African telcos go e-shopping

African telcos go e-shopping

The Delta Perspective
The global telecom industry is at a crossroad and operators need to reason if they want to opt for a low-risk strategy and focus on being an extremely efficient “dumb-pipe. Or adopt a higher-risk and higher investment approach competing with the likes of Apple, Google or even Amazon expanding further into the value chain. Or should they stand somewhere in the middle?


 
Today’s fast changing environment requires that operators must act fast and act smart. Revenues are stagnating for some of the operators in the more mature markets.  Luckily for African players the opportunities are still there with some key players already on board.
 
Vodacom is making inroads into the ICT space albeit a more conservative approach. The operator is in exclusive talks to buy Neotel, a deal that will open the door not only into a 15,000km of high-speed fibre access but also into the converged IT and data services through Neotel’s modern data centers.
 
Millicom and MTN have taken a step further.  Instead of taking the traditional route of geographical expansion to achieve growth and sustainable returns, Millicom focused its strategy in the digital space. Aiming to “elevate Tigo from a telecommunications player to a digital lifestyle brand”, the company entered into an agreement in August 2012 and acquired an interest in Rocket Internet’s Africa Internet Holding (AIH) with a committed investment of EUR 140 million. Rocket Internet is a leading internet incubator and accelerator for emerging markets which has started up e-commerce ventures across the globe.  Around the same period, MTN started vocalising the group’s interest to expand beyond its core business. In December 2013 this vision became a reality when MTN joined Millicom in Rocket’s AIH venture with each player holding a 33% stake in the business as well as acquired 50% stake in the Middle East Investment Holding (MEIH).
 
The story won’t end with MTN and Millicom alone, as the digital space offers tremendous opportunities for many other telecom players especially in emerging markets. The nascent stage of the industry and absence of established global players such as Amazon, Expedia and EBay, means untapped territory and the highly valuable first-mover advantage. Also with globalisation bridging the gaps between continents and cultures coupled with limited offline shopping outlets in emerging markets, the addressable market potential is strengthen today and for the future.
 
Last but not least, the size of the returns seen in similar markets (Softbank investment of $20 million into Alibaba group is reportedly worth around $25 billion today), just underlines attractiveness of the investment in digital ventures.

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Delta Partners - TMD Advisory and Investment