Africa's former telecom monopolies struggle

Inexperienced foreign management staff, overpriced assets, competition, politics and patchy regulation have led Africa's former telecommunications monopolies to struggle, stalling growth prospects.

South Africa, Kenya, Nigeria and Tanzania are some of the notable countries where former monopolies face not only the demand to be profitable, but also workers bodies that are opposed to job cuts.

The government of Tanzania, for example, has taken over operations at the troubled Tanzania Telecommunication Co. (TTCL) from the Canadian management firm Saskatel. In 2001, a consortium of MSI (Netherlands) and Detecon (Germany) acquired a 35 percent stake in TTCL from the government, but later left.

In Nigeria, the government is still in the process of selling NITEL after its collapse last year. In Kenya, France Telecom is demanding US$385 million over assets that have allegedly disappeared after it took a stake in the company two years ago. In South Africa, Telkom SA performs well but is frequently locked in fights with the COSATU, the workers body, over job cuts.

"The problem is underfunding over the years, resulting from low revenues and lack of investment by the state, which was initially preceded by lack of competition, which resulted in the incumbents taking things for granted and not deploying the infrastructure they should have," said Dobek Pater, senior telecom analyst at Africa Analysis.

Most former monopolies were seen as cash cows and sources of employment, which has made it hard for them to compete with other telecom service providers.

"Historically these companies have been seen by governments as being important providers of employment," said Christie Christelis, president of Technology Strategies International. "Forcing them to compete requires that they trim their staff complement down to the size that a competitive operator would have, and they have to make investments which secure an adequate return -- both of which monopolies are not experienced at," Christelis said.

In the late 1990s, African governments started liberalizing the telecom sector and awarded mobile service licenses to new companies. By default, former monopolies were also awarded licenses, allowing them to compete against the mobile operators and increase revenue.

"In many cases, they have not been able to use these licenses prudently; hence the various governments' decisions to commercialize and eventually privatize the former incumbents," Pater added.

Downsizing staff that in many cases is not attuned to the corporate culture of performance contracts has been a major challenge for politicians, who in many cases would like to see people employed regardless of whether they are contributing to revenue.

"Trimming staff is obviously politically unpopular and brings the unions into the fray; governments often maintain a stake in the privatized company and have divided incentives in this situation -- on the one hand they want to protect the monopoly (and employees), whilst on the other hand they want the telecommunications environment to be competitive so that it delivers benefits to its citizens," Christelis added.

One of the major challenges and unspoken hostilities has been between international and local management. In cases like Telkom Kenya, international management staff brought in by France Telecom has been accused of ignoring advice by local managers, who claim to understand the market better. This led to an exodus of senior managers within the first year of France Telecom's operations in Kenya.

"Western management models do not always work in Africa; often the outside management comes into the situation with flawed views about the organization that they are assisting or taking over, the policy environment, and in particular the role (and political support) of the ministry, the independence of the regulator and nature of demand in the market," Christelis said.

"I have worked on a number of projects where we deployed teams of international experts from the developed world in emerging economies to develop strategies for the emerging economy, only for these to fail because the consultants, while world class, do not understand the dynamics of emerging economies," he added.

While there is no single template that can fit and succeed in all African countries, an assessment of future opportunities, competition, political environment and potential political opposition to acquisitions is important.

France Telecom's case in Kenya should be a lesson, analysts say. Part of the problem is that France Telecom feels that it inherited some supply contracts that were not beneficial to the company. Pater feels that in cases where there are supply contracts that were not disclosed during the initial due diligence and which may have a negative impact on the operations going forward, the government should allow the new management to reconsider its decision to become involved or allow it to seek redress from the government or previous owner.

"It may be important for the selling party during a bid to evaluate the bids holistically and undertake more of a 'beauty parade' rather than almost always selecting the highest bidder; the highest bidder may not necessarily be the most successful one when it comes to future performance," Pater said.

While many former monopolies may be facing challenges, Uganda Telecom provides a ray of hope, given that it was privatized at a time when MTN had already entered the market and was growing at a fast pace. In 2000, the government of Uganda sold a 51 percent stake in Uganda Telecom, and after seven years of struggling to stabilize, the company found its balance. Today, UT is 69 percent owned by LAP Greencom (owned by the Libyan government) and 31 percent owned by the Ugandan government.