Global Disruptions as 9Mobile Enters the Next Phase

Global Disruptions as 9Mobile Enters the Next Phase

The technology sector is full of changes. That is because innovation and disruptions are the elements which drive the business. If you fail to innovate, you become also-ran. But when you innovate and change the basis of competition, you will experience glory with the honor of wearing your category’s kingship banner. Making that disruption happen is hard because it is a fluidic system with amalgam of forces coming after you, from many angles.

Teforia, a company that uses internet-of-things to brew tea, has cut its product price from $1,000 to $199. Unless you share the same spirit with the bankrupt Juicero, there is no reason on earth why a pricing team can put a price tag on a largely commoditized product with $1,000 and then within weeks cut it to $199. Indeed, no one was paying attention to the real market. (This firm has gone out of business. nevertheless.)

As the turbulence of Teforia happens, we have learnt that Nikon, the camera making Japanese giant, will be closing its digital camera factory. Who needs a camera in this age of smartphone? The business of camera will be the super-premium ones required in the media industry. But the entry-level market is just about gone; market has fallen to less than a tenth of its peak. Most smartphones have decent cameras for anyone to worry about having a phone and also carrying a camera.

That smartphone disruption may even destroy one giant company. Apple plans to adopt MediaTek and Intel processors over Qualcomm which it thinks is using its market dominance to make too much money for itself through its novel pricing of whole-product percentage. Both Qualcomm and Apple are in courts. With this Apple move, Qualcomm could be in trouble. But this may not help Apple that much if everyone sees it as a bully. It technically killed the UK-based mobile processor supplier when it decided to take the business in-house. Samsung will be watching because its soaring memory chip business is rocking because of Apple. With a consortium which includes Apple buying Toshiba memory business, Samsung will in future gets its own moment from Apple. Samsung’s $12.9 billion quarterly profit is driven by Apple, its main competitor. Apple will not like that very much in the future.

But innovation is not just in devices and digital technologies. Chinese scientists plan to build a 621 mile tunnel that will turn a Xinjiang arid region into a center of modern agriculture by channeling water from the Tibetan River. That is the kind of innovation we need in Northern Nigeria.

So, disruption is happening at really fast pace. One local company has seen its own share of that. 9Mobile, nee Etisalat Nigeria, has hired Barclays, a bank, to help it find new investors. The company is debt-laden and will need new capital to mount a serious challenge in the telecom market. It is #4 (with 14% market share) in Nigeria after MTN (47%), Glo (20%) and Airtel (19th).

Nigerian lenders have picked Barclays to try to find new investors for debt-laden 9mobile, two banking sources said on Thursday.

[…]

Etisalat Nigeria took out a $1.2 billion syndicated loan from a group of 13 local banks but struggled to make repayments this year due to a currency crisis and recession in Nigeria.

The Nigerian central bank intervened to save the company from collapse and prevent creditors from putting it into receivership, leading to a change in its board and management, as well as the new name 9mobile.

The crisis forced the telecoms company’s one-time parent Etisalat to terminate its management agreement with its Nigerian business and surrender its 45 percent stake to a trustee following the central bank intervention.

9mobile CEO Boye Olusanya has said he is focused on getting the telecoms company back on track to make a profit, while working on the paperwork to eventually raise new capital, adding the company was open to new investors.

The decision to hire Barclays makes sense. The Nigerian Stock Exchange does not have the liquidity to accommodate 9Mobile especially with 9Mobile shaky balance sheet at the moment. So, extremely skeptical investors even on profit-making technology companies will not be wowed to invest. Also, a big question remains on how a #4 operator can survive in Nigeria. It is nearly impossible to make profit as #4 in most telecom markets. Usually, you have two dominant players with most times a weak #3. Having #4 is a crowd that most forget.

I remain on my prediction that Glo will acquire 9Mobile provided that banks will massively write-off a huge part of the deal. It is only Glo that can make that deal happen because the regulator, NCC (Nigerian Communication Commission), will support it as a Nigerian company. It certainly will like to see Glo succeed. MTN is off the line because it has massive obligations to settle the Nigerian government over on fines for not registering SIM cards. So, over the next few years, MTN may not even be making profit as it will be paying the government for the fines. For Airtel, market data published in its home country (India) indicates that Nigeria is a very tough market for the operator. It may not have the appetite to put more capital in the nation. So, I return back to my prediction: 9Mobile will be acquired with massive discounts on its assets by likely Glo: it is always very hard to raise money with huge debts as #4 in any sector. To succeed, you have to offer major discounts which could be worse than selling.

In this videocast, I make a case why Globacom, the operator of the Glo brand in Nigeria, will acquire Etisalat Nigeria, in 2017. Etisalat Nigeria is in a very challenging position to pay back about $1.2 billion loan to a consortium of banks. In the current market dynamics, with deteriorating ARPU (average revenue per user), it will be extremely difficult for the telecom company to meet that obligation. Glo has liquidity, relatively, and is owned by a respected businessman (Mike Adenuga) who can raise any capital required to close a deal. Glo needs to close its subscriber gap with MTN which enjoys more than 20 million extra subscribers. You may ask – why not MTN, Airtel or AMCON? Answers here.


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