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Nigeria is a country well known for its fluid commercial and social activities, years of which have stifled economic progress despite a significant population and abundant mineral wealth. The former state telecoms monopoly Nitel epitomises this failure in the face of overwhelming potential, though the company’s CEO is asking for someone to take a billion dollar bet to transform the telco into a functioning converged communications provider

While Nigeria’s four leading mobile operators count more than 60 million mobile subscribers amongst them, Mtel counts fewer than 100,000

Comm. met with Nigerian Telecommunications Limited (Nitel) CEO and MD Kevin Caruso, and acting Mtel CEO and chief operating officer Mustapha Williams in Dubai between holding meetings with prospective investors in a bid to secure a strategic partner for the former state telecom monopoly. A process to privatise Nitel was supposedly completed in mid-2006, and saw the Nigerian conglomerate Transnational Corporation of Nigeria (Transcorp) acquire a 51 per cent controlling stake. However what followed was a period of under-investment and what Caruso alleges was a blatant attempt to strip assets from the telco ahead of a new strategic investor being found.

In May, Transcorp group managing director Thomas Iseghohi, deputy group managing director, Mike Okoli, and Transcorp secretary, Malam Mohammed Buba were arrested on charges of financial misappropriation. The executives were alleged to have facilitated multiple payments of legal and consultancy fees that appear to have been fraudulent, as well as general mismanagement of Nitel. Iseghohi is alleged to have severally exceeded his approval limit of N100 million (US$640,000), having used friends and associates to siphon money through bogus consultancy services.

Iseghohi also doubled as the chairman of the board of directors of Nitel, and it has been suggested that sometime in the last quarter of 2008, Transcorp put together a plan to sell off the valued backbone of the nation’s telecommunications industry, the South Atlantic 3/West Africa Submarine Cable, known as SAT-3. This was after Iseghohi and the board of Transcorp had made commitments in August 2007, through a contract with Cisco and Dimension Data to rehabilitate the SAT-3 network. After the failure of the contract to rehabilitate SAT-3, Transcorp decided to completely sell off SAT-3 to itself.

A special purpose company called the Nigerian Telecommunication Backbone Company Limited was created and it was this special purpose vehicle that was to be used to buy out Nitel’s telecommunications backbone by way of stripping the telco’s assets before the cessation of Transcorp’s majority holdings in the telco expired. Other senior executives within Nitel came to know of the ploy and were able to block the onward sale of SAT-3 to the special purpose vehicle.

“Nitel is suffering from a lack of funding and simply does not have enough working capital,” explains Caruso. “In terms of the type of investor we are looking for, it must be willing to take at least a 51 per cent stake in the telco, but we are somewhat open in terms of the upper limits of its shareholding,” he adds. Transcorp previously held a 51 per cent stake, while the Nigerian government held the remainder.

Caruso recalls how Iseghohi had tried to remove him from Nitel and how for a period there had been confusion as to who was actually running the telco as the two executives locked horns. Caruso ultimately prevailed and despite the battered state of Nitel, he believes there remains something significant worth salvaging.

“Of course the income statement of Nitel is absolutely terrible at the moment,” Caruso concedes. “We have fewer than 100,000 mobile subscribers to speak of and counted 400,000 fixed lines at the company’s peak, so the day-to-day shape of the business is not good. However, if one is to look at the balance sheet, one is able to see the assets the company owns and the potential for it to be turned around with the right kind of investment. If I had the money I would buy Nitel myself.”

Nitel employs around 3,000 staff full-time and a similar number as casual staff, with the mobile subsidiary Mtel operating with a staff compliment of between 400-500 staff. “Some people have not drawn a salary in up to 10 months,” reveals Williams, “and that is somewhat of a concern as it means they come to work everyday with the view to looking at other, mainly unauthorised, means of earning an income.”

Nitel’s fixed line operation has all but collapsed, with the number of lines having fallen drastically from a peak of around 400,000

Nitel has significant investment in land and buildings as well as the network it has so far rolled out, with the telco having been valued at around US$1 billion at the time of Transcorp’s involvement three years ago. “Nigeria is the only country that does not have a functioning national operator and this situation cannot be permitted to continue,” Caruso contends.

No real fixed line service is available in Africa’s most populous country and Caruso sees huge potential for Nitel in the delivery of Internet services, especially in light of the SAT-3 international cables the telco prevented from being sold to the Transcorp special purpose vehicle at the last minute. What little Internet service that is available in Nigeria is hugely expensive and one of Nitel’s operational priorities would be the delivery of Internet and fixed line services at a reasonable price.

Access to reliable power supplies has also plagued Nitel’s attempt to run a regular service, and this has had a knock-on effect with respect to Mtel gaining access to transmission capacity. “There are those parties that are benefiting from Nitel’s position,” says Caruso. “The company has been loosing money on interconnect since 2001, which was the time when the current GSM licences were awarded.”

Mobile market leaders MTN, Zain and Glo enjoy subscriber bases of several tens of millions, with the Mubadala/Etisalat-backed fourth mobile operator believed to have been adding subscribers at a slower pace than had been anticipated.

Despite all the murkiness that surrounds Nitel one point that Caruso is absolutely clear on is the belief that the telco ought to remain a single entity as opposed to having the mobile operation spun into a separate entity. “Separating Mtel from Nitel would be difficult, and I think the process would make both companies unsuccessful. They would fail,” Caruso asserts. He believes the pursuit of a converged fixed-mobile strategy would be the most appropriate for the telco, allowing the company to play to the few remaining strengths it possesses.

Nigeria’s bustling mobile telecoms market has resulted in congestion and poor quality of service across large parts of the country

With Nitel carrying around US$1 billion in debt and in need of a serous capital injection and operational liquidity, the party to take up the challenge, should one be forthcoming, will have to have the determination as well as the resources to stay for the long haul. It had been rumoured that South Africa’s former fixed line monopoly Telkom had expressed an interest in acquiring a telecoms asset in Nigeria, though local commentators suggest the presence of another big name South African operator in the country is unlikely given the rivalry between South Africa and Nigeria to be considered African economic powerhouses.

In the interim Nitel has been trying as best it can to place its own house in order and streamline operations. A pension buyout scheme has been implemented for staff, for example, and the telco is attempting to pay wages on a regular basis.

So while it has been more than six months since the decision was taken to identify a new strategic investor no party has yet signed on the dotted line. Nigeria’s Bureau of Public Enterprises continues to drive the process forward, though given the global economic downturn coupled with tight debt markets it comes as little surprise that bidders have not been more forthcoming.

The significance of gaining a competent strategic investor for Nitel cannot be overstated, not least with respect to improving the image of Nigeria’s foreign direct investment credentials. “We would like to sell the stake as quickly as possible and a number of aspects of the sale are negotiable,” comments Caruso. “We also possess a CDMA network that would have been used for WLL operations and we would be willing to sell that to help capitalise the core business.”