New owners of Nitel, Mtel, face a tough road to success

The Nigerian government's sale of the state-owned Nigerian Telecommunications and its mobile arm, Mobile Telecommunications, ends a decade of bickering over the sale of the company. NATCOM beat out other companies that were interested in buying Nitel, but the group's leadership has not said how it intends to revamp the company, whose infrastructure is obsolete and has been rundown for years.

Nitel assets acquired by NATCOM include licenses and spectrum, the nationwide fixed wire networks, the international gateway, towers and transmission equipment.

Nigeria's Bureau of Public Enterprise (PBE) launched a tender for bids in June this year after the process was cleared by the Federal High Court. In October last year, Nigeria's lawmakers passed a motion in the House of Representatives to block the sale of the company, insisting that Nitel was still viable and able to compete with private operators. The lawmakers asked the Nigerian government to establish a public-private partnership for the company.

But after months of infighting, the motion was overruled. Two bidders, NATCOM and NETTAG, had been prequalified by the BPE to participate in the liquidation process but NETTAG was disqualified for failing to include a $10 million bid bond as was stipulated in the Request for Proposal (RFP) prepared by the privatization agency.

After being announced winner of the bid, Tunde Ayeni, chairman of the NATCOM Consortium said "with the post-acquisition plan, the fortunes of the telecom company will be turned around in three years."

Whether the company can turn around in such a short time, and how exactly it will try to do that, remains to be seen.

Computer Society of Zambia telecom analyst Amos Kalunga said the growth of voice market in Nigeria is steadily slowing down, leaving operators to compete more aggressively on the provision of data services.

"So we expect the aggressive rollout of data services by NATCOM as opposed to voice services if it is to become relevant to the Nigerians once again," Kalunga said.

Corruption by senior government officials involved in the privatization process as well as lack of transparency and bickering among lawmakers and politicians were blamed for unsuccessful previous attempts to sell the companies.

Nitel was viable when the Nigerian government operated it as a monopoly, providing both mobile and fixed services.

However, problems started in 1992 when the government started liberalizing the telecom sector to allow private investments.

The coming of privately owned, technologically advanced and financially strong GSM operators including MTN, the region's largest operator, and Airtel, the region's second largest operator, ended Nitel's monopoly and the company started losing business.

As is the case in many African countries, the Nigerian government failed to recapitalize the company, hence the decision to sell it. Corruption allegations in the bidding process forced the President Goodluck Jonathan to set up a panel to probe the sale of Nitel. Although the findings of the panel were not made public, the head of BPE was suspended by Jonathan and later removed from his position.

In 2011, Omen International Consortium failed to pay a $105 million security bid to BPE for Nitel. A few months before that, the New Generation Consortium, led by China Unicom, backed out after failing to pay the bid price of $2.5 million for a 75 percent stake in Nitel.

Investor International London's bid to acquire the company also failed after it defaulted in paying the bid price of $1.3 billion.

In 2003, Pentascope, a Dutch company took over Nitel in a bid to revamp it and the company generated about N52 billion ($289 million). About two years later, the number of connected lines managed by the company dropped and Nitel incurred debt of more than $220 million. Later the Nigerian government revoked the deal with Pentascope to manage the company.

There is general pessimism about whether the new owners can revive the company. The Nigerian telecom market has over 11 operators competing for customers, raising fears that the market might soon become saturated.

The Nigerian telcom market has 125 million subscribers and a market penetration of around 75 percent, according to a recent report by telecom research firm Buddecomm. The country only has 67 million Internet users.

Since NATCOM will also an ownership share in the SAT-3 international submarine cable system, it is expected that the new buyers will offer enhanced broadband data service. This might attract customers, owing to the challenges facing other operators in the provision of data services.