Telecoms firms in dire straits, switch work gear

By Sonny Aragba-Akpore

19th August 2009

GROWING subscriber apathy to telecommunications services engendered by poor network coverage, high interconnect rates among others may have compelled companies in the sector to begin a rejig of their operations in tune with the times.

And they have embarked, in the last one year, on new operations which include mergers and acquisitions.

Many Code Division Multiple Access operators (CDMA) offering fixed and mobile services believe that their inability to raise funds to compete with Global System of Mobile communication (GSM) service providers limits their ability to compete effectively for voice communications.

And, lacking the spread and network coverage to face competition, they have consequently veered into data transmission where they believe they could have a competitive edge.

Such business decision has pushed up the investment profiles of companies like Starcomms, Multilinks Telkom, Visafone and Intercellular, which have had to acquire additional frequencies to obtain and sustain a major market share in the data transmission arena.

But while some CDMA operators appear to be doing well many others eye consolidation either by way of merger or acquisition to stay afloat.

The mergers and acquisitions have earned them about $2billion in the last year.

While some were done quietly, like Multilinks' acquisition by Telkom South Africa for $750million, Intercellular's acquisition by Sudan Telecommunication (SUDATEL) for $60 million, the acquisition of Prest Cable and Telecom Limited (Prestel) by Oceanic for an undisclosed amount and MTN's acquisition of VGC Communications for $70million show strong indications that more mergers or acquisitions may take place in the next few months.

Chairman, Intercellular Nigeria, Mr. Bashir el-Rufai, confirmed that his company pitched tent with Sudatel of Sudan because the latter has a high profile experience in providing data and voice communication in parts of Africa, Saudi Arabia, among others through optic fibre links.

Also, Intercullar will leverage on Sudatel's $1billion global equipment financing to grow its new network which emphasizes 80 per cent data and 20 per cent voice.

El-Rufai said Intercellular was in tune with the reality that CDMA operators cannot compete with their GSM counterparts because they (the former) are limited by numbers, coverage and funding.

He explained that his company has acquired additional frequencies to be able to offer wireless broadband internet (WiMAX) In Lagos, Abuja and Port Harcourt, while in some areas intercellular will offer data transmission through optic fibre or copper cable.

Visafone grew out of a buy- out of Bourdex Telecoms formerly in Aba, Abia state, Independent Telephone Network (ITN) in Lagos and Cell Communications also in Lagos.

The deal fetched the original promoters of the three companies N3billion.

Although Visafone appears to be doing well, inside sources said the company is just managing to stay afloat, perhaps riding on the crest of its high profile promoters.

The sources said that Visafone's ambitious plans to roll out quickly nationwide may be its greatest headache as some of the towns and cities it has gone to are said not economically viable to attract such investments for now. The source alleged that the promoters may have put other considerations forward for the decision to go to these places. The dilemma in the Visafone camp now, according to The Guardian sources, is that its promoters expected very quick returns on their investments forgetting that telecommunications is a long distance race.

But by the Nigerian Communications Commission (NCC) assessment, Visafone, Multilinks Telkom, ZoomMobile and Starcomms are doing well as CDMA and Unified Access Licence operators.

Multilinks Telkom has a subscriber base of 1.9million, Visafone about 1.6million, ZoomMobile, 1.5m while Starcomms has about 2.5 million.

By the NCC's assessment, 21st Century Technologies, and VGC Communications are doing well in the optic fibre connectivity. They are both providing services through deployment of copper cable which is believed to be the best for internet connection and voice services.

Both companies do not think of merger in the nearest future.

But Zoom Mobile officials think that merger or acquisition is a business decision that would not be out of place. The company is promoted by Chief Annie Okonkwo ,Tom Adaba,Canice Umenwaliri, Tony Aigbinode And Tony Okonkwo and has ploughed in about $450million into the business in the last one year.

"A correct reading of the telecom market today will indicate clearly that sensible or wise merger is the way to go in the proximate future", according to Corporate Communications Executive, Emeka Okonkwo.

He said consolidation of the gains of telecommunication has just begun and will continue to be so in line with ZoomMobile customer focused services.

Multilinks Telkom spokesperson, Mrs. Ijeoma Abazie said mergers and acquisitions are dealt with by Telkom Group as part of its strategy to expand its African footprint.

Visafone spokeperson Kingsley Mordi and Chinekwu Nwosu-Igbo did not respond to the questionnaire sent by The Guardian.

But sources claimed that Visafone may not run as fast as media reports indicate.

Net losses at Nigeria's biggest fixed wireless telecoms operator, Starcomms, more than trebled in its half-year to June, due to foreign exchange losses, the firm's chief executive Mr. Mahar Qubain said.

Starcomms reported a net loss of N 3.68 billion ($25 million) compared with a N1.01 billion loss a year earlier, although revenue grew seven percent to N16.9 billion

"We actually not only haven't returned to profitability, we've shown the bottom line (loss) is clearly due to forex loss from naira depreciation," Qubain, said saying data subscribers grew almost 60 per cent.

The company has exposure to dollar-denominated borrowing which it uses to finance hardware imports. Qubain said forex exposure would remain a risk but said it was one that could be managed.

"Currently we are in the process of converting some of our dollar denominated borrowings to naira in order to minimise the impact of the forex losses," he said.

Qubain said Starcomms' dollar-denominated debt stood at $160 million with a 3-5 year maturity.

"What we have to do is to manage our capex and opex but we won't eliminate the forex risk, nor can any operator in the region", Qubain said.

Qubain said that Starcomm's data subscribers accounted for 60 percent of the revenue in the second quarter of this year while voice subscribers dropped to 40 percent.

While industry players blame the mergers and acquisitions on the monster called "global financial meltdown", economists say "it is a reality too large to ignore."

Signs that the sector was heading for consolidation began to manifest early in 2007 with the acquisition of Independent Telephone Network (ITN), Bourdex Telecoms and Cell communications Limited by a group of promoters led by Zenith Bank Chief Executive Officer, Mr. Jim Ovia and African Petroleum (AP) Chairman, Mr. Femi Otedola.

The acquisition was at a cost of N3 billion and the new company that emerged was Visafone.

Besides getting the Nigerian Communications Commission (NCC) nod for Unified Access Licence for about N350million, it also injected about N1billion into the company for the new equipment to change the legacy equipment originally employed by the former network operators.

The trio of Chief Adebayo Akande ITN), Chief David Onuoha (Bourdex) and Chief Patrick Chidolue(CELLCOMM) let go their companies for Ovia and Otedola.

The fate of these companies also became the lot of Prest Cable and Telecom Limited, originally promoted by Chief Tony Prest.

Prestel was acquired by Oceanic Bank early in the year thus joining the growing list of acquired or merged companies.

Intercellular Nigeria, a pioneer company in the CDMA arena was also swallowed up by Sudatel of Sudan. Mr. Fidel Otuya, the company's spokesman confirmed last night that Sudatel has paid $60m to acquire stakes in Intercellular.

The late Miko Rwayitare, a Rwandan businessman who later naturalized as a South African, originally promoted GVT/Telecel and had an eye for Intercellular before he pitched his tent with Prestel. He had 60 per cent shares in Prestel prior to his death.

The foundation set up by Miko Rwaytare asked to withdraw from the deal thus paving the way for Prest to sell to Oceanic.

Shareholders of Intercellular agreed to accept Sudatel after a shareholders meeting.

"The deal was sealed and endorsed by the shareholders," one source said.

Telecel International manages GVT, which is a Special Purpose Vehicle (SPV).

Besides the $60m, Sudatel is expected to inject additional funds into Intercellular.

Otuya confirmed this saying this is where to begin. He declined further comments on merger or acquisition.

CDMA IS 95, a legacy technology from Motorola, Inc. was deployed by Intercellular in 1998 when it flagged of business. Just like Intercellular, Prestel has also begun a nationwide network of expansion.

These acquisitions are a precursor to the ones by MTN, which acquired Victoria Garden City Communications (VGCCL) at a cost of $70m.

But the biggest acquisition is said to be that of Multilinks Telecommunications Limited.

The company that was originally promoted by two Indian friends, Mr. C.K. Ramani and P.A. Dave and some Nigerians including Chief Bisi Omidiora and Chief Bode George opted to sell about 75 per cent equity to Telkom South Africa at a cost of $750m.

Besides name change, the company has had to rebrand its services and products.

But while consolidation becomes a way of life as a result of mergers and acquisition, The Guardian learnt that fixed wireless operators are generally not doing too well.

For instance, RainbowNet, MTS, First Wireless, Disc Communications, Startech Connections, ONET, Webcom, XS Broadband, NITEL have not sufficiently grown their networks in the last one year.

Onet ,owned by the OduA group may soon be taken over by an American firm.

MTS market share as at December 31, 2008 was 2.73 per cent and by June 2009, it had dropped to below one per cent.

Disc Communications, Startech, RainbowNet, XsBroadband's market shares were also below one per cent.

Nigeria currently has 67million connected lines out which GSM accounts for 58mllon while CDMA is nine million.

Source: Guardian

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