and discounted cash flow analysis, we estimate fair value around $5m-$12m, with a maximum value of $15m-$20m including a “goodwill premium”. Anything above $20m, in our view, is silly money.

Is Globacom’s Sixth Mobile License Economically viable?

On June 20, Ghana’s National Communications Authority (NCA) announced it had awarded the country’s sixth mobile communications license to Nigerian operator Globacom Communications. Some investors may find it doubly puzzling, first that Ghana would auction a sixth mobile license in a market with a population of 22m, and second that some players would bid as much as USD50m for it. We do not.

From the standpoint of the NCA, we find the transaction highly justifiable. For Globacom, we believe the economics of the deal are questionable, at least on the surface, but there is a “bigger picture” factor that may make it worthwhile. Our analysis makes four main points:

• It has been suggested that it is somewhat excessive of Ghana’s telecoms regulator to award a sixth mobile license. We do not believe it is. 

• Ghana’s mobile market is unusually deep. Market shares have a top-heavy slant, there are few signs of growth softness and existing margins are high.

• In our view, the license fee is a relatively minor issue; the challenge in making the investment viable lies with the Capex requirements of the venture. For this reason, announced investment plans do strike us as mildly excessive.

• Globacom may be enigmatic, but its moves are always underpinned by ruthless business logic; this one is no exception.

Full analysis:Download arn_globacom_ghana.pdf