Tuesday, June 13, 2006

Starving in the midst of plenty

While the mobile service operators are declaring eye-popping profits, their fixed service counterparts are groaning under debts. A few have closed shop altogether. JOHN AWE has been investigating the problem and now reports.

(Cover story, Infosystems, Nigerian Tribune, Thursday 15 2006)

The office was a cynosure of all eyes a few years back. Situated just before the head office of Zenith Bank on Ajose Adeogun Street, in high brow Victoria Island, the edifice was painted in bright colours. During working hours expensive cars were parked in every available space in its front. Smart security officials mounted sentry at the gates. Beautiful ladies in smart business suits welcomed visitors at the reception.

That was the corporate seat of EMIS, the most promising and clearly the most aggressive of the earliest entrants into the telecommunications race post deregulation in 1996. The company was a big advertiser. It left no one in doubt that telecommunications was going to be the next big thing in Nigeria after oil and gas. Young men and women rushed over themselves to be employed in the company.

Fast forward to 2006. You cannot find EMIS in that prime location again. Neither can you find its adverts anywhere in the press again. Inquire from the very street where EMIS reigned in its royal opulence a few years back and people stare at you blankly. They have no idea what you are talking about.

Mobitel was another of the pioneers with a lot of promise. Its office surroundings were filled with choice branded cars. It filled the papers with creative adverts and commanded a sizeable portion of the total number of fixed line subscribers in Lagos once.

But by 2005, after seven years of operation and investment in plant and equipment of over N2 billion, Mobitel had less than 10 000 subscriber lines, whereas mobile operators were counting their subscribers in millions. Mobitel had bank borrowings in excess of N1.6 billion and creditors liabilities of over N1.6 billion, including unpaid interconnect obligations of over N600m.
A trip to the offices of a couple of other early entrants in Lagos revealed that all is not well with many of the operators. What used to be glittering office environments now bear horrible signs of wear and tear. Most are lagging behind in interconnect obligations and a couple are being threatened with disconnection by the more prosperous operators.

The kingpin of fixed service provisioning, NITEL is in total distress. Salaries have not been paid for about four months, culminating in a workers’ strike that has grounded the company’s operations.

“The truth is, things have not been easy for fixed service operators in Nigeria as their mobile counterparts” said Adenrele Ariyo, a lawyer and consumer rights activist with a bias for telecommunications. “Forget about all the glitz and glamour they display, most of the fixed service operators are in trouble.”

“Apart from Multilinks and Starcomms, others are struggling” said a telecom chieftain who has been there from the very beginning. “This may appear somewhat difficult for people outside the telecom sector to comprehend, but that is the truth.”

Starcomms Marketing Manager, Mr Oman Lababidi sheds light on the signs that show that a company is in distress:

“When a company is not able to meet its obligations to its bankers, its staff and customers, it is clearly in trouble. It is not simply that a company has borrowed from a bank. You cannot do this business without borrowing. But the moment you are not able to manage your debt portfolio well, or you begin to default in the servicing of the debt, you are going down”.

So why are some operators prospering and others are fighting for dear life? Executive Director of Multilinks, Chief Ezekiel Fatoye voted for management and the operating environment. “The operating environment is actually difficult for local players, especially fixed service operators, but certainly, the way and manner the specific company is run determines whether it succeeds or not”.

A source within Intercellular argues that lopsided interconnect agreement between fixed and mobile operators is part of the problem.

“They (mobile operators) generate more traffic, yet we pay them more per call than they pay us” the source complained.

Mr Lababidi thinks management matters more than other factors.
“Apparently, many did not do enough due diligence before entering the market. You need to know exactly what you are going in for. Then you can be prepared for the challenges. But where this is lacking, you will be in trouble”

The regulator of the sector puts it down to corporate governance challenges. Mr Ernest Ndukwe told Infosystems that every one of the operators that has run into trouble had shareholders’ squabbles.

“I am not saying that times are not hard. But it is also possible that people survive based on their corporate plans, how they change with the changing times and how they position themselves in the industry” Mr Ndukwe said. (Read full transcript inside).

To the Minister of Communications, Chief Cornelius Adebayo, there is no distress anywhere, there are only poorly managed companies. Reacting to Infosystems’ suggestion that the local operating environment might be contributory, he said:
“Can you cite specific instances?”
“Inability to secure financing with long term repayment tenor for instance”
“Yes, you may be right there, but this is not a problem with Nigeria alone. And again others are facing the same problem and are solving it. This has nothing to do with the government. And of course you are aware of a number of things the government has done to make things better for these operators. And you can see that many are doing very well. We will continue to put in place the right environment for the operators to survive”, the minister said.

Beyond what government can do, is there any other immediate solution or way out for the distressed? Is merger one of the options?

To Chief Fatoye, the answer is emphatic no. “Merger can work in banking, but certainly not in telecoms. If you want to buy a company, there must be something you plan to gain from that company. In telecoms, the biggest asset is subscriber. And as you know, it is not fixed. Subscribers can shift from one operator to the other. If you buy a company, banking on its subscriber base, what if more than half of the subscribers move on to other operators even before you finish the deal?”

To Mr Lababidi, merger is not an option. “There are technology issues. Then, there are a whole lot of other issues, relating to corporate governance culture among other complicated issues”.

So what is the option? Many of those interviewed think the opportunity provided by the new licensing regime can be exploited by some of the fixed operators to turn their fortunes around.
“If some of the fixed operators can muster some funds to acquire the universal licence and deploy, they will be in a better position to compete with the mobile operators” said Adenrele.

For operators that still cannot get their act together, Mr Lababidi has an answer. “They should fold up and allow those who can play come in. That will be in the interest of customers and the industry”.

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