What's in It for Nitel’s future Core Investor?

Mergers, Acquisitions and Financial Results

The Nigerian Government confirmed that Transcorp will stay in place as the managers and owners of Nitel until a new strategic investor can be found. But a report in This Day rightly asks why any strategic investor would this kind of commitment.

The telecommunications market in Nigeria is approaching saturation - at least within urban areas. There are already three active mobile operators sharing some 41 million subscribers, and a handful of fixed wireless access providers. Some of the players are formidable with Globacom and MTN at the top of the heavyweight division. New entrants are on their way and two stand out. Jim Ovia's Visafone, from all indications will be a formidable communications solutions provider. Whilst Mubadala / Etisalat seem to be relatively quiet abut their plans, they will no doubt have to commence operations soon to avoid risk of license forfeiture.

Against this backdrop and ARPUs of around US$10 per subscriber per month (down from the lofty US$50 heights of 2002), it is clear that any new investor will need to be clear where the opportunity lies before investing million. Also factor in a rural population of over 50 per cent, who remain generally underserved or unserved, and the picture may start to become clearer. Without true expansion of wealth, people will simply practice substitution economics to survive. Increased spending on communications will mean a corresponding decrease in other lifestyle aspects.

So why should anybody bother to invest against this gloomy backdrop ? Nitel can be leveraged to deliver niche services. An investor in Nitel will need to focus the telecoms firm on the corporate sector with the single aim of saving the billion of dollars currently expended on satellite communications. This will require investment in fibre optic backbone capacity but Nitel claims to have an extensive fibre network.

Naturally, the core investor will need to trigger an entire re-branding exercise to reposition Nitel’s image in the minds of the population. It must also be understood that getting the corporate market to leave their trusted - if expensive VSAT based infrastructure, will require a lot of market activity and confidence building. But the demand exists. Banks and other multisided organisations still require significant bandwidth to build proper multimedia private networks VPNs upon.

These organisations can then be used as low cost vehicles to offer employees unified voice, data and Internet services at their homes, possibly on a corporate payment scheme. The future of MTEL is more uncertain. This is probably one portfolio element that needs to be critically assessed in light of the trends in mobile telephony across the country.

Speed is therefore of the essence if this company is to survive and return yield to its investors.

This Day