Financial tide goes out on incumbent telco privatisations - who will buy Africa’s “problem children”?
When the Cameroonian Government tried to sell its telco incumbent Camtel only two Indian buyers - Reliance and Essar - turned up and it called off the sale. Was this just a little local difficulty with a Government-owned “problem child” or part of a broader set of difficulties? With the global financial system in a holding pattern, it has become significantly harder for potential buyers to find the money to buy these “problem children”. Many buyers really want access to mobile licences and in times like these maybe it’s simpler to find “green field” licences. Russell Southwood checks the privatisation score card and looks at the dilemmas both buyers and sellers face.
Reliable reports reached us this week that two of Africa’s larger mobile operators have put in place a moratorium on further network spending until it’s clear what’s happening in the market. Last week Sudatel said that it had postponed a share offer in the Gulf and this week MTN has postponed its offer of 6% of its shares to its Black employees.
The big difficulty is knowing what anyone’s assets are worth. The glib answer is: whatever people are prepared to pay. But as everyone knows, at the height of the market this figure may be several times what they will pay at the bottom of the market. And for valuation purposes, those with assets at the moment are on the downward slope of the market’s roller coaster ride without any very clear idea of where the bottom is.
Out of Africa’s 52 countries, over half (29) still have incumbent telcos that are majority government-owned. Selling incumbent telcos is not a straightforward transaction. Governments, their citizens and the employees all have strong feelings about the process.
As the one of the largest employers in every country, making these companies more efficient has a direct impact on the number of employees. Even when Government sells a majority stake to a private investor, it often uses its minority position to hover in the background making political demands on the company.
If Government doesn’t like the way it’s going, it has ways of taking back ownership and (sometimes) re-privatising it: the examples of Ghana, Guinea, Nigeria, Tanzania and more recently Niger, all show that what’s sold does not always stay sold.
Government politicians often have an overly intimate relationship with their telcos. We have credible descriptions for at least four countries of the Government using them as a kind of cash machine through a variety of scams. The ITXC case in the USA demonstrated the level of institutionalised corruption that afflicts a significant number of these companies.
Those companies not privatised can be broken down into seven categories that will give some idea of the hurdles that stand in the way of completing this process. There are five companies that are up for sale in the short term: Burundi (Onatel), Niger (Sonitel), Zambia (Zamtel), Nigeria (Nitel) and Guinea (Sotelgui).
Burundi’s privatisation is being underwritten by the World Bank’s finance arm IFC as was the recently completed sale of Sotelma in Mali. The Nigerienne Government is re-privatising Sonitel because its Libyan and Chinese (ZTE) owners failed to meet the roll-out targets it was set. Zambia has appointed advisers to sell Zamtel. The Nigerian Government seems to delaying on the Nitel sale, whilst its striking workers ensure that one of its few streams of income (its international fibre) is turned off. Who but the very desperate for a mobile licence would buy this company?
Four companies were announced for privatisation but withdrawn before or slightly after the transaction was completed: Cameroon (Camtel), Algeria (Algerie Telecom), Mozambique (TDM) and Gambia (Gamtel). Algerie Telecom withdrew saying that outside investment was “no longer necessary”: the Government is putting in the investment required. A change of Government in Mozambique halted TDM’s sale. Gamtel was privatised personally by Gambia’s President and given to a local Lebanese owner. After a short period of time, the President decided that it had not performed well and took it back into state ownership.
Two companies failed to find buyers or investors: Tunisia (Tunisie Telecom) and Tanzania (TTCL). The Tunisian Government tried to sell a 35% stake in its telco but no-one wanted to be a minority at the price offered. The Tanzanian Government’s argument with the managing agent Sasktel is over its failure to find investors for TTCL.
There are two companies where there appear to be serious mid-to-long term plans to privatise once the companies have been put in better financial shape: Benin (Benin Telecoms) and Sierra Leone (Sierratel). The Sierra Leone Government re-instituted the international gateway monopoly as a way of putting money into its civil-war damaged incumbent but says it will then privatise it.
There are five companies that have announced they will be privatised but where the date keeps receding into the future: Botswana (BTC), Malawi (Malawi Telecom), Angola (Angola Telecom) and Egypt (Telecom Egypt). Botswana’s privatisation was delayed to allow it to set up a mobile operation that would enhance the sale price. The Angolan Government sold its mobile subsidiary Movicel to Chinese equipment vendor in a non-transparent sale process but no date has been set for the sale of its fixed line operations or of the other Government-owned telco, MS Telecom.
Two of the incumbent telcos that might be privatised are largely “shell” companies left over after civil wars: DRC (OPTC) and Liberia (LTC). The DRC Government has made several attempts to sell OPTC without success. At one stage, Telkom was an interested buyer if it could be given various monopoly privileges as part of the sale. (We note with interest that Motlatsi Nzeku was recently quoted as saying that the Telkom Board had confidence in him because it wanted him to head up an operation in DRC: seems more like the African version of Siberia to us but what do we know?)
The last category is those nine companies where it is highly unlikely they will be sold for reasons of Govermental obduracy or high levels of political risk: Zimbabwe (TelOne), Namibia (Telecom Namibia), Libya (GPTC), Swaziland (SPTC), Ethiopia (ETC), Djibouti (Djibouti Telecom), Central African Republic (Socatel), Congo-Brazzaville (Sotelco) and Chad (Sotelchad). The latter two have minority France Telecom shareholdings. However Libya has announced two new licences, one fixed and the other mobile (see Telecom News below).
In a world in which higher levels of competition demand increased capital investment, Government telco owners will either have to keep investing or see the value of their asset diminish. Furthermore increased competition reduces the market share of incumbents because with too many staff on the payroll they will always find it difficult to compete. With mobile companies rapidly spreading out into what was once the telco incumbents core markets, they are rapidly becoming the new incumbents.
From the sellers’ point of view, Governments need to believe that the incumbent telcos are valuable assets. One Government civil servant we spoke to about a recent transaction seemed to think that the seller could simply demand a better price and get it. What actually happened was a better price was constructed for external consumption, whilst the Government agreed to take on significant outstanding liabilities.
So Governments are caught “between a rock and a hard place”: if they sell now the value will not be at its highest but if they hold on they will need to keep re-investing at a substantial level (US$50-200 million a year, depending on the size of the operation).
From the buyers’ point of view, you inherit all the problems of trying to sort out what has been an organisation with an African Government culture, whilst trying to compete. The value of a mobile licence may not outweigh the downside of the long haul to reform a much larger entity. This is why potential buyers need to watch the progress of companies like Vodafone in Ghana (with Ghana Telecom) and Vivendi/Maroc Telecom in Gabon to see what the balance of risk and reward turns out to be.