NITEL’S CEO ZWOLSMAN; "30-40% REVENUES LOST TO INTERNAL FRAUD" BUT COMPANY IS NOW INVESTING

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Nitel’s CEO Rein Zwolsman has been in the job for just over a year. In the first year, there have been two main tasks: getting to grips with the company’s financial position and changing the culture within the company to be customer-focused. Russell Southwood interviewed the man with one of the toughest jobs on the continent about his future plans and the state of the company.

How is Pentascope’s contract with NITEL structured?

The contract has two components. Under the first, we have a management contract with NITEL/Mtel where we supply a CEO, CFO and CEO. Under the second component we offer a programme of consultancy on issues like billing, call completikon, human resources and finance. There are a range of different contracts at any one time and there are between 10-12 people working on these contracts. There is no option to buy the company and Pentascope is not active in the area of actually owning companies. Pentascope also has a management contract in Namibia and has consultancy projects in places like Egypt.

How did you get the job?

I was "head-hunted" by them for this job. I used to work as a Vice President, EMEA of Lucent Technologies which I left in 2002.

What were the challenges facing NITEL when you first arrived?

The main challenge was and remains organisation and people. We have to get our staff to understand that they are not working for the Government. There has to be a shift in attitudes and mentality so that they become customer-focused. This is the most difficult part of the organisation to change. We need to work for our customers. Excluding very junior staff, there were 13-14 layers of management when I arrived. We’ve created a matrix organisation with a maximum of five layers of management.

The other challenge was the state of the infrastructure. The network had not been maintained for a long period. It was more or less collapsing. So we had to draw up a "critical list" of things to take care of. But that’s not so complex as changing the organisation itself.

In the past the Government did not invest in the company but it collected huge dividends. We’ve reversed that and we’re in the process of talking to banks to get loan funding. Most of the projects we need to do have a 1-1.5 years period of return.

What sort of projects fall into this category?

We have projects to change exchanges from analogue to digital. We’re also repairing the network and buying spare parts. We’re going to build a self-healing fibre network and we’ll start on that in the last quarter of the year. They’ll be a request for proposals on that one soon. It will connect all major cities to SAT3.

How are you doing with your share of SAT3?

We’ve sold 15-20% of it and we’ll sell the whole capacity in two years. The former management of NITEL simply didn’t sell the capacity. We’re using it for wholesale internet and big oil companies who want ST13s. We will do VoIP which we’ve just started. Soon they’ll be two international products: 64k TDM and VoIP via pre-paid. It has to be pre-paid to give subscribers protection because in Nigeria there’s an issue with people using other people’s telephone lines. Also you receive cash up-front which is much more cost effective than pursuing bills.

So is the Government paying its bills?

We’ve made huge progress with this. The President has sent out directives that Government departments must pay and that if they don’t they will be disconnected. It used to be 50% of all money outstanding but it’s much lower than that now.

When will NITEL be privatised?

There’s a plan to have an IPO later this year. 20-25% will be offered to Nigerian investors.

What will happen to Pentascope’s contract?

The contract’s for 3 years and we’ve got two years to run. There’s a number of possibilities. We stay for 3 years and the Government asks us to stay on. An outsider buys the company and it then might ask us to stay on or kick us out.

When will the Nigerian consumer see tangible improvements in service?

They should begin to see an improvement in mentality and we’re working very hard on that. We will rehabilitate 150,000 lines this year and put in 250,000 new lines in Lagos. We’ve started the replacement of the analogue exchanges. We’re in the process of selecting a company to provide a new retail billing system and that will be installed in the next quarter. Therefore billing information will improve.

What have you been doing about the widely publicised fraud problems?

Internal fraud is a huge problem and it’s a problem throughout the company. There’s a leakage of between 30-40% of our revenue. We think we can stop 70% of that. In the past you took care of your neighbour so that he didn’t get a bill. When we started looking at the problem, we analysed the CDRs and found that 30% had not been billed.

How big is the grey market for international calls in Nigeria?

90% of international calling is in the grey market using VoIP. That this happened was entirely the responsibility of NITEL. It was charging N99 ta minute o Europe and the USA and you could get the same calls on any street corner for N20. We cut our tariffs to Europe and North America to N34-39 a minute. And as I said we will soon start a VoIP service with a significantly lower tariff.

Are you rebalancing your tariffs?

There will be an increase in local and long distance call tariffs. These rates will range up to N42 a minute. Where there was once 8 tariffs that no-one quite understood (and therefore were scared to use) we will have three tariffs: local, long distance and regional.

International traffic used to be 25% of the company’s turnover but this will go down to a few per cent. However the volume of traffic will grow and we’re already seeing the effects of the recent tariff reductions with a 250% increase in international calls. But it will become a high-volume, low-margin business.

What’s the growth potential?

Currently there’s 4 million lines and this could go as high as 20 million lines, a growth factor of maybe 10-12 times. It’s now cheaper to make a call from Nigeria to New York than it is to make a call on a mobile.

How is Globacom getting on?

It will be successful in the TSM market and it’s starting to roll-out its fixed line activities.

Will it get access to SAT3 capacity and at what sort of price?

NITEL owns close to 7% of SAT3 capacity. It signs contracts and pays yearly. We use the same tariffs as we sell to others in order to demonstrate internally that it’s not "free" capacity. We are on a midpoint in terms of pricing.

What have you learnt over your first year?

The contract was for making NITEL a better company but we have spent most time on the organisational issue. There’s been lot’s of red tape that we’re trying to get rid of as these processes were dictated by the past when it was a government organisation. The fraud problem is serious and we’ve spent a lot of time on that.

What’s the current number of employees and will you be slimming the company down?

There’s currently 11,000 employees and our agreement says that we will not lay people off. However we do want to do three times more in productivity terms with the current employees. Some are the wrong side of the line in skills terms but it’s manageable. We’re getting rid of people when they show the wrong behaviour but it’s extremely expensive to get rid of people because the terms and conditions reflect its past as a Government organisation