Zimbabwe is the next telecoms investment opportunity: Renaissance Capital

Could Zimbabwe be the next big investment opportunity for emerging markets-focused telecommunications operators? A new report from Renaissance Capital suggests it might be.
After years of decline, Zimbabwe's economy has begun showing encouraging signs of recovery, with a projected 8,1% growth rate in 2010 and government forecasts of a 9,3% lift in gross domestic product in 2011.
Renaissance Capital says the turnaround in Zimbabwe's economic prospects means that country's largest mobile operator, Econet Wireless, could become a takeover target for telecoms operators looking to expand on the continent.
With cellular penetration of less than 60%, Zimbabwe represents a good growth opportunity for many large international telecoms players, Renaissance Capital says.
Econet Wireless controls about 70% of the Zimbabwean mobile market. Renaissance Capital reckons the "benign competitive environment" is at least one reason larger players should be eyeing Econet as an investment opportunity. Econet has Zimbabwe's most extensive telecoms network, offers the best quality service and has the largest dealer network.
The report says SA's MTN and India's Bharti Airtel, among others, could be interested in entering Zimbabwe.
"If MTN were to enter the market, we believe it would turn out to be a rational competitor focused on profitability, as is the case in Zambia and Nigeria."
Tariffs in Zimbabwe have remained fairly stable. But political risks remain. "The key risks are political in nature, whereas the regulatory and competitive environments for now seem less of concern," says Renaissance Capital.
Concerns that Zimbabwe's government will try to prevent foreigners from owning more than 49% of local businesses appear to be receding. In December, the plan was shelved, at least until the economy recovers.
The potential for broadband in Zimbabwe could also entice global telecoms players. "Given the low fixed-line penetration, customers seeking Internet connectivity have little choice but to go for Econet's 3G product, launched in October 2010."
Since it launched 3G, the company has signed up 700 000 customers, or about 15% of its total subscriber base.
"International connectivity, which previously was a bottleneck, improved substantially after Econet secured access to the Seacom submarine cable. Econet was also able to decrease international calling rates by 50% in September 2010 once it got access to the international fibre capacity."
Renaissance Capital's report attributes the strength of Econet Wireless to its strong management team. "Econet successfully muddled through a period of political instability and severe economic downturn, and following dollarisation appeared to be the major beneficiary of growth in mobile penetration."
The operator is also enjoying management stability, with CEO Douglas Mboweni having been at the helm since 2002, and chief financial officer Krison Chirairo having worked there since 2004, the report says.
For the time being, Zimbabwe does not appear to have any plans to licence additional mobile operators, which makes the environment even more attractive to potential investors. Also, unlike many other countries in the region, Zimbabwe has made no attempt to decrease mobile termination rates, the fees operators charge each other to carry calls between their networks.
Renaissance Capital warns that conditions may change, especially since many Southern African countries, including SA, have licensed new operators and reduced termination rates, which may result in Zimbabwe following suit.