Above: Azmi Mikati: The combination is great
from all perspectives. The industry we're in is one where scale
definitely matters, and you can build quite a lot of
efficiencies as you increase the size of your
There's an intriguing coming together of mobile telephone
groups across the Red Sea, merging businesses in Africa with
operations in the Middle East.
In 2005 Kuwait-based MTC took over Celtel, previously
headquartered in the Netherlands but with operations throughout
Africa. MTC also owns Atheer, the mobile operator in Iraq: see
pages 12-15 in this issue.
And in July 2006 South African group MTN — the
initials stand for, simply, Mobile Telephone Network —
completed its $5.5 billion acquisition of Investcom. This has
brought 21 networks under one management team, with operations
from South Africa itself to Iran — where a new network
began pilot operations in August.
The new company, which will be called MTN, has a total
customer based of 31.5 million, using June figures, as well as
a wholesale network based in Monaco. Formerly part of
Investcom, Med Net will be extended to serve the operations of
the new parent company.
Weeks after the takeover was completed, Azmi Mikati, the CEO
of Investcom and son of the founder, joined the MTN board.
Global Telecoms Business spoke to him about the opportunities
that the merger will create.
"That combination is great from all perspectives," says
Mikati. "The industry we're in is one where scale definitely
matters, and you can build quite a lot of efficiencies as you
increase the size of your footprint." MTN and Investcom are
"extremely complementary", he says. The combined companies are
in 21 countries, with "not one single overlap".
Countries where the combined group has operations include
Zambia and Uganda in east Africa, Nigeria and Côte
d'Ivoire in the west, and Swaziland and Botswana in the south.
There's an operation in the Mediterranean island republic of
Cyprus, part of the European Union. Just before the merger
Investcom launched a network in Sudan, and in August the merged
group started pilot operations in Iran, and it aims to have a
million customers by the end of 2006.
The resulting company is "the largest emerging market mobile
operator", he says. What does he mean by largest? "In terms of
revenue, EBITDA, number of countries. In terms of number of
subscribers we were second, but we might be first now."
Egypt-based Orascom is the closest rival in terms of
subscriber numbers, he says. "In revenue or EBITDA, all of them
are far behind," he claims.
The numbers, as published by the combined group at the end
of August, certainly seem healthy, with EBITDA margins for both
constituent parts of 42%. Combined revenues for the six months
ending June 2006 were around $3.2 billion, with EBITDA of $1.3
billion. Revenue per customer averages out at less than $100
for the six-month period but revenue appears to be growing
faster than subscriber numbers — though a change in
the year-end makes it hard to be precise.
What is the logic of the merger? "Our history is different
but our culture is very much the same," says Mikati. "We're
both very entrepreneurial in our approach. We are both growth
and bottom-line oriented. We both really look to create
He hopes that there will be efficiencies in terms of
network, terminals and operations. "There is quite a lot we can
learn from each other in terms of best practice in this new
combined group. It goes from things that are pretty simple,
like procurement — there are quire a lot of economies
of scale that can be created — all the way down to
products and services, and the way it approaches
Are there already similar strategies in terms of networks
and handsets? "Very close," says Mikati. "We both use some of
the same vendors. For example Ericsson is a big supplier for
In terms of handsets MTN was bigger than Investcom, so the
former Investcom operations "could benefit from that", he
Both companies look for low-cost handsets as more
appropriate to the markets they are in. They have usually
sourced them from either Nokia or Motorola "as the most
competitively priced handsets": the favoured vendor varies from
time to time as new deals are done.
Both companies started up in 1994, though the history of
Investcom dates back a further decade. Mikati's family was in
the construction business but in the period of civil war in the
1980s the telecommunications infrastructure was virtually
destroyed and it was impossible to do business.
"As entrepreneurs they installed a ship-to-shore satellite
phone on the rooftop of their office building," says Mikati.
Friends asked for similar installations. But satellite phones
were expensive then and the founders set up the first privately
owned cellular network in the Middle East, starting out with an
analogue AMPS system.
"And then we moved into Africa after that. We took that
model and replicated it in emerging markets." Growth "was very
opportunistic" where there was a need for telecoms. "Africa was
When MTN took over Investcom there was no consolidation to
do, as there was no overlap. "We were more into west Africa,"
says Mikati of Investcom, "and MTN was more into southern
Africa." It was, though, largely a coincidence that there were
no rivals to rationalise.
One of the closest near-misses was in Nigeria, where MTN has
a 45% market share of the mobile business, and Ghana, where
Investcom was the operator.
With widely dispersed operations, no executives have been
lost, says Mikati. "All of the executives are absolutely
Following the merger is the expanded MTN looking for further
takeover or merger opportunities? No, says Mikati. "The
countries we're in still have substantial organic growth that
hasn't been exploited fully. Therefore for the time being
— unless there is a really big opportunity —
we'll be concentrating on putting the two companies
Economies of scale in a business where costs have to be low,
as revenues are low, must be a particular challenge. ""We have
a cost structure that is even more competitive than the one we
had in the past," he says. "Therefore we could reduce those
costs and increase the level of penetration."
But there are particular challenges in working in Africa.
"You're operating in an environment that very often does not
have electricity, and often you don't have roads." They
increase the costs. "This is why you need to know how to deal
with these markets so you can remain a low cost operator."
On the whole "most of these markets have very similar
models", he says. "You need to operate as a low-cost operator.
You have to localise your offering to fit certain cultures but
overall the business model is the same. Both groups have proven
that they excel and the model is replicable."
Customers are almost all on prepay accounts, he notes,
peaking at around 90-95% in some countries, but much lower in
others. It is only 55% in Syria, he says.
Syria is unusual in other ways: in June Areeba, its mobile
network in Syria, announced that it will be launching 3G
services, complete with video calls between suitably equipped
mobile phones and high-speed internet access. Data speeds will
be up to 340 kilobits a second.
Is there a market? Yes, says Mikati, and not just in Syria.
"Ultimately it's going to be an evolution and most of the
networks we operate are going to start offering 3G as the need
Who will be using 3G in the Middle East and Africa? There is
an elite market, he says. They will pay for such services.
But 3G is also "part of marketing", he adds. "Usually
subscribers like to know that the operators they use are always
on the edge of technology and offer them the latest and most
advanced services. It's part of customer psychology."
He likens this to the advantages that 2G operators had in
the early days of the industry when they could promise full
national coverage. Even though most prospective customers did
not need coverage beyond the boundaries of their own city, they
liked to know it was there if needed.
In Syria, Areeba will use its 3G network to indicate even to
2G customers that they are connected to a technologically
Meanwhile, Mikati and his colleagues throughout the group
are starting to look at potential synergies that are resulting
from the merger: "We can start offering customers services so
that no matter where they're travelling within Africa they are
part of their home country," he says.
And the company's in-house wholesale network will get a
chance to expand, too. It was set up in the early 1990s to link
Investcom's operations in the Middle East and Africa with
European networks, using the principality of Monaco as a
gateway. Most of Europe had not deregulated then, but Monaco
was keen to offer a licence to Investcom to provide
Now Med Net is part of the combined group and is expanding
its links through Intelsat satellites to the other member
MTN has networks across Africa and in several
countries in the Middle East as well as Cyprus, but it has no
current plans to add more territories, says
Pre-merger results for six months ending June 30
- Subscribers 25.4 million (9.4% rise in six months)
- Revenue R20.2 billion (approx $2.6 billion)
- EBITDA R8.7 billion (approx $1.1 billion)
- EBITDA margin 42.9%
- Subscribers 6.14 million (26% rise in six months)
- Revenue $600 million
- EBIDTA $255 million
- EBITDA margin 42.4%