Mixed views over Telecel acquisition

By Paul Nyakazeya

Government’s completion of the acquisition of Global Telecom Holdings’ (GTH) entire shareholding in Telecel Zimbabwe for US$40 million has courted mixed reactions from critics.

Under State ownership, some analysts said Telecel was likely going to benefit from leveraged finance secured through relationships government has with countries in Asia and Europe as has been the case with NetOne and TelOne.

However, other observers said the fact that government was now the controlling shareholder in the company meant that Telecel’s subscriber base was now likely to remain stunted.

They based their opinions on government’s record with State-owned enterprises, some of which have been ruined beyond redemption due to State interference in their operations and lack of good corporate governance.

TechZim editor and technology expert, Nigel Gambanga, said Telecel had been deprived of a foreign shareholder who had the experience and financial wherewithal to support the Zimbabwe business.

He argued that the State’s investment in the telecoms industry was not a positive move.

“Views on the industry’s outlook are going to be through fewer lenses and frankly speaking, government has not had a lot of runaway successes in investment. In the case of telecoms, just look at past failures registered at ZARNet and challenges at NetOne as well as the problems faced by TelOne in the past,” he said.

ZARNet is wholly owned by government through the Ministry of Information and Communication Technology, Postal and Courier Services. It was established in 1997 as a government internet service provider.

Government, through ZARNnet, has now taken effective control of the country’s smallest mobile operator by subscribers through a 60 percent shareholding.

The remaining 40 percent is owned by Empowerment Corporation, a group of local investors.

“Under State ownership, Telecel will likely benefit from leveraged finance secured through relationships government has with countries like China. This has helped other telecoms players like TelOne and NetOne. Telecel stands to get something from the same positive Zim/Sino headwinds. This could mean better services through faster network improvements. Competitors like NetOne and TelOne will also become potential partners,” said Gambanga.

In the late 1980s and 90s, State-owned enterprises contributed 40 percent of the country’s gross domestic product.

At present, most enterprises are receiving various forms of financial support from government.

In a statement last month, Minister of Information Communication Technology, Postal and Courier Services, Supa Mandiwanzira, said: “Government’s intentions remain to secure 100 percent shareholding in Telecel Zimbabwe, in the process sanitising the numerous shareholder related disputes that have dogged business growth and scared away investors”.

Mandiwanzira said the deal allowed ZARNet to take management control of the telecommunication company immediately.

Government already controls another mobile operator NetOne, which is struggling financially and also battling to resolve corporate governance issues which led to the sacking of top executives early this year.

Another worrying trend has been political appointments that have destroyed most parastatals.

“If the Ministry of ICT is going to restructure Telecel, it will not be surprising to see it made up of the ministry’s golf buddies. If they are qualified and competent it is a discussion for another day. Today the biggest cancer is political interference across all parastatals,” an ICT expert who declined to be named said.

Taurai Chinyamakobvu, an ICT expert, said the takeover did not mean much beyond just being a change in who owns what shares.

“It is not very clear what government’s agenda is with this acquisition, so perhaps it is important for the Minister of ICT to clarify it.

The current financial status of our government, where it spends much of the country’s budget on recurrent expenditure, is a good sign that Telecel will not have deep-pockets back-up in the event that it needs capital injection,” he said.

The telecommunication industry is a capital-intensive business because there are new innovations in both hardware and software every six or so months.

Government has taken loans to support both TelOne and NetOne in the past, but not much has changed in terms of fortunes for these companies as a result of the loans.

Zarnet has no record as an innovating tech company so it is not clear what impact it will have on Telecel, said critics.

“Another dynamic that causes confusion and muddies the prospects for a post-acquisition Telecel are the media reports that existing minority shareholders led by James Makamba are suing Vimpelcom for selling the shares to the Government of Zimbabwe in violation of pre-emptive rights. Litigation always has the effect of creating uncertainty in a business,” said Chinyamakobvu.

Tech Unzipped editor, Pardon Gatsi, said government’s purchase of Telecel was a big win for the country’s telecommunications sector.

“Our government has seen that the telecoms sector continues to be at the epicentre for growth, innovation, and disruption for virtually any industry. Government should let Telecel operate autonomously to enable it to effectively discharge its duties. Who knows we may see new products and services coming from Telecel,” he said.

Mobile devices and related broadband connectivity continue to be more and more embedded in the fabric of society today and they are key in driving the momentum around some important trends such as video streaming, Internet and mobile payments.

“Telecel should take a more focused approach in determining which digital products and services to offer if they are to capture real opportunities in adjacent businesses and broader digital ecosystems,” said Gatsi.

Technology expert, Shingie Muringi, said he doubted that government’s takeover of Telecel would improve the telecommunications landscape.

“The major question which needs to be asked is, ‘Why (does) government need two mobile telecommunication operators?’. Government already runs a loss-making NetOne and taking over Telecel into its stable raises a lot of questions,” Muringi said. Financial Gazette