VODACOM, MTN SQUARE OFF IN BID FOR NIGERIA’S NITEL

Mergers, Acquisitions and Financial Results

VODACOM and MTN are poised to do battle once again in Nigeria. Both are shortlisted to bid for a controlling stake in government-owned operator Nitel. Vodacom will bid with its parent company, Telkom, for control of Nitel and its cellular network arm M-Tel. MTN has also been shortlisted, despite already operating the most successful cellular network in Nigeria — in direct competition to M-Tel.

But it is not a foregone conclusion that either group will win the deal, since another prequalified bidder is Celtel. Celtel is already a formidable rival, and has grown stronger since its US3.3bn acquisition in March by Kuwait’s Mobile Telecommunications Company. Thus it has not operated a fixed line network except for its short-lived investment in TTCL which it is in the process of bailing out from with the company's mobile assets.

Other contenders are Egypt’s Orascom Telecom, China’s telecoms equipment manufacturer Huawei Technologies and a relatively unknown Newtel consortium – thought to feature a number of prominent African businessmen, including Nelson Mandela’s son-in-law Kwame Amuah.

The six bids have been approved by Nigeria’s Bureau of Public Enterprises. The bidders will now have to pay USD35,000 for access to more comprehensive documentation to prepare their formal bids and the BPE hopes to conclude a deal by September.

Nigeria is seen as the world’s last remaining high-growth area for telecommunication players, with about 12-million subscribers out of a population of 136-million. Research house BMI-TechKnowledge estimates that Nitel had only 767000 fixed lines installed last year, while Merrill Lynch says that Nitel lost about USD145m in 2003.

Vodacom is determined to keep pace with MTN and get into the lucrative Nigerian market. Vodacom’s previous efforts to take control of another Nigerian network, V-Mobile, are on hold due to a complex legal battle with another operator, Econet, which claims a pre-emptive right to take control of V-Mobile (see In Brief below).

It is not clear whether Vodacom will be able to buy V-Mobile if it wins the deal to take over Nitel. Nor is it clear how MTN would be able to reconcile the conflict of running its own network with its bid to take control of Nitel and M-Tel.

Earlier this year, Telkom CEO Sizwe Nxasana said Telkom and Vodacom had expressed a joint interest in Nitel because Telkom could overhaul the fixed-line business while Vodacom turned around the cellular division. "We would be very keen to operate (in Nigeria)," Nxasana said. Nxasana did not speculate on the value of the deal, nor how much it would cost to turn the operations around.

If successful the Telkom-Vodacom bid would put them in control of two monopoly concessions on the SAT3 fibre in two of the largest markets it connects.

One point in rival Huawei’s favour is its track record with Nitel, since Huawei supplied it with a wireless network to reach rural parts of the country in April this year.

Nigeria has been looking for an experienced and cash-flush majority partner for debt-laden Nitel and its cellphone business since 2001, when 51% was offered to a hastily constructed UK company, Investors International London. The state’s previous attempt at a stake sale failed in March 2003 after ILL failed to pay the USD1.11 billion agreed asking price.

The latest sell-off was provoked by the government’s annulment of an NITEL management contract with Pentascope of the Netherlands over alleged incompetence.

www.bday.co.za