Govt interference could ruin Telecel

By Paul Nyakazeya

Market watchers and telecoms experts this week questioned government’s decision to take over Telecel Zimbabwe, considering that it already controls NetOne and TelOne, the fixed line and mobile telecommunications firms, which it has failed to adequately capitalise since adoption of a hard currency economy in 2009.

Reports indicate that government is now the majority shareholder in Telecel after concluding a US$40 million deal to buy out international telecommunications giant, VimpelCom, which held a 60 percent shareholding in the local company.

Before the transaction, Telecel was jointly owned by Telecel International and Empowerment Corporation (EC), a Zimbabwean consortium made up of a number of local investors who control 40 percent of the company.

Telecel International is controlled 100 percent by Global Telecom Holding, a VimpelCom subsidiary. Government’s intention is to eventually own Telecel Zimbabwe 100 percent.

Analysts felt government’s entry into Telecel was not the best decision given that diversity and plurality of ownership in the telecoms sector was very critical for growth, competition and better service.

“The big question should be who will buy the stake from government eventually. Obviously government will not hold on to this shareholding forever,” said one telecoms player speaking confidentially to the Financial Gazette’s Companies & Markets (C&M).

TechZim founder, Soul Kabweza, told C&M that government already had interests in other sector players to have been desperate for a stake in Telecel.

“It would likely not be that government needed another operator, since, quite clearly, they have a lot of telecoms operators’ already providing mobile voice and internet services. These include NetOne, Powertel, TelOne —which has a mobile voice license they are not using — and even investments in Africom,” he said.

“It already does not make sense why government has not consolidated these existing investments over the years. The companies have missed opportunities to leverage each other’s investment infrastructure and resultantly have not performed well for their shareholder, the government,” Kabweza said.

He said adding another mobile operator into the mix would further fragment government’s interests in the sector rather than consolidate them.

“The assumption therefore is that the motivation behind the takeover is probably political than anything. My speculation is that government was not happy with certain shareholders of the company and made the move to neutralise them or take control of a key investment these shareholders have,” Kabweza said.

One telecommunications expert indicated that it would be a tragedy if government changed senior managers and brought in political appointees who could ruin the Telecel brand, which, despite bickering among EC shareholders over the years, has stood out against competition.

“Our government is known for rewarding loyalty instead of merit; Telecel will likely be run by loyal yet unqualified people in the long-term if government maintains its shareholding, a development that could affect its growth and service efficiency,” he said.

But there may be a flip side to the transaction.

Telecel might actually have an opportunity to convince government to inject fresh capital into the business, which has suffered from hesitancy by the foreign shareholder to commit more capital into the company due to an uncertain environment.

Another possibility would be to force a merger with NetOne so that they leverage on each other’s strengths. Such a plan was mulled but abandoned a few years ago.

ICT expert, Taurai Chinyamakobvu, said he hoped that despite its takeover of Telecel, government would allow the company to operate independent of political influence.

“One hopes that if the company is to avoid going the route of other government-owned companies, especially outside telecoms, have gone, government gives it the autonomy to run commercially.

But will Telecel grow?

“In theory, nothing should stop Telecel from growing and competing for market share with other players. The last set of statistics I saw showed that NetOne has become bigger than Telecel by subscriber numbers. This means that NetOne, which is fully owned by the State has grown its subscribers.

“In fact, both NetOne and Telecel can even collaborate in some areas and compete in others. For example, they can move fast to implement infrastructure sharing, putting their equipment on each other’s towers to lower costs of deployment,” said Chinyamakobvu.

Kabweza said he hoped government was not hoping to reap quick dividends by investing in Telecel.

“Contrary to what many outside telecoms believe, telecoms is not a money spinning business. Because of rapidly changing technology and shifting consumer demands, there is need for constant investment in new technology and increasing network capacity which means any profits, if any are made that is, will need to be ploughed back into infrastructure,” he said.

“It is an expensive business to run. Add to that the current problems faced by telecoms operators where OTTs are fast eroding their key revenue streams and you have a business that demands smart and tenacious execution. The government’s ability to provide such leadership does not inspire confidence,” said Kabweza.

Recent reports by auditor-general Mildred Chiri indicate that State-owned enterprises and government departments are in the red, continuously bleeding the fiscus and in most instances failing to adequately provide the service for which they were set up for.

Parastatals are grappling with high overheads, inter-parastatal debts, mal-administration, under-capitalisation, corruption and lack of good corporate governance which have negatively impacted on their operations.

Government’s fiscus is also under pressure from parastatals that have not been operating viably. Parastatals, such as the Cold Storage Company, Zimbabwe Mining Development Corporation, Grain Marketing Board and many others, used to contribute 40 percent of the country’s gross domestic product in the 1990s. However, they are now weighing down Treasury by constantly drawing money from government.

“I think the best way forward is for the government to divest after this transaction by listing the company and allowing Zimbabweans to buy shares in the business. If they do not do this, then they should give sufficient autonomy to the board and management to grow the company the best way possible,” Chinyamakobvu said.

Contacted for comment on government’s plans in the acquisition of the company, Telecel’s communications and branding director, Obert Mandimika, said: “We are not in a position to comment on these developments yet.”

VimpelCom, listed on Nasdaq, the second-largest bourse in the world by market capitalisation behind the New York Stock Exchange, is a global provider of telecom services incorporated in Bermuda and headquartered in Amsterdam with 223 million customers in 14 countries.

Its subsidiary, Global Telecom is an international telecoms company operating GSM networks in the Middle East, Africa, Canada and Asia.

In addition to its indirect equity in Telecel Zimbabwe before the latest disposal, it operates networks in Algeria, Pakistan, and Bangladesh. Financial Gazette