France Telecom bullish on Middle East despite unrest

Reuters, Friday 1 Apr 2011

Countries with low mobile usage and high-growth potential remain priority, says vice-president

France Telecom aims to continue its expansion in the emerging markets of Africa and the Middle East via two or three acquisitions a year, but will not bid for Syria's mobile licence, an executive told Reuters.

Elie Girard, executive vice-president of strategy and development, said France Telecom's priority was countries with low mobile penetration and high growth potential and that recent political unrest was not derailing its ambitions.

"We want to build a real centre of activity in the Middle East but very carefully," he said in an interview on Thursday.

In Iraq he was bullish about the prospects for Korek Telecom, a mobile operator based in the semi-autonomous Kurdistan region in which France Telecom recently bought a minority stake.

"There is huge growth potential in Iraq," said Girard, adding that Korek would grow some 30 per cent a year.

Iraq has a mobile market penetration of about 80 per cent, lower than other countries in the region, and average revenue per user of around US$12-$15 a month, compared with $3-$5 in India and most of sub-Saharan Africa.

To capitalise on the opportunity, Korek is embarking on a mobile network build-out to cover the entire country by the end of the year, said Girard. "Korek's network is already very good in its home region of Kurdistan, but in the rest of the country we have a lot to do."

If all goes well, France Telecom has negotiated options to buy out its partner Agility and take majority control of Korek in a few years time.

The deal structure, and the relatively modest upfront price tag of $245 million, was France Telecom's way of reducing the risks of doing business in a warzone.

France Telecom is pursuing growth in emerging markets to offset intensifying competition at home, with Chief Executive Stephane Richard aiming to double revenues in emerging markets to 7 billion euros by 2015, largely via acquisitions.

Girard said France Telecom could reach its goal of doubling revenue in emerging markets by increasing its minority stakes in Tunisia, Morocco and Iraq via options already included in the respective shareholder pacts.

But the group is not prepared to expand in emerging markets at any cost.

Girard said that France Telecom decided not to submit a bid for Syria's third mobile phone licence given the terms, with the price the main concern, given that the radio wave frequencies on offer were of lower quality and would have required a denser, and therefore more expensive, network build-out.

United Arab Emirates-based Etisalat also pulled out of the auction for similar reasons.

In addition to the Korek deal in Iraq, France Telecom last year bought 40 per cent of Moroccan telecom operator Meditel for 640 million euros and launched a service in Tunisia with a local partner.

Asked whether the current unrest in the region would lead the group to take a pause on deal-making, Girard said, "We are advancing at the right pace, I think ... two or three reasonable acquisitions a year depending on the opportunities we see."

Yet risks remain in a region where governments are in transition and regulatory decisions can be revisited by new regimes.

France Telecom's joint venture partner in Tunisia, the son-in-law of ousted leader Zine Al-Abidine Ben Ali, has seen his 51 per cent stake seized by the state.

A review is now underway by Tunisia's interim authorities, and could take about six months.

France Telecom has said it is monitoring the situation in Tunisia but that its 49 per cent stake is not threatened.

Shares in France Telecom were largely flat on Thursday and closed at 15.81 euros per share.

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