Many things have lost value as the global economy shudders, from real estate portfolios to highly paid investment bankers. As the economy headed downwards, it seemed like few things were really worth what we once thought they were. Money rushed out of the productive economy and into gold, oil and treasury bills. The economist Brad DeLong spoke of a future where "the only things that have value are bottled water, sewing needles and ammunition". But mobile phone companies are not one of them. Mr DeLong may as well have added text messages to the list. While investors and bankers withhold their money from almost anything that doesn't come with a government guarantee, cash and confidence continue to pour into the mobile industry. Just this week, a consortium of investors has agreed to pay something in excess of US$10 billion (Dh36.73bn) to acquire 46 per cent of Zain, the Arab world's second-largest mobile operator. The same week marked the appearance, subject to regulator approval, of the UK's largest mobile player, through the announced merger of Orange and T-Mobile. Meanwhile, France's Vivendi said it would spend $2bn buying a Brazilian network. There are more deals in the pipeline. In the coming months, India's Bharti Group is likely to merge with MTN, Africa's largest operator, in the largest ever transaction of its type between two emerging markets companies. Banking sources say that financial institutions are lining up to take part in the deal. Essar, another major Indian mobile operator, has entered a partnership with the Dhabi Group, an investment firm owned by members of the Abu Dhabi Royal Family, to invest in the African telecoms market. And Orascom Telecom, Egypt's largest public company, is on an acquisition drive. Zain's new owners make an interesting addition to the mix. The leaders of the consortium, India's Vavasi Group and the Malaysian billionaire Syed al Bukhary have little presence in the telecoms sector and were predicted by none, not even Kuwait's famously rumour-prone investment community, to be involved in the deal. Vavasi tried, unsuccessfully, to acquire a telecoms licence in India, and has since committed to building a multibillion-dollar factory in the Indian state of Rajasthan. The factory is capable of producing the delicate, extremely valuable wafers needed in the production of microchips. The little-known Vavasi is seeking the partnership of some of India's largest telecoms companies to complete the consortium. The government-owned Bharat Sanchar Nigam (BSNL) is one company that Vavasi hopes to bring to the table. But bringing companies like BSNL and the state-owned Mahanagar Telephone Nigam (MTNL) into the deal will require patient political negotiations in India. Both government businesses are known for their slow, bureaucratic approach, and elements of the Indian political landscape will object to the sight of local profits being directed into expensive Gulf acquisitions. The mobile phone has become such a fundamental part of life to so many people that its popularity, and demand for the services of mobile operators, seem practically immune to the effects of an economic downturn. Consumers have shifted their coffee purchases from Starbucks to McDonald's, choose to keep driving their five-year-old cars a little longer, and have put off buying that second rental home. But their mobile bills have hardly changed. While few mobile users are cutting down on calls, the industry as a whole is seeing its revenues per user drop. This is partly because the mobile continues to penetrate poorer demographic markets, and partly because competition is bringing down prices of core services such as calls and text messages. In such an environment, it is emerging-market specialists that will thrive, explaining the popularity of Asia, the Middle East and Africa among mobile industry investors. Knowing how to serve more people with lower profit margins is a skill that has been mastered in places like India, Egypt and Nigeria. It will become increasingly important in places like Britain and the US. That will lead some of the best emerging market operators into the world's most developed economies, analysts insist. "You'll see them exporting their model all over the world and it may well be that you will see a case of the Third World coming into the First World," said Zeljko Ivic, the head of telecommunications and media at the Millennium Finance Corporation, a Dubai-based investment bank, at a telecom investment forum in April. "Inefficient fat cat operators in the West [will be] getting beaten by toughened emerging-market competitors." Mobile operators may be the clearest example of an industry that has retained its appeal while the sky appeared to be falling around them. But others have also shown that by becoming a basic, trusted staple of people's lives, a business stands a better chance of survival than by becoming a Wall Street favourite. tgara@thenational.ae
