TELECOMS

Since the liberalization of the telecoms sector in 2001, Nigeria has experienced the phenomenal transformation in the demand and supply of voice and non-voice transmission services. Prior to the entry of private telecoms operators, the Nigerian telecoms sector was dominated by NITEL, the federal government monopoly. However, the lack of competition in the sector, poor bill collection methods and low investment by the government in the telecoms company had had turned what should have been the continent’s largest and most profitable phone company into a huge loss-making, mismanaged company. In 2000, a year before the liberalization of the sector, the government monopoly had installed less than 450,000 fixed lines – with only about 60% of these lines functional- and about 27,000 analogue mobile phones.

Nigeria, which has since undergone what has been referred to as ‘the GSM revolution. The country is currently ranked as the fastest growing telecoms market in the world. By the end of 2006, the sector had attracted foreign direct investment inflows of US$9 billion and grown by close to 550%. With a rapidly growing population of 150 million, a burgeoning middle class and strong urban youth culture, demand for voice and non-voice phone services is expected to maintain its upward trend for several years. Teledensity, which is the number of users per hundred of the population, has risen from 0.34 in 1998 to 6 in 2006.  

TransCorp made a decision to enter the telecoms sector based on the following:

• The continued rapid growth of demand
• High return on equity, especially in the mobile telephony sector with average EBITDA exceeding 25%

Like every sectoral entry move, TransCorp was faced with two choices: to wait bid for a universal license and then build a network; or to acquire a controlling stake in an existing and high growth potential telecoms company. While both options had unique advantages, TransCorp chose the second option for the following reasons:

• The opportunity to leverage on an already existing brand and to build the TransCorp telecom brand on that foundation;
• The huge cost of building a network from the ground
• The difficulty of securing bank funding for a new telecoms company with no assets, which would require that TransCorp secure any funding with liens on assets in other business focus areas;
• Due to the high managerial and technical skills required to successfully operate a telecoms company, TransCorp made a choice to seek a local partner possessing these skills with whom a foreign technical partner would create synergies with.

The federal government’s invitation for expressions of interest (EOI) in 2005, and agreement to a negotiated sale on a willing buyer-willing seller basis in 2006 provided an opportunity for TransCorp to purchase a majority ownership in NITEL and complete ownership of its mobile subsidiary, M-TEL.

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