Naguib Sawiris, an Egyptian telecommunications entrepreneur, jokes that his most recent business plan - a 25-year licence to provide mobile phone services in North Korea - is one born of desperation.
The rationale, explains the chairman of Cairo-based Orascom Telecom, is that the scramble for new markets in the lucrative mobile industry is nearing an end. As he puts it, light-heartedly: "This is my proof to the world that there is nothing else out there. If you need to go all the way to North Korea to make sure there is a requirement, the world is done - finished."
Wireless operators such as Orascom are now confronted with diminishing opportunities in emerging markets. Yet the move over the past decade to provide billions of people in developing countries with mobiles is creating a new world order in telecoms.
Several western mobile operators that once bestrode the industry now risk second-tier status because developed markets are saturated with phones. Places at the industrys top table are increasingly being claimed by operators that have headquarters in developing countries.
The pivotal role of emerging markets is one of the hot topics for debate at the Mobile World Congress, the wireless industrys main annual conference, which starts in Barcelona today.
Arun Sarin, chief executive of Vodafone, the worlds largest mobile operator by revenue, highlights how the industrys winners and losers are being determined by a scramble to supply emerging markets. "Frankly we are all going to have to be on our toes," Mr Sarin says in an interview with the Financial Times. "If we just keep remembering that 75 per cent of all the incremental customers, revenues and profits are coming from emerging markets - everybody is racing and rushing towards that."
Two of the top 10 telecoms companies by market capitalisation now have headquarters in emerging markets. China Mobile, Chinas leading mobile operator, heads the list. America Movil, the Latin American mobile group run out of Mexico City by Carlos Slim, the worlds third-richest man, is the tenth-largest.
More importantly, outside the top 10 there are several fast-growing companies with headquarters in Africa, Asia and Russia that are threatening to become bigger than former industry behemoths such as BT, France Telecom (NYSE:FTE)and Deutsche Telekom (NYSE:DT). Mr Sarin predicts that, within a decade, the 10 largest telecoms operators by market capitalisation will probably be drawn equally from Africa, China, India, Europe and the Americas.
The key to the success of this new breed of emerging-market operators is that they are providing cheap mobiles - prices fell to $25 (�13, EU17) per handset last year - to huge swaths of people. These operators, together with two European companies that had the foresight to invest heavily in emerging markets, look set to dominate the industry.
The only exception to this rule is AT&T of the US, which derives its status as the worlds second-largest telecoms company from serving the largest western market. Randall Stephenson, AT&Ts chief executive, told the FT last June that he took the new breed of emerging-market mobile operators seriously. "You have to take note," he said. "There are some impressive results being turned in."
Indeed: MTN, Africas largest mobile operator, reported organic revenue growth of 35 per cent for the first six months of 2007. Contrast that with France Telecoms 3 per cent growth for 2007.
The two European telecoms companies that are reaping the benefits of investing in emerging markets are Vodafone of the UK and Spains Telefnica. Telefnica has invested heavily in Latin America, with the region contributing about a third of the Spanish groups revenue and much of its growth.
Vodafone, meanwhile, is coping with slowing or negative growth in core European markets by buying mobile businesses in developing countries. This strategy reached its zenith last year. Indian-born Mr Sarin completed Vodafones $10.9bn purchase of a controlling stake in Hutchison Essar, Indias fourth-largest wireless operator. The deal is the most significant transaction yet by a western mobile operator in emerging markets.
India is the worlds fastest-growing mobile market. Only 21 per cent of the population currently has a handset, but the number of new customers is rising at a rate of 8m a month. India helped Vodafone reach the milestone in December of having more customers in developing countries than in its European markets. The total reached 221m.
India has even grabbed the attention of AT&T, which in the guise of its predecessor company SBC was for years almost exclusively focused on domestic ascendancy by buying up smaller US rivals. AT&T is hoping to launch mobile services for consumers in India after last year applying for an operating licence.
If India was the telecoms hotspot in 2007, the most eagerly awaited industry event this year could happen in China, the worlds largest mobile market.Beijing is considering a far-reaching restructuring of Chinas state-controlled telecoms companies. One scenario involves breaking up China Unicom (NYSE:CHU), Chinas second-largest mobile operator.
China Unicoms two wireless networks could be divided between China Telecom and China Netcom, the countrys two main fixed-line phone companies, which currently do not have mobile operating licences.
The restructuring may be partly motivated by concerns about the dominance of China Mobile, which with 369m customers has a 70 per cent market share. If China Telecom and China Netcom gain mobile operations, it should increase competition in the wireless market, which is far from maturity. Only 40 per cent of the population currently has a mobile.
There is no immediate prospect of western companies getting the chance to set up mobile businesses or control existing ones in China. But the restructuring may present opportunities for Vodafone and Telefnica to increase their exposure in China. Vodafone owns 3.3 per cent of China Mobile and Mr Sarin is interested in taking a larger stake or investing in another Chinese mobile operator.
Telefnica owns 7.2 per cent of China Netcom and is due to increase this stake to 10 per cent under existing plans. It would be interested in raising the exposure further.
Both Vodafone and Telefnica know they will not gain controlling stakes in Chinese telecoms companies. The benefit to both European companies is at one level purely economic: Vodafone, for example, has seen the value of its China Mobile stake more than quadruple in value.
But Vodafone and Telefnica are keen to wield influence over both the Chinese companies and the Beijing government, notably during the selection of third-generation mobile technology to support data services such as web surfing on phones. Vodafone has one seat on China Mobiles board, while Telefnica has two at China Netcom.
These European operators also want to understand the implications of the Beijing governments "go global" policy of encouraging Chinese companies to invest abroad. Just as the European operators are investing in emerging markets, Chinese telecoms companies are looking to do the same thing outside their home territory.
China Mobile has already acted on the Beijing governments policy, buying Paktel, a Pakistani mobile operator, last year. Wang Jianzhou, chairman of China Mobile, told the FT last September that the company was interested in more acquisitions in Asia. Mr Wang stressed the companys main focus was growth in China, because many people in rural areas still do not have mobiles, but added: "We ... are interested in other emerging markets, especially the neighbouring countries."
The worlds least developed mobile market, but one with huge potential, is Africa. This is borne out by MTN, the continents largest wireless operator, which is gaining attention because of its spectacular growth. MTN has 54m customers in 17 African countries, plus Afghanistan, Iran, Syria and Cyprus. It is a listed company but has close links to the Pretoria government. Cyril Ramaphosa, MTNs chairman, is a former secretary-general of South Africas ruling African National Congress.
Meanwhile, in Latin America, Mr Slims America Movil is harvesting the regions growing wealth. It has 153m customers. Mr Slim, who Forbes magazine said last year had a personal fortune of $49bn, spun America Movil out of Telmex, Mexicos former fixed-line phone monopoly that a consortium led by him bought at privatisation in 1990. He has some powerful friends, including AT&T, which has an 8 per cent stake in America Movil.
Mr Slim has hitherto been the outstanding example of an individual who dominates a mobile operator based in emerging markets, but others are starting to replicate his ambitions and status. Sunil Bharti Mittal, Indias fifth-richest man, looks like he could create an empire similar to Mr Slim, for example. Bharti Airtel is Indias largest mobile operator, with 57m customers.
In its first international expansion last year, Bharti obtained a licence to start wireless operations in Sri Lanka. It plans to establish mobile businesses in other southern Asian countries.
Indias second-largest mobile operator is Reliance Communications, led by Anil Ambani, one of Indias most influential families. Reliance is looking at expanding in Asia but is also interested in the Middle East and Africa.
Elsewhere, Russian oligarch Vladimir Yevtushenkov has turned Sistema, his conglomerate, into the countrys largest mobile operator through its MTS subsidiary. Last year Sistema turned its attention to India, buying a controlling stake in a small mobile operator.
"We want to be one of the top five players in the world by number of mobile subscribers," says Alexander Goncharuk, chief executive of Sistema. He adds that goal will be achieved in the next two to three years or not at all, underlining how emerging markets will increasingly be saturated with mobiles by the end of the decade.
While there are still billions of people to sell mobiles to, the landgrab by telecoms companies in emerging markets is largely complete. Mobile assets in developing countries are now scarce, which explains why valuations have rocketed in the past two to three years.
Vodafones Hutchison Essar deal had an enterprise value of $18.8bn, or 17 times the mobile operators forecast earnings before interest, tax, depreciation and amortisation in 2008. Western European mobile assets, by contrast, are on enterprise values of about 6 times ebitda.
The strictly limited remaining opportunities in emerging markets mean European operators such as France Telecom and Deutsche Telekom have almost certainly left it too late to gain a significant presence in developing countries.
Moreover, the diminished standing of these European companies because of their lack of significant exposure to emerging markets could be compounded by the prospect of mergers between the mobile operators with headquarters in developing countries.
Some analysts and bankers predict that some of these operators, possibly led by those in India, will consolidate, resulting in companies approaching the size of Vodafone or Telefnica.
But there are likely to be geographical limits to the consolidation, partly because of political sensitivities. China Mobile learned about the challenges of expanding overseas when it abandoned the chance to buy Millicom (NASDAQ:MICC), the Luxembourg-based mobile operator that has businesses in Africa, Asia and Latin America, in 2006.
China Mobiles staff struggled to get visas to be able to inspect some of Millicoms businesses in Latin America because their governments were anti-China during the cold war and maintain ties with rival Taiwan.
Political factors could also put a brake on consolidation between mobile operators based in western markets and those in emerging markets. The Chinese government is certainly not about to cede control over its domestic mobile operators and even some European governments could oppose cross-border consolidation if it involves their leading telecoms companies.
The globalisation of the telecoms industry could also be thwarted by the difficulty of satisfying the varying tastes and habits of consumers in different countries.
Mr Sarin says the world is unlikely to have mobile operators with customers in all the big developed and emerging markets. After supervising Vodafones exit from Japan in 2006, seven years after it invested in the country, he says: "Being short Japan, and long India, was probably the best thing we did in the last 12 months."
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