Etisalat is set to expand it international footprint in the coming year as it explores opportunities in Africa and the Middle East while strengthening its position on the subcontinent from a sizeable cash pile. A recent report by the US bank JP Morgan estimated that Etisalat has more than US$16.4 billion (Dh60.23bn) in financial headroom for mergers and acquisitions. That calculation assumed that it can secure debt at 2.5 times its estimated EBITDA for next year and use cash reserves of about $2.9bn.
The UAE’s largest telecommunications company is seeking to acquire assets in at least two countries in Africa and a mobile phone licence in Syria, said Essa al Haddad, the Etisalat group chief marketing officer. “Syria is a fantastic market,” he said. “We’ve heard that the regulator is going to launch an invitation to bid [for a licence]. Definitely we are interested because it fits our strategy.”
The Syrian government has indicated that it will shortly be licensing a third mobile network operator following the expiration of two build, operate and transfer contracts. The company is still awaiting to hear back from Libya regarding its bid for a mobile licence in the country. Etisalat’s negotiations with Iraq’s Korek Telecom remain a “work in progress”, Mr al Haddad said. Last year was relatively quiet for Etisalat’s mergers and acquisitions team as its only purchase was that of the Sri Lankan operator Tigo for $207m. It bought stakes in six companies throughout the Middle East and Africa in 2008.
India has the potential to be a significant market for Etisalat, which is set to launch mobile services through its Etisalat DB subsidiary. The country has roughly 350 million mobile subscribers in a population of about 1.2 billion people. Only 10 per cent of the Indian population has access to mobile broadband, giving Etisalat an opportunity to leverage its technical expertise into offering a unique package to potential subscribers, Mr al Haddad said. The company will look to integrate markets where as many as eight other players operate, he said.
“We know that the market is ready and ripe for consolidation,” Mr al Haddad said while declining to specify which Indian telecoms firms it is negotiating with. He added that regulatory restrictions could hamper any potential acquisitions. Etisalat is interested in participating in an pending auction to acquire wireless spectrum for third generation, or 3G, mobile phone services. India will hold its 3G bandwidth auctions next month, an Indian government official said.
“Having the auction is one thing but having the spectrum itself is another,” Mr al Haddad said. “The issue that we have is the amount of spectrum licences available is up to how much the Ministry of Defence wants to release. “In some areas, there are only two or three licences and unfortunately, they are in areas with the highest penetration. This makes the picture a but more complicated.” Etisalat is also looking to expand in Africa and is targeting countries with a large population base with low penetration levels. Market observers said such moves would be come at a high price.
“Expansion outside the UAE market will be costly,” said Delilah Heakal, a telecoms analyst with Pharos Research. “To date, the completion of network rollouts remains under way in Etisalat’s international markets of operation. As a result, short-term profitability from international operations is likely to remain insignificant.” Ms Heakal estimated that Etisalat’s international operations will contribute 13 per cent of its profits and 23.8 per cent of revenues by 2014 compared with about 3 per cent and 12 per cent last year½-year period in consideration for “certain corresponding deliverables by the Pakistani counterpart”, Etisalat said last week.
Emerging Markets Strategist