Zimbabwe: Econet in Contractual Wrangle

Mergers, Acquisitions and Financial Results

The contractual wrangle between Namibian-based mobile operator, Trustco Mobile and Econet Wireless, has taken a new twist as the former has applied for an urgent interdict in Zimbabwe's courts against Econet Wireless.

The interdict seeks to enforce Econet's compliance with its contractual obligations and to prohibit it from infringing in any way on Trustco Mobile's intellectual property rights, which are protected by Zimbabwean and international laws.

The development has occurred after Econet recently severed its 18-month contract with the Johannesburg Stock Exchange (JSE) listed company, which provided a software platform for the delivery of messages on life cover status for subscribers.

"Following the continuous delay by Econet of payment of the royalty fees to Trustco and more importantly, the insurance premium to FML (First Mutual Life), Trustco served Econet with a notice of default, pursuant to the terms of the agreement," said Trustco group managing director Quinton van Rooyen.

"Upon receipt of the notice of default Econet unilaterally and immediately terminated the contract, severed Trustco and FML's access to the Trustco Mobile system, and denied that payment was outstanding to Trustco."

He also said that as a result of the contractual wrangle, millions of people were sitting on large amounts of inactive life cover while customer details and status are not up to date.

However, Econet, in an earlier statement, said it had set up a contingent fund, underwritten by FML to cover all policy holders who were entitled to the life cover.
Rooyen said Econet owed Trustco US$4.8 million adding that the agreement between both operators stipulated that the contract could only be terminated upon giving six months notice to either side.

Econet Wireless public relations manager Ranga Mberi said that he was not in a position to comment on the development as it had legal implications. However, its chairman Tawanda Nyambira was recently quoted as saying Trustco had misled the investing public by announcing on the JSE that they had insured 1, 7 million customers, yet the figure stood at 1, 2 million.

But Rooyen dismissed the claims as spurious saying the information disclosed to the JSE was in strict compliance with the bourse's regulations. He added that as at May 31 this year, 1.8 million subscribers had subscribed to the Ecolife package.

"Similar information was disclosed by Econet to its shareholders and its analysts as is required by the disclosure regulations as both entities are public listed companies," said Rooyen.

Since the inception of Ecolife in November last year, policy holders in FML increased from less than one hundred thousand to close to two million.

Econet has during the last few weeks increased its holdings in Afre Corporation, the holding company of First Mutual Life, and now controls the contracted insurance underwriter.

Trustco Mobile management said that contrary to media reports, they pleaded with Econet to fulfil its payment obligations under the agreement in order to continue providing free life insurance to qualified Ecolife subscribers.

It said Econet and First Mutual Life reacted to the success of Ecolife by seeking an equity stake in Trustco Mobile in December 2010, an offer that Trustco Group Holdings subsequently turned down.