Could nationalism threaten telecoms globalization?

Posted by Matthew Reed Monday, June 8th, 2009

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If globalization can be defined as the lowering of barriers to the exchange between countries of goods, services and investment, as well as ideas and behaviours, then telecoms is both a vehicle for advancing globalization as well as an example of it.

Telcos deploy the same equipment, and offer similar services, in the Middle East and Africa as in Europe and the Americas. Consumers in Cairo, Cape Town and London buy and use the same handset brands. Local operators seek a regional and then a global presence, while operators and investors from Europe, Asia and the Americas look to establish or expand their own presence in the Middle East and Africa as part of their own global plans. Blackberry-wielding telecom executives fraternize and strike deals in conference centres that resemble one another more than their host countries. In many cases the market liberalization that has driven the growth of the telecoms sector in the Middle East and Africa was the result of agreements with or through multilateral institutions such as the World Trade Organization.

But there could be limits to that process of globalization. It might even be reversible. Nationalism is one of the most powerful counters to globalization. And there appears to be a nationalist dimension to the resistance in Egypt to France Telecom’s prospective takeover of Mobinil, the country’s largest mobile operator, following a dispute between FT and fellow Mobinil investor, Egypt-based Orascom Telecom.

In the few months since an international arbitrator ruled in FT’s favour, Egypt’s stock market regulator, the Capital Market Authority, has twice rejected FT’s efforts to buy out other investors in Mobinil. FT’s head of international operations reportedly said last week that the CMA seemed to be siding with the local company – Orascom – though other FT officials later said that the company was not questioning the regulator’s neutrality but rather contesting its reasons for rejecting FT’s offers. Hassan Heikal, joint CEO of investment bank EFG-Hermes, which is advising Orascom, told newswires that Mobinil should have a local partner. According to Reuters he said that telecoms operators should generally have “a strong, local flavor for national security as well as business reasons”.

Of course it could be that the Orascom camp is taking a nationalist line for purely instrumental reasons, calculating that arguments based on national security or national sentiment will help it to hold on to its stake in Mobinil. Orascom as a major foreign investor in its own right – it controls Mobilink, the largest mobile operator in Pakistan, for example – must be aware of the case for cross-border investment.

National sentiment is one of the factors that scuppered last year’s M&A talks between MTN and India’s Bharti, and then between MTN and Reliance Communications. Many South Africans regard MTN as a national champion and investors such as the PIC state pension fund were reluctant to see it fall into foreign ownership. MTN and Bharti are now talking again, and maybe this time sensitivities will be observed that will allow a deal to go ahead. National sentiment also means that there is unlikely to be consolidation among the major Gulf operators, despite there being a business case for it. All of the major Gulf operators are in part state owned and are regarded as national champions. Ethiopia and Eritrea remain the most notable holdouts in Africa against foreign investment in the telecoms sector. The state-controlled operators are the only operators in both countries. And that surely is why Ethiopia and Eritrea have the lowest levels of mobile penetration in Africa, and the peoples of those countries are unable to take advantage of the services and jobs that would likely come from liberalizing the local telecoms sectors.

But Ethiopia and Eritrea are extreme cases. Even a country such as Iran, which often seeks to limit or control outside influence, accepts the case for foreign investment in the telecoms sector. But that happens on Iran’s own terms, which on occasion seem somewhat arbitrary, as Turkcell, which was in line to launch Iran’s second mobile operator until it was forced to withdraw in 2005, and Etisalat, which was recently stripped of Iran’s third mobile license, have discovered.