Turning Around The Fortunes Of NITEL | Independent Newspapers Limited
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Turning Around The Fortunes Of NITEL

Posted: May 17, 2015 at 2:10 am   /   by   /   comments (0)

By Emmanuel Edeki,  Lagos


Nigerian Telecommunications Limited (NITEL), is the principal telecommunications company in Nigeria, and was owned by the government of Nigeria. Over the years, Nigerians have been frustrated by NITEL‘s failure to provide wireless services comparable with those found in other countries. From 1958 to the arrival of Global System for Mobile Communication (GSM) in Nigeria; NITEL was able to provide 450,000 subscriber lines for a population of 120 million.

NITEL was incorporated to provide telecommunication services in Nigeria. It offers fixed telephony services including local, long distance, and international telephony; International Signal Dialing Number (ISDN), telex, telegraph, and payphone; voice and data services; corporate network services including domestic and international leased line services, Very Small Aptitude Terminal (VSAT), and Internet access; carrier services to meet the requirements of services delivered by other telecommunications operators; and Internet services including Internet Service Provider (ISP) services for  small and Medium Enterprises (SMEs) and consumers, and wholesale services for other ISPs. The company also provides: Voice Over Internet Protocol (VOIP) services; land line services; payphone services; fixed wireless services; prepaid calling cards and others.

NITEL, formerly a part of Post and Telecommunications (P&T), is a fully owned state enterprise established in 1958. It was separated from P&T and was incorporated as a limited liability company in December 1984. Before it was sold, the Federal Government had 93.3 percent share while First Bank had 6.7 percent.

The several failed attempts to sell NITEL

Attempts by the Nigerian government to sell NITEL and its subsidiary, Mobile Telecommunications Limited (MTEL) started in 2001.

The previous failed attempts to privatise NITEL include: the strategic core investor sale of 51 per cent shareholding of NITEL to Investors International London limited (IILL) in 2001;  the failed Management contract by Pentascope in 2005, a firm that was later found to be fake; the aborted Orascom Telecoms bid in 2005; the strategic core investor sale, through negotiated sale strategy to Transcorp, cancelled in 2009;  and the strategic core investor sale in 2011, where New Generation Communications Limited and Omen International Limited emerged as preferred and reserved bidders, respectively.

After a review of all these aborted privatization efforts, the National Council on Privatisation (NCP), at its meeting of February 27, 2012, approved the privatisation of Nigerian Telecommunications Plc (NITEL) and MTEL through “guided liquidation.”

This strategy was adopted by the council after due consideration of other failed attempts to privatise NITEL and MTEL through Strategic Core Investor Sale and Negotiated Sale strategies and the huge liabilities of creditors of over N300 billion.

Under the guided liquidation strategy, it was decided that all the core assets and business undertaking of NITEL and MTEL would be sold as single or multiple lots to a qualified bidder by the liquidator under the general guidance of the NCP.

Bureau of Public Enterprises (BPE) received expressions of Interest from 17 organisations/consortia at the closing date of receipt of Expression of Interest (EoIs) on June 30, 2014.

On September 18, the two successful applicants, NATCOM Consortium and NETTAG Consortium, that met the minimum standard of 75 per cent were pre-qualified and issued the Request for Proposals (RfP) and allowed to proceed to the physical due diligence stage.

Consequently, on December 3, 2014, NATCOM emerged the preferred bidder with $252 million. In other words, NITEL was bought for the sum of $252 million.  NITEL, as a national carrier has over $1 trillion assets but most of them are dilapidated, decomposed and disused. NITEL would have been the most sought-after telecommunications company in Nigeria because of its wide network and solid infrastructure base because it was deeply entrenched in corrupt practices.

Some of its assets include, NITEL fixed lines, transmission backbone, Mtel, SAT 3 and the Cold Division Mobile Access (CDMA) network. The SAT-3 is the backbone of telecommunications infrastructure that traverses West African region and beyond.

As at 2001, only SAT-3 was valued at more than $300 billion. Also as one of the GSM operators, MTEL licence was acquired in 2000 with $284 million.

The first investor that signified interest to buy NITEL in 2001 was Investors International London (IIL) who bought the ailing enterprise for $1.3 billion but did not make good its promise to pay the bid price. Another one was Orascom.

After Orascom failed to pay, the government engaged a management contractor, Pentascope, to turn around the fortunes of the firm. This move was objected to by the staff that surrounded the Transcorp Hilton, venue of the signing of the agreement in 2002. They argued that they had investigated the firm and discovered that the firm occupied a one-room office in Germany and was highly incompetent to run NITEL profitably. But the then Director General of Bureau of Public Enterprise (BPE), Mallam Nasir el-Rufai was bent on signing on Pentascope. Not long after the signing, Pentascope’s inability to manage the firm was exposed. The contract was terminated.

Then, the last attempt was Transnational Corporation of Nigeria Plc (Transcorp) On June 1, 2009; the NCP approved the revocation of the sale of NITEL/MTEL.

“The revocation was due to Transcorp’s inability to transform the company, resulting from its non-injection of the much-needed fund into NITEL and MTEL, its total refusal to adhere to the terms of the Share Sales Purchase Agreement (SSPA) and failure to meet its obligation to its staff in terms of payment of salaries.

However, because of the past failures and disappointments, BPE devised a new strategy to sell the ailing company.

NCP approved that NITEL/MTEL be sold as a whole or unbundled as market forces will dictate. Preference was given to bidders who desired to acquire NITEL/MTEL as a single entity. The unbundled units include, NITEL fixed lines, transmission backbone, MTEL, SAT 3 and the Cold Division Mobile Access (CDMA) network. That attempt also failed. So, in February 27, 2012, NCP approved the privatisation of NITEL and MTEL through “guided liquidation.”

Assets and liabilities of NITEL

The BPE said the planned guided liquidation of NITEL, was initially threatened by over $3 billion (about N480 billion) liabilities.

Out of a total N609, 398,074,485.63 the federal government has spent on privatised enterprises, NITEL alone gulped N126, 716,111,589.00 labour liabilities.

The Director General of BPE, Benjamin Dikki, said the liquidation of NITEL was quite challenging, considering the task of determining its real asset in the face of already identified huge liabilities. He explained that it was difficult determining the total value of the asset of NITEL, and if it would be able to net-off the liabilities. “We know the greatest assets NITEL has are its frequency and Right-of-Way. The value will come in to match the liabilities when the processes are concluded,” he said.

Dikki, noted that the NCP was faced with numerous challenges, including outstanding unpaid terminal benefits of ex-staff of NITEL/Mtel, arrears of salaries of retained staff and outsourced security as well as accumulated unpaid license and other fees to the National Communications Commission (NCC).

When MTEL was still operational, it was owning other networks interconnection bills to the tune of over N5billion, local contractors were over N2billion, Banks over N8 billion among others.

Issues surrounding the sale of NITEL

Even at its present state, NITEL and MTEL are still attractive to investors as 17 bidders expressed interest to acquire core assets in the guided liquidation exercise of the national telecom carrier.

NITEL assets sold are: licences and the spectrum, the nationwide fixed wired networks, the national right of way duct system, the fibre optic transmission backbone, and the CDMA network system. Others are: international gateway earth stations, microwave transmission equipment/network and towers and other core assets.

For MTEL, the assets sold are: the licenses and the spectrum, national right of way, the MTEL GSM network including mobile switching centres, base station controllers, Base Transceiver Stations (BTS) and the general packet radio services. Others are the analog (TACs) system and other core assets. Others are: the SAT-3 international submarine cable in which NITEL has 6.32 percent shareholding in the consortium.

The bidders emerged after the June 30 2014 deadline for expression of interest in an exercise handled by Olutola Senbore & Co, the liquidator appointed by the Federal Government to dispose of the companies.

Benjamin Dikki said: “When the time for the submission of Expression of Interests (EoIs) closed, we got 17 EoIs. Five were late and were not accommodated in strict compliance to our rules.

Also, he noted that AFCON and Jebba paper mill were sold under the guided liquidation option and the companies are today the reference point for efficiency and good management. “Through guided liquidation, the company should run in the same line of business as it has been set up to do,” said Dikki.

NATCOM consortium emerged the preferred bidder for the acquisition of the assets of the companies after its revised bid price of $252 million from the initial $221 million was accepted by the BPE.

At the public opening of the financial bid for the acquisition of the of the assets of NITEL and MTEL under the guided liquidation exercise, Benjamin Dikki said that the reform and liberalisation of the Nigerian telecommunications sector has made tremendous strides with the successful privatisation of the NITEL and MTEL.  He expressed hope that the highest bidder would deploy the required resources to rehabilitate and grow the companies.

NATCOM completes payment for NITEL/MTEL

The preferred bidder for NITEL and its mobile arm MTEL, NATCOM Consortium, recently, paid the 70 per cent outstanding balance of the $252,521,000 bid price for the acquisition of the assets and business units of the telecoms enterprises.

By this act, the consortium has paid the remaining $176,575,700 (N29, 696,469,600) after an initial payment of $75,756,300 (N12, 727,058,400) being 30 percent of the bid price on January 6, 2015.

The instalment was in line with the offer letter by the BPE, which mandated NATCOM to make an initial deposit of 30 per cent of the bid price not later than 14 days from the date of the offer letter.

NATCOM’s completion of payment for the bid price was conveyed in a statement signed by BPE’s spokesman, Mr. Chigbo Anichebe. The statement confirmed that the remaining 70 per cent payment had been effected on April 2, 2015, four days ahead of the April 7, 2015 deadline for payment.

On his part, Benjamin Dikki said:”We should be receiving accolades for being able to market Nitel and get people to be interested to pay that kind of money for a dead company that is not operational. If you ask me, I think Nigerians have gotten the best deal they can from this transaction.

“There’s no single infrastructure of NITEL today that is functional. And then we succeeded in selling this company for $252 million in 2015

while in 2001, a fully operational NITEL, with its mobile arm, MTEL, with everything functional was sold for $1.1 billion. I want you to compare carefully; In 2005, when NITEL had undergone some level of dilapidation because since ILL could not pay, government was not making additional investment in NITEL it deteriorated and in 2005, in a competitive bidding process, Orascom that is an international telecom operator bought NITEL for $256 million.”

He spoke against the backdrop of criticisms that the assets may have been grossly undervalued.

New owners of NITEL

NATCOM is a special project vehicle (SPV) formed for the purpose of acquisition of NITEL and MTel. It is a consortium made up of shareholders – NATSPACE Telecommunication Investment Limited, PCCW Global Limited and Prime Union Investment Limited. Other members of the consortium are: Olutoyl Estate Development & Services Limited, Sahara Energy Resources Limited, Legal Resources Alliance & Co and LM Ericsson Nigeria Limited.

With the exception of LM Ericsson Nigeria Limited, all the other members of the consortium are equity holders with Prime Union and Olutoyl Estate, holding 30 per cent equity each. LM Ericsson is a technical partner to the group. One of the big names behind NATCOM, is Mr. Tunde Ayeni, the Chairman of Skye Bank Plc, with strong interests in the oil and gas, power, banking and telecommunications sectors.

Mr. Ayeni led NATCOM in its acquisition of NITEL/MTEL less than two months after he similarly led Skye Bank to buy Mainstreet Bank from the Assets Management Company of Nigeria, for N120 billion.

Mr. Cole is the owner of Sahara Energy, while LM Ericsson is a subsidiary of Swedish group, Ericsson.

NATCOM, which merges the seven firms, appears to be a new corporate entity created solely for the purchase of NITEL/MTEL. Aside from these information, not much is known about the group.

NATCOM emerged winner after NETTAG Consortium, another little known group, was disqualified for failing to attach a $10million bid bond to its bid submission as stipulated in the Request for Proposals (RfP) to prospective bidders. At the commencement of the exercise, NATCOM made an initial offer of $221million for NITEL and MTEL.

But the NCP technical committee chairman, Atedo Peterside, who was represented by his deputy, Haruna Sambo, rejected the offer. The company reviewed its offer to $252.251million, which was accepted.

According to Mr. Sambo, following the disqualification of NETTAG Consortium, only NATCOM Consortium’s financial bid was considered qualified.

Turn around plans of NITEL’s new owners

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

Mr. Ayeni said that NATCOM was aware of the huge liabilities of NITEL, when bidding, and that the BPE is ready to assist NATCOM to offset some of the liabilities, hence government chose to sell NITEL/MTel through the process of guided liquidation, which clearly spelt out how government would take responsibility of the liabilities from the proceeds of the sale.

“Apart from some of the retained staff of NITEL that are servicing its facilities, we are aware that it also has about 2,000 security men and women that are guiding NITEL facilities all over the country, and these are also liabilities that the BPE is also addressing,” Ayeni said.

Also, he said that NATCOM would do its best to turn around NITEL, being a responsible group of core investors. NATCOM would be offering a full range of quality services in the areas of voice and data communications, he insisted.

However, he said Nigerians should not expect immediate change in the operations of the new NITEL/MTEL, since it needs some time to restructure the company, which he said has gone out of active operations for the past 11 years. He promised that within a space of two years, NATCOM would be repositioned for market competition.

Stakeholders’ expectations

Although industry stakeholders have commended the courage of NATCOM in buying NITEL, they have, however, warned the new owners of the challenges ahead, especially in the area of market competition.

They say they expect aggressive rollout of data services by NATCOM as opposed to voice services, which is already a saturated market. The said NITEL was viable when the Nigerian government operated it as a monopoly, providing both mobile and fixed services.

Consequently, there is general pessimism among stakeholders if 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.

Also, some of them believe that since NATCOM has also bought SAT-3 international submarine cable system, as part of NITEL it is expected that the new buyers will offer enhanced broadband data services. This would attract customers, owing to the challenges being faced by other operators in the provision of data services.

Industry stakeholders advised the new owners of NITEL to come out with aggressive marketing strategies that must be unique and customer friendly, if it must survive competition.

They also advised the new owners to build new infrastructure, rather than depend on obsolete infrastructure of NITEL scattered across the federation.

They also want NATCOM to come up with cutting edge technology and that will stand the test of time, and go all out for funds that will make it compete with the big players dominating the market.

The President of the Association of Telecoms Companies of Nigeria (ATCON), Mr. Lanre Ajayi, who sees huge opportunities in the telecoms sector, said the existing operators were yet to saturate the market, especially the data communications market, where broadband penetration is still at six per cent.

“Broadband is driving data communications and the world is currently shifting from voice telephony to data communications, and the Nigerian market is still scratching the surface in data penetration, which I think is an added advantage for NATCOM to explore the market and create its own market share.” Ajayi said.

He also explained that Nigerians are never tired of carrying several phones, provided they offer quality services. According to him, if NATCOM decides to come up with better service quality and better tariff pricing than the existing telecom operators, Nigerian subscribers will be ready to port from any network to the NATCOM’s network, without the slightest hesitation.