Sonatel Grows Despite Rising Business Risks
Senegal-based telecommunications holding company, Sonatel SA, reported robust mobile subscriber acquisitions for H112, reaching 15.503mn customers. While this represents commendable year-on-year (y-o-y) growth of 21%, considering the difficult economic and business headwinds, it was down from the 31% increase seen a year earlier. BMI believes continued investment in mobile broadband infrastructure and in value-added services such as mobile money will ensure increased customer acquisition, but this must be weighed against growing business environment risks across the company's operating footprint.
Customer acquisition was strongest in Guinea-Bissau, the smallest of the four African markets in which the group operates. Mobile subscriber numbers increased by 42% y-o-y to reach a total of 347,939 customers. In the comparable period of the previous year, the business had grown by 60%. Sonatel's share of the Guinea-Bissau mobile market continues to improve despite the unstable political situation and the impact of delayed elections on the economy, a significant potential downside risk in the short term. Just 4% of Sonatel's CFAF39.2bn H112 capital expenditure was focused on Guinea-Bissau, reflecting the small size of the market, as well as Sonatel's short-term concerns regarding the business environment.
|Robust Growth On All Fronts|
|Sonatel Mobile Customers ('000)|
The Republic of Guinea saw a 25% y-o-y increase in mobile subscriber numbers for the group, reaching 1.536mn. This does not compare favourably with the 57% growth recorded in the previous year, but the recent appreciation of the Guinean franc and a noticeable improvement in the economic climate mean this market is also ripe for further development. In recognition of this potential, Sonatel has launched the Orange s'cool brand aimed at the youth market and is preparing to launch the Orange Money service, which should benefit from consumers looking to exploit the more favourable exchange rate.
Mali has become Sonatel's biggest market, reaching 7.028mn mobile subscribers as of June 2012, a y-o-y increase of 24%. While this falls short of the 39% increase seen in June 2011, the fact that subscriber acquisition rates remain strong at a time of political and institutional crisis, as well as heightened competition (prices have been slashed ahead of the introduction of a third player later in 2012), highlights the strength of the Orange brand and the service proposition. However, deepening social and economic difficulties - which have already hit revenue and profit - represent a significant downside risk to continued investment in this market in the medium term. Mali accounted for 38% of capex in H112 and may highlight a degree of overconfidence in the longer-term prospects for this market.
The group's home market of Senegal saw a 16% y-o-y increase in mobile customers, reaching 6.592mn by the end of June 2012. This is only a little weaker than the 19% increase in June 2011 and reflects the relative maturity and stability of the Senegalese political and business environments. This also led to improvements in the regulatory apparatus and the cancellation of surcharges on incoming international calls. This, in turn has boosted consumer interest in mobile internet and mobile money services, although this has come at the cost of demand for the incumbent's traditional fixed-line telephony and ADSL broadband offerings.
Notwithstanding the individual businesses' exposure to extremes of political and investment risks, Sonatel's key challenge continues to be achieving sustainable revenue growth at a time when increased competition at all levels is driving prices down. This must also be weighed against the need to continue investing in next-generation technology platforms and new services to differentiate itself against the competition. Sonatel is gaining market share in three countries (up by 4pp y-o-y to 64% in Senegal, up by 7pps to 39% in Guinea-Bissau and up by 4pp to 32% in Guinea) but, as its 6pp decline in its share of its fastest-growing market (Mali, 59%) shows, rapid growth also brings an increase in risks.
Sonatel is 42% owned by France Télécom, while the state of Senegal owns 27%, employees own 5% and the remaining 26% is publicly-traded.